Howe's Bayou Brad Howe's monthly guide to navigating the swamps of small business financial management May 2009 Good morning! You don't need a degree in accounting to know when your company is squeezed for cash. If your total current assets (e.g., cash, receivables, inventory) are less than your total current liabilities (e.g., accounts payable, accrued expenses, loans and leases payable with a year) more often than not you have a problem. When the economy turns around, you hope to come out the other side. In the meantime, you may need a new set of tactics. Best regards, Bradlee T. Howe Financial Managers Trust Survival (S)Kits The Accounts Payable ladies in the top floor office of the Harvard Cooperative Society knew me primarily by circumstance, secondarily by name. "Here comes that guy from the newspaper," they'd say. "Hide your wallets."I'd walk in, smiles all around, compliment them on their hair, or their dress, or the flower in the bud vase. Then I'd go into my spiel about how good their last ad had looked. I might then talk about the Coop's "great community service" supporting my fledgling venture. And I'd distribute the latest issue of the paper to each of them. Edith, Barbara, and Joan — I knew all three. Whatever kind of song and dance it took to get them to part with that weekly check for the Coop's advertising, I'd do it. They may not have been the decision-makers, but I knew they'd put in a good word for me with the Controller whenever I needed an early payment, which was often. The newspaper venture that a partner and I had started on a shoestring in late 1981, The Cambridge Express, was becoming untied. We had a good product — readership was growing and the advertisers liked us — but the recession hit six months after our launch. Many of the local retailers that we had counted on for $50- 100/week in ad revenue couldn't afford even $5–10. But the Coop kept us going, taking the back page of our 24-page tabloid every week. As our lead advertiser, they got an excellent price, of course. But more importantly, they could PAY. Our terms were Net-30, and we started out invoicing them and everyone else once a month. We soon realized that this meant waiting as long as eight weeks to collect for ads in the first issue of the month (billed at the end of the month and paid 30 days later), so we moved to bi- weekly invoicing and — ultimately — weekly billing for the major accounts. Yet that still meant waiting for at least 30 days, and none of my advertisers were volunteering to pay early. We needed the dough (we also kneaded the dough, in effect, at the local pizza shop — he paid us in kind), which meant constantly working the phones on collection calls, starting with a reminder on Day 25 that the due date was imminent. Firm, Fair, Friendly, Five days a week — the 4 F's of credit and collection — I was all over it. There's nothing that focuses your to-do list quite like collecting receivables in order to cover your negative bank balance, after you've handed out the paychecks! On the flip side of the coin were the creditors, and primary among them was Sam, our printer. He extended four weeks of credit, defining the term "vendor-financing" right from the start. Beyond that, however, he was tough — no check, no press run. Those terms were immutable, I figured. But my partner, who owned another community newspaper, was a salesman. He was relentless with Sam. After six months, we were up to eight weeks of credit, and Sam had thoroughly bought into our vision of an empire of free-circulation weekly newspapers, all of which he would print. Unfortunately, that never happened. But in my three years as a newspaper publisher I learned a lot about survival, developed from experiences that I have successfully applied to all kinds of challenged client companies since then. Here are the top ten:
…which probably had something to do with the favorable review I got initially from their boss, the General Manager, a business friend of mine… …which leads to point #10: No matter how bad things get — even if it's an act — you have to give it a positive face. Take a page from the Barack Obama playbook. Control expectations, because good things aren't going to happen overnight. But project confidence, and be mindful of the fact that at least your losses aren't calculated in thirteen digits. Alligator Bites "Unlike some other attachments, freezing your debtor's bank account so that they can not use or withdraw 'their' money usually has a sudden impact on the debtor. Even when the attachment does not catch any funds, it can bring the debtor to the table for meaningful settlement discussions."I recommend making a copy of every check that you receive from your customers for three reasons:
"Armed with knowledge of the debtor's last known bank, I can bring a motion for bank attachment. There are two ways to obtain a bank attachment — with notice and ex parte (without notice). "It is important to remember that just because you have attached the money in a debtor's account does not automatically entitle you to that money. Rather, it is merely a form of gaining security — monies are held aside by the Bank to pay you after you have won the battle. Simply stated, the role of prejudgment security is to help ensure that after you have won the battle, you win the war and now control your own money." — From the website of Attorney Alan M. Cohen which can be found at www.collections-law.com. Draining the Swamp The latest update on the Law of Large Numbers:About Us Financial Managers helps the managers of smaller companies and non-profit organizations develop reliable financial information for operational decisions.On an affordable retainer basis, FM serves as the part-time controller and senior financial manager for multiple clients, leading them to profitability and positive cash flow. The goal is for the organization to outgrow Financial Managers' services, at which time FM will take the lead in identifying and hiring the right full-time financial person for the firm, and effect a smooth transition to his or her management. Financial Managers Trust 781-799-5737 | FAX 781-788-9794 PO Box 2 Lexington MA 02420 PO Box 1527 Fort Myers FL 33902 www.finman.com Newsletter developed by Blue Penguin Development |