You have no choice, reinvent your business or perish.

I see, hear and talk with small business owners every day, and they are frequently viewing their current situation as if they have a choice. There is no choice. There are no options. We are confronting a changing business environment, and we all must make changes to survive. Holding the course, doing the same things we have always done is not an option. Until and unless  we all surrender to this clear mission, we are flirting with self destruction.

The new  economy will allow no slackers, no doubters, no laggers, we must accept our position, accept the realities of a changing economy and surrender to the changes required for survival under the new conditions we are in, or we will not survive, its that simple.

So what does this mean?

Reinvent your business, what it does, how it does it and what its sales revenue and profit can and will  be.

1. Downsize immediately.

2. Tighten the operation, there will be decreased revenues thus overhead, payroll, expenses, cost of goods, all must be carefully controlled to maximise the profits that are available out of reduced revenues. Your business must be run as tightly as possible to survive these changes, anything short of this two step strategy is destined to fail, it is just a matter of time…There is no such thing as a partial attempt here, it is all or nothing.

The real first step is to acknowledge the intensity and danger  of the situation and then to take full and complete action. You must surrender to the realities that changes are required and that one has no option and then implement the changes required.

The ‘funny’ part of this issue is we all know what we should be doing and we all know we ignore making these adjustments to tighten the operation for reasons that are mere excuses not to do the things we know we need to d to survive…but we do them anyways. We listen to our own excuses, Tomorrow, we will make adjustments, I am too busy today, or whatever your excuse may be. Surrendering to the issue, is to accept that there are no choices and thus all that remains is doing the job.

Debt is the killer, and thus there is no choice other then to workout the debt, reducing it so survival can continue as other adjustments also made. Debt cannot be ignored or absorbed in a smaller revenue context. Debt taken  when projections of revenue were significantly larger cannot be serviced when revenues are decreasing rapidly.  Something must change, either the debt is reduced or the business will fail. Surrender and do something about it…a  debt workout, or fail.

Marketing is usually the first line item to go and thus the next mistake. Marketing strategies must change, that is a certainty, but effective marketing is critical to survival and must be successfully implemented in a downturned economy. This is an opportunity to absorb a larger share of the declining market if marketing is appropriately implemented under the changing terms of the new conditions  but not marketing is fatal.

Recognize the changes occurring. Recognize you have no choice. Surrender to the requirements to make the changes necessary for survival…and implement immediately. That is the order of the day.

Who rejected your offer in compromise for a defaulted SBA guaranteed loan workout?

This is a very important question.  Many small business owners call me, frustrated that the bank will not process their offer to workout their defaulted SBA guaranteed loan.  Further, there are times when I am called  by borrowers with the resulting rejection received from the bank and wondering what they should do next.

This is a problem as it is frequently clear  that the banks act out their own interpretation of the rules of the game. It is apparent that the requirement to ‘exhaust their legal remedies’ in liquidating the collateral, means many different things to the various banks and thus borrowers receive many different creative  responses from the banks and their attorneys.

More unfortunately, there is no hand book outlining the rules of working out defaulted SBA guaranteed loans.  Therefor it is hard to know exactly what to do and how to do it.  No one tells you what works and what does not work, and so many of the banks apply their own spin to the process, interpreting the rules as they believe they should be, thus there are no predictable and reliable responses and expectations we can rely on.

Allow me to enlighten you.  If you have received a rejection from the bank on your personal guaranty workout proposal and NOT from the SBA you are on the wrong track.

It’s the banks job to liquidate the collateral, and here they may exercise certain levels of discretion, accepting or rejecting based on value received. However, once this is accomplished, the workout of the personal guaranty is subject to the  banks analysis prior to the SBA decision making process .

Most of the time the Offer in Compromise goes right over to the SBA, Sometimes the bank makes an effort to collect on it prior to the submission to the SBA. 

The ojective is to gteb it over to the SBA with the banks blessing. This does not always occur.

The real issue is what to do if the bank fails to do this.   The answer is based on a case by case situation, thus there is no universal way to show them the way, and correct this problem, but suffice to say this is the challenge.

Three easy ways to know the bank is not passing the baton over to the SBA, therefore short circuiting your workout opportunity.

1. You receive an answer to your workout request quickly, usually a rejection,  from the bank, sometimes in two weeks or less.

2. It is not on SBA stationary.  The response is either verbal, on the banks stationary, or relayed through their law firm.

3. The bank does not provide  you with the SBA Offer in Compromise forms.

Should any of these events occur, you are in for a rough ride, get help or demand a workout opportunity with the bank.

You may have to pay the bank something on your personal guaranty prior to it moving onto the SBA for a similar consideration. It may feel like double dipping but if apporpiateky handled it will result in the same amount opaid but to two different reivers, the bankl and the SBA. If mishandled it may result in a double payment. Be careful this is the grey area, the tricky part, not easy to navigate, and very important to the final results.

Please feel free to call Norm at my office, 413-584-2581, and ask him to arrange a no-obligation tele-conference.  We will discuss your options.

Don’t be cocky, NO business will escape this downturn… prepare. If it hasn’t arrived yet, its coming to you soon.

