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FOR IMMEDIATE RELEASE
Client Credit Crisis Newsletter
January 9, 2009 -- The recent credit crisis is
just a reminder of the importance and benefits of having a sound
strategy that you can use to navigate through turbulent times.
Don’t hesitate to contact your CPA for objective guidance in
helping you make intelligent financial decisions for the future of
your business. In the meantime, below are some tips to help
you assess your current financial condition and start rethinking
your business plan to face the current economic challenges.
- Don’t panic. It’s difficult to
make sound decisions if you do. To get a better sense of
where you stand, begin by reviewing your cash position and
anticipated cash needs. Are they in line with your
business’s short-term needs, goals and risk tolerance?
- Take a fresh look at your monthly income
and expenses. Have you been meeting your
budgeted projections? How much of a drop in revenues
can your business withstand and for how long? What are
your cash-flow needs for the next 90 to 120 days? Or 120 to
180 days? Do you have sufficient cash reserves for the
next 30 to 60 days?
- Check with your lenders on the status of
your credit lines. Are you in compliance with
their terms? Will your bank renew their commitments at
similar amounts, rates and terms?
- Eliminate your reliance on credit by
disciplining your spending.
- Refocus on your balance sheet and how much
credit you are extending to your customers.
- Are your credit lines frozen or at their maximum
limits? Consider meeting with vendors and working
out a schedule of partial payments that would allow
continued delivery of critical materials and supplies.
- Look into alternative types of financing.
Some to be considered are loans on life insurance policies,
loans from key customers that rely on your business for
their materials and supplies or from labor unions, local
development agencies or the U.S. Small Business
Administration.
- Keep an eye on your accounts receivable.
Watch for new patterns of slow payments and follow up
immediately. Review your largest and riskiest accounts to
determine whether credit constraint or economic slowdown
will affect their ability to pay you. Keep receivables
aging current at all times.
- Manage accounts payable more closely.
Forfeiting early pay discounts may be more advantageous in
preserving cash that may be needed for critical items.
Keep payables aging current at all times because that’s an
important tool for managing cash.
- Analyze your expenses and determine which ones
can be controlled. Can you reduce spending in
any areas to put less of a burden on your cash-flow needs?
As necessary, communicate to staff/team members about the
need to tighten spending. If you are a manufacturer,
review inventory management practices. Are there
opportunities to reduce your on-hand inventory?
Service companies should make sure they’re capturing all
their billable hours and invoicing promptly. Have you
billed all your contractual items? How about all your
pass-through expenses, such as billable third-party
services and travel and living expenses?
- Consider ways to pass your increased costs
(i.e. fuel expense) on to your customers.
- Check the safety of any cash deposits you have.
On October 3, 2008 the FDIC deposit insurance was
temporarily raised from $100,000 to $250,000 per depositor
through December 31, 2009. If you have more than
$250,000 in any one bank, move the excess to another FDIC
insured bank. Consider investments such as CDARs
(Certificates of Deposit Account Registry) to spread the
risk of short-to medium-term cash you my have invested in
CDs.
- Don’t engage in panic selling of your
investments. Make sure your portfolio is
diversified and in accordance with your risk tolerance.
- Come up with a plan NOW to respond to future
declines in revenues, before they actually occur.
Re-think your business strategies and update projections.
Review your product/service lines to identify the most
profitable items and determine how to leverage for future
growth in profits.
- Contact your good customers.
Even casual discussions can lead to new business
opportunities.
- Review all your insurance coverage, particularly
any from companies with weak balance sheets.
Be careful not to surrender a policy, as securing new
coverage might require underwriting that can affect your
coverage.
- Calm your employee’s fears about how this
crisis will affect the company, their jobs and their
retirement or other benefit plans. Speculation and
gossip are counterproductive, so it’s better to address
their concerns directly.
For help in understanding some of the issues facing small
business, you can turn to the CPA profession’s free Financial
Literacy Web site for consumers,
http://www.360financialliteracy.org. It offers tools and tips to
help you make important decisions for your business and your own
personal financial planning needs.
Finally, remain focused on your own advantages. Remember
that:
- Small businesses have greater flexibility and can
more easily adjust to changes in the economy than their
larger counterparts.
- Small business owners can use the recent crisis as
an opportunity to buckle down, refocus, assess and make
their company more financially sound, disciplined and less
reliant on credit.
During tough times, it’s important to maintain communication
with your CPA firm, your trusted adviser. Remember that
you are not alone. We know and understand your business
and the challenges you face, and we can work with you to
navigate these turbulent times. We can help you gauge your
current situation in the wake of recent market events and create
a sound business plan in response.
For More Information Contact:
Lohman Company, PLLC
Stapley Center
1630 South Stapley Drive, Suite 108
Mesa, AZ 85204
Phone: (480) 355-1100
Fax: (480) 355-1130
Internet:
info@lohmancompany.com
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