Managing your firm through the global financial crisis

Managing your firm through the global

financial crisisStephen Michell, Partner

HLB Mann Judd

Overview of Workshop

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

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

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 – 22/5/20092 ASIC3 ITSA

Reality Check

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

These include:- Nylex - ABC Learning Centres

- Strathfield Car Radio - Storm Financial- Handy Hire Trailers - Hans Smallgoods- Midas - Timbercorp- Great Southern Ltd

Industry Trends

From May 2009 survey of members:

Industry Trends

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

Implications of Failure

1. Potential for civil or criminal sanctions for insolvent trading

2. Could be made liable for debts to the ATO through a director penalty notice

3. Bankruptcy – call up of guarantees / loss of family home

4. Domestic discord5. Potential for being banned as a director

What do successful businesses do that those which fail don’t?– Risk management – Cash flow management – Making the most of opportunities

RISK MANAGEMENTBlock 1

Risk Management and Printing Industries Members

The recent Printing Industries survey indicated the following: Around 60% of Printing Industries members have never undertaken risk analysisMore than 5% do not know what risk management isUnder 1 in 3 members think they understand all the business risks they are facingAlmost a quarter of those performing risk analysis do not understand all the risks their business face

Risk framework

Risk framework

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

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

Stock Profitability Finance arrangements Debtors Creditors General

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?

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

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

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

Summary – Top 10 Risks (cont.)

You can not obtain meaningful financial information from your accounting system

Staff turnover is high (especially with key staff)

Please take 25 minutes for

MORNING TEA

Bank Presentation Introduction

The recent Printing Industries survey indicated the following:2 in 5 Printing Industries members describe their relationships with their bank as averageAlmost 10% of members have either a poor relationship or have never really thought about it10% of members never see their bank1 in 3 see their bank only on an ad-hoc basis1 in 3 members do not know their banking terms or covenant arrangements

CASH FLOW MANAGEMENT

Block 2

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

Cash flow management

Cash flow is not profitCash management is critically

important

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 company’s 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)

Cash flow management tips

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

customer’s 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

DOs


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

DON’Ts


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

DOs


Pay your debts late without contacting the relevant supplier(s)

Be unplanned when it comes to your suppliers

DON’Ts


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

DOs


Order stock in an ad hoc manner Underestimate the level of cash tied up in

inventory on hand

DON’Ts

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

BUSINESS OPPORTUNITIES

Block 3

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 planThose that do more than 10% never review it

Case study

What are the opportunities presented in the case study?

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

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

Don’t be afraid to seek professional help

Conclusion

See HLB Mann Judd

Managing your firm through the global financial crisis

Documents

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