BUSINESS Leadership in Crisis Mode can usually be grouped into fixed and variable categories. The fixed kind — as the name would suggest — tend to not change with fluctuations in sales volume, whereas the variable kind tend to react to changes in sales volume. You must drastically reduce your break-even point! You might recall from a previous article that aſter your cost of sales (costs associated directly with your sales and/or repairs or installations) is subtracted from your income, what remains is your gross profit. You should strive for a 40% gross margin or higher. So, you need to generate sufficient gross profit to cover all of those indirect expenses, including overhead such as rent, insurance, operating expenses, etc. If you can eliminate a cost entirely, that’s even better. OK. Let’s get back on track. Lines of Credit Obviously, if you have an unused balance on your credit line(s), this could be enormously helpful. Likewise, if you have access to a line of credit that could be secured by some combination of receivables and/or inventory or real property, this should be explored. If you own a building, you could perhaps take a mort- gage or refinance an existing mortgage. You might possibly be able to sublet some extra space in your building if permitted under the terms of your lease. Do you really need a building at all, or could you reformat to a mobile business model? Don’t forget your revolving credit, i.e. credit cards. Factoring Your Receivables If securing a line of credit from a bank is not a viable option for your business, then factoring might be for you. If you have one or more large collectable receivables (such as government or a large stable company) you could consider factoring those receivables. If you’re unfamiliar with the term, factoring has been around since forever and essentially involves getting cash now for your future receivable. Yes, of course, you will take a haircut (discount plus fees), which is what the factor charges for their service. Sorry, I hate to be the one to break the news, but Santa is under a stay-at-home quarantine and has applied for a government bailout. Factoring paperwork can be annoy- ing, but this could save your butt. Working With Suppliers and Other Business Partners Although ostensibly appealing, think before you jump into new relationships. You should skillfully exhaust all reasonable pos- sibilities to reduce your costs (and possibly enhance credit and relax payment terms) with your existing suppliers and partners, especially those you have a solid working relationship with. 20 KEYNOTES JUNE 2020 “Sorry, I hate to be the one to break the news, but Santa is under a stay-at-home quarantine and has applied for a government bailout.” However, you may find this to be an either/or proposition. In other words, suppliers may not be receptive to both price reduc- tion and also more favorable credit limits or payment terms. Payment Plans and Promises In business, there are fundamentally two credit issues: whether I will get paid and when will I get paid. I’ve learned over the years that a surprising number of suppliers will try to work with you in times of trouble when you can’t pay your bills on time. A common solution is to establish payment plans wherein you can spread out your debt obligations by making payments. Suppliers want to avoid digging the hole any deeper! My best advice here is: 1) Communicate with your suppliers and be realistic about your commitments in terms of making payments. 2) Keep your promises and make your plan pay- ments on time. However, if it becomes clear that you won’t be able to make a payment on time, call the supplier (don’t email or fax), tell them in advance that you will be late and provide a realistic, rock-solid new date for making the payment. At least make a partial payment to show good faith. At the end of the day, it’s all about credibility. Without suppliers, you’re done! I can’t over-emphasize the importance of maintaining cred- ibility by keeping your payment plan promises. A great way to exude confidence is to under promise and over deliver. This can be the key to continuing to have access to essential materials on a credit basis. Many strong relationships have developed from adversity, and many suppliers can relate to your pain. Bankruptcy as a Strategy Sometimes, owners are willing but simply unable to deal with a severe storm without external assistance. Unfortunately, far too oſten, by the time owners agree to seek qualified help, the cancer has metastasized, and all that’s leſt to do is make the final arrangements. Under certain circumstances, filing a pe- WWW.ALOA.ORG
