Managing your firm through the global financial crisis

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Managing your firm through the global financial
crisis

• Stephen Michell, Partner HLB Mann Judd

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Overview of Workshop

• Introduction/Purpose of Workshop
• Industry Overview and Trends
• Block 1 Risk Management
• Block 2 Cash Flow Management
• Block 3 Business Opportunities

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Introduction

• Purpose of workshop
• Help assess how your business is travelling
  during the financial crisis
• Implications of being inactive/reactive in
  managing your business
• How to proactively manage your business during
  these difficult times

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Signs of the Downturn

• As at 31 March 2009 the ATO had 194,734 debt
  cases and payment arrangement worth 2.54
  billion.1
• This is a 12.5 per cent increase in the number of
  cases and a 8.8 per cent rise in value compared
  to a year earlier.1
• March 2009 saw 1,095 companies enter into some
  form of insolvency administration. This is the
  worst March result since ASIC commenced recording
  statistics in 1999.2
• The number of companies entering some form of
  insolvency administration for the year ended 31
  March 2009 was 9,775 (7,540 in 2008).2
• There were 7,164 new bankruptcies in the March
  2009 quarter against the March 2008 quarter
  (6,303) a 13.66 increase. Bankruptcies also
  increased 7.75 per cent on the December 2008
  quarter.3
• 1 AFR 22/5/2009
• 2 ASIC
• 3 ITSA

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Reality Check

• Well known companies have already been affected
  by the current economic turmoil
• These include

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Industry Trends

• From May 2009 survey of members

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Industry Trends
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Industry Trends
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Industry Trends

• Last recession (early 90s) a large number of
  printing businesses ceased trading or went into
  liquidation
• The survey trends illustrates the importance of
  being proactive in such times

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Implications of Failure

• Potential for civil or criminal sanctions for
  insolvent trading
• Could be made liable for debts to the ATO through
  a director penalty notice
• Bankruptcy call up of guarantees / loss of
  family home
• Domestic discord
• Potential for being banned as a director

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• What do successful businesses do that those which
  fail dont?
• Risk management
• Cash flow management
• Making the most of opportunities

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Risk management

• Block 1

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Risk Management and Printing Industries Members

• The recent Printing Industries survey indicated
  the following
• Around 60 of Printing Industries members have
  never undertaken risk analysis
• More than 5 do not know what risk management is
• Under 1 in 3 members think they understand all
  the business risks they are facing
• Almost a quarter of those performing risk
  analysis do not understand all the risks their
  business face

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Risk framework
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Risk framework

• Leadership of the business
• Skill level of management
• Human resource management
• Succession

• Stock
• Profitability
• Finance arrangements
• Debtors
• Creditors
• General

• Threat of new entrants
• Bargaining power of suppliers
• Bargaining power of customers
• Industry risk

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Case study and group discussion

• CASE STUDY
• What risks can you identify?
• What is the implication of each risk?
• What can be done to reduce or overcome the risk?

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Monitor and Risk Review

• Establish systems to monitor risks
• Monitor risks and strategies deployed to manage
• Remember risks threaten the ability of your
  business to achieve set objectives
• Remember risks can threaten the ability to
  survive this global economic crisis

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Summary Top 10 Risks to Look out for

• earning expectations are not met
• cash flow is tight and operating losses persist
  (there never seems to be enough cash!)
• credit lines are fully extended. The company is
  not in compliance with debt covenants
• vendor and customer relationships are
  deteriorating

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Summary Top 10 Risks (cont.)

• market share is declining
• the business is reliant on one or two customers
• BAS statements are lodged but payments are behind
• creditor calls demanding payments have increased,
  or creditor has stopped supply

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Summary Top 10 Risks (cont.)

