Thursday, October 25, 2012

Restructuring a Problem Company

Your company is in trouble. Your orders are down, your customers don't pay, your employees are scared, and the ATM consistently spits back your card at you with disdain. Certainly you'll have to make some changes if you intend to survive. But what can you do?

Plenty, believe it or not. It may not seem like it now, but it's possible to dig yourself out of that hole and even come back stronger--provided you're willing to commit yourself to making some adjustments in the way you do business. We must warn you, this process is probably not going to be terribly pleasant. But walk yourself through the following 12 steps, in no particular order, and it'll all be worth it.

1. Find out how long you have to live.

You know it's all about the green. It doesn't matter a lick that you are close to profitability or have thousands of satisfied customers if you run out of cash. So if you're not obsessed with your OOC ("out of cash") date, you should be. Write it backward on your bathroom mirror in red lipstick.

Improving your cash-flow position starts with awareness. George Mueller, 31, CEO of digital lighting company Color Kinetics Inc. , is all too familiar with this concept: "At Color Kinetics," says Mueller, who has grown his Boston-based company from two to 80 employees in just about four years, "the CFO e-mails our exact OOC date to all senior management on a weekly basis, so that everyone is aware."

2. Get paid.

Go to work on your working capital. Howard Anderson, senior managing director of venture capital firm YankeeTek Ventures , says you should work on your accounts receivable every day. That's right, every day. It sucks, yes, but if you don't, two things may happen: 1) Some other guy gets paid first, or 2) Your customer goes out of business before paying you.

Mueller expands on the concept: "Bring the small-company aspect into it. Get your relationships to drive the payment process. You need to be able to say, 'Look, we are just a small company, and we need to be paid on time to work with you.' " In other words, work your contact, and stop dealing with that accounts payable department in Ireland.

In addition, don't be afraid to ask for upfront payments, offer special discounts for a limited time on accelerated payment and tighten up your credit policy. "Be careful about who you extend credit to," advises Anderson. At this point in the economy, you should have no reason to assume that the other guy isn't having the same financial problems you are.

3. Negotiate everything.

You have to balance your moral obligation to your suppliers with your goal of staying alive. Your major vendors constitute important relationships, particularly those that aren't easily replaced, and you also have a reputation to uphold. (Remember, for most entrepreneurs, you are your business.) However, your vendors would rather be paid later than never at all, and they would rather be paid 50 cents on the dollar now than 10 cents two years from now in bankruptcy court. You can negotiate with your vendors, as long as you're forthright. Say, "Look, I can pay you X percent now, and if we make it, I can pay you the rest later and we'll all win. Otherwise, you'll wind up getting a lot less."

4. Diet and exercise.

The key to survival, says Anderson, is to cut your burn rate. 

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