Every business will be effected by this economic meltdown.  There is no escaping.  Those that think they will escape the downturn are fooling themselves.

The root causes are universal and will effect every business, and its called the domino theory.

I spoke with my insurance agent and she reported revenues down over 30%.  Why? I asked, makes little sense, people are not yet taking their cars off the road, are they I asked?  No, she responded but they are not buying new cars so the insurance premiums are less, and people are reducing their coverage to lower their bills -it amounts to an overall 30% decline.  She also added the fact that defaults are up for non payment.  Her hours were cut as were her staffs.

A produce delivery business I represent, which I assumed would be relatively immune to the downturn, is likewise experiencing a deep reduction in revenues.  People are not eating out as much, the small business owner reports, thus consumption at restaurants is down, reducing his revenues by 30-40%.  He is making fewer and smaller deliveries.

We need not discuss the auto industry, the housing market and therefore the trades and businesses that are supported by these markets and can you even imagine the depth and width of this tremor.

Of course the financial markets are clearly losing tens of thousands of jobs nationally, with new York City experiencing a 20% decline in its revenue flow as a direct result of the reduction in the financial market.

The unemployment statistics are very sobering, 596,000 new filing last month -even Microsoft is laying of 5000 people.

It’s the ripple effect that will undo us all.  Fewer people working, more foreclosures, less purchasing power.  It effects every business.  The reason gas prices have declined so much is a direct result of less demand for fuel.  Factories, trucks -and yes cars- are using less fuel.  Can you imagine the amount of reduced demand required to reduce gas as much as it has?  It must be a huge decline.

Of course this is also a global issue so imports and exports are also declining adding additional momentum to the slow down.

I hear  some small business owners believing the bottom is near, that they are surviving, that they are  ok, and that they expect to persevere throughout the recession with modest adjustments.  These small business owners are kidding themselves.  The bottom has not been reached and it will be a long slide till it does reach bottom.  We are in for a five year disaster.  Everyone will be effected, every business will be reduced.

Plan, adjust and prepare.  Failure to do this will be at your own peril.  There is no escape.  Downsize, do your pre-emptive workouts. Market effectively and you can not only survive, you can maintain profitability.

Failure to adjust will end in a slow death…or maybe a rapid one.  Act now.  Call me at 413-584-2581 if you need help Norm will arrange a no-obligation tele-conference.

The only answer is debt forgiveness. Loan modification is worthless.

I see adds for companies that promise they will ‘modify your loan’ as if that will successfully change your destiny.

I hear from clients how they have asked the bank to lower their interest rate or extend their term so the monthly payment will be less …as if that will change their reality.

I hear clients happy about interest only for three months and a promise that they may get three more months, as if that will change their cash flow enough to make a difference.

Let me be very clear. Your revenues are down…way down. Your overhead and fixed expenses and even your variable expenses are up, way up.

You asked for and received a loan based on revenue and cost projections that are significantly different then what they are today, and yet somehow the bank expects you to be able to service the debt no matter what the changed circumstances may be.

Remember the reason we are all in this jam is not because any one of us failed at anything. The economy is in a melt down for reasons well beyond our control, and we are all victims of this debauchle. If the banks would be willing to make the appropriate adjustments required to keep us all in business we could pay back allot more then we could if we are liquidated under adverse conditions. Really what are your assets worth under auction conditions? Not much.

Yet the banks are not yet in tune with the real solutions thus they offer us crumbs. You need debt reduction, lots of it, at least 50% . That is the solution. Interest only is a laugh.

Unfortunately since they will not voluntarily do this, we must take a stand and make it happen. Its called a debt workout and the ending result, if done effectively, is the reduction of debt and the preservation of assets and the business.

Call me at 413-584-2581 and Norm will arrange a no-obligation tele-conference.

Don’t buy the business…buy the assets.

Most understand this principle.

Certainly most lawyers and accountants understand and give appropriate guidance to their clients, but some small business owners have not gotten the memo and buy the business, to their potential peril. So here is the info you need to better understand this issue and the reasons why I highly recommend that under most circumstances it is best to buy the assets of a business as opposed to buying the entire business as a whole.

Perhaps the most compelling reason is that when buying the assets you leave the liabilities behind. The unsecured creditors cannot make a claim against the assets of the new entity. Any unpaid tax obligations, if not yet liened, will not follow the assets. Law suits, any liabilities, known or unknown will not follow the assets, but are left behind. Thus prudence dictates that when purchasing a business, design it as an asset purchase, it prevents costly mistakes.

In all reality, the business follows the assets, so there is really no detriment to the decision to design your acquisition as an asset purchase. You will receive the benefits you are seeking as everything you need will be available to you to continue the operation.

If the business is not making a profit there is no technical ‘goodwill’ and thus the business is only worth the value of the assets, thus the best strategy is to only purchase the assets and not the business.

The name of the business is an asset and can be purchased and can remain exactly the same as it was, the telephone numbers are assets as is the fax number, the web site, the customer list, vendor list, and on it goes. Everything necessary to run and continue the business is an asset and available for purchase, and such a purchase assures you that you are not inviting the liabilities to join you in your new venture.