• You can not obtain meaningful financial
  information from your accounting system
• Staff turnover is high (especially with key
  staff)

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Morning tea

• Please take 25 minutes for

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Bank Presentation Introduction

• The recent Printing Industries survey indicated
  the following
• 2 in 5 Printing Industries members describe their
  relationships with their bank as average
• Almost 10 of members have either a poor
  relationship or have never really thought about
  it
• 10 of members never see their bank
• 1 in 3 see their bank only on an ad-hoc basis
• 1 in 3 members do not know their banking terms or
  covenant arrangements

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Cash flow management

• Block 2

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Cash Flow Management and Printing Industries
Members

• The recent Printing Industries survey indicated
  the following
• Almost two-thirds of members have had their cash
  flows impacted by the economic crisis
• Almost 4 in 10 members do not prepare cash flow
  forecasts
• Half of those that do forecast never compare this
  to actual cash flow
• More than a quarter of members indicated that
  their customers either hardly or only sometimes
  meet their terms of trade
• More than 10 either never or only sometimes meet
  their suppliers terms of trade

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Cash flow management

• Cash flow is not profit
• Cash management is critically important

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Signs your cash flow may be a problem

• Your bank overdraft facility is sitting at its
  maximum all the time
• You are not paying your companys statutory
  obligations on time (e.g. tax liabilities,
  superannuation contributions etc.)
• You are stretching your payments to your trade
  creditors
• Stock levels are building up (stock turn is
  declining)
• Debtors are taking longer to pay you (average
  debtor days is increasing)

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Cash flow management tips
DEBTORS
DOs

• Review terms of trade with your customers
  ensure they are up to date and signed
• Monitor your debtors closely and regularly
• Choose your customers wisely
• Have a plan for recovering money owed to you
• Consider offering discounts for early payment
• Consider obtaining personal guarantees from your
  customers directors which can be used in the
  event of non-payment
• Include an all-monies retention of title
  clause. Consider having your terms of trade
  printed on the reverse side of your invoices with
  reference on the front of the invoice

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Cash flow management tips
DEBTORS
DONTs

• Ignore the function of debt collection
• Give further credit to those customers who have
  exceeded their trading terms
• Give credit before undertaking a credit check of
  the customer
• Agree to additional time for payment without
  documented agreed arrangements
•  

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Cash flow management tips
CREDITORS
DOs

• Seek suppliers willingness to supply stock on
  consignment
• Negotiate with suppliers to extend credit terms
  when appropriate
• Maintain healthy relationships with suppliers and
  ongoing discussions. If a creditor is made aware
  of your difficulty to stick to the paying terms,
  they may be more willing to extend your credit.
• Develop a contingency plan on how to obtain
  supply of goods or services should a supplier fail

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Cash flow management tips
CREDITORS
DONTs

• Pay your debts late without contacting the
  relevant supplier(s)
• Be unplanned when it comes to your suppliers
•  

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Cash flow management tips
INVENTORY
DOs

• Make sure your business has a good purchase order
  system
• Ensure you have an accurate listing of your
  supplies and prices
• Ensure a competent person is responsible for
  ordering
• Have a documented set of procedures for ordering

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Cash flow management tips
INVENTORY
DONTs

• Order stock in an ad hoc manner
• Underestimate the level of cash tied up in
  inventory on hand
•  

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Cash Flow Management Conclusions

• Develop a process to monitor and collect debts
• Ensure you have signed terms of trade with
  customers
• Send out statements on a monthly basis
• Contact all debtors outside normal trading terms
• Stop credit for delinquent payers
• Obtain firm commitments from debtors
• Do not over order stock
• Negotiate with creditors stay in contact

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BUSINESS OPPORTUNITIES

• Block 3

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Business Planning and Printing Industries Members

• The recent Printing Industries survey indicated
  the following
• 3 in 10 of those respondents contemplating
  retirement in the short term have deferred their
  plans due to the economic downturn.
• More than one fifth of these people have deferred
  their retirement plans by more than 5 years.
• More than 70 of members do not have a business
  plan
• Those that do more than 10 never review it

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Case study

• What are the opportunities presented in the case
  study?

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Thriving - making the most of business
opportunities

• Understand your business and where you make your
  profit and losses
• Conduct opportunity cost analysis and prepare a
  business case before making any commitments
• Ensure management has a strategic focus and plan
• Evaluate outsourcing options
• Look at procurement opportunities and inventory
  decisions

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Tips - making the most of business opportunities

• Consider developing strategic alliances focus
  on your competitive advantage
• Consider acquisition of complimentary businesses
• Consider tax planning optimise your tax
  position
• Explore all Government incentive programs
• Dont be afraid to seek professional help

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Conclusion

• See HLB Mann Judd