Successfully Navigating The Downturn.

The times they are a-changin’. ~Bob Dylan

The “new normal” is what we have now and what you must adapt your business to. What we are experiencing—the business climate, consumer attitudes and habits, unemployment and general financial fear—is what we have now and what we will have for a long time to come.

You must stop waiting for the return to what life was like, as this will not occur for a very long time, if ever. You must change and adapt; maintaining the same business model will be fatal.

Downsize, reinvent your business model, do your debt workouts and market effectively through the internet.

This is the path to success. If you take the current economy and business environment and create your business plan based on current factors, rebalancing your overhead with your revenues, you will succeed. If you try to force your old equation to work in today’s market, it is the same as forcing a square peg into a round hole… it just won’t fit.

In fact, the business most likely to succeed in today’s economy is the new start-up. The new start-up will take current conditions and create a business based on what we have now. Debt will be based on today’s conditions, financing will be based on today’s availability, revenues will be based on today’s expectation and overhead will be balanced. Under these conditions, success is a distinct possibility.

Do the same thing. Recreate your business as if it is a new start-up. Accept today’s conditions as the standard and conform to them. Make your business work by making the changes necessary to be profitable today… or fail.

High End Or Low End… Which Is It?

According to a recent Bloomberg article, Starbucks, the cliché indicator of the “splurge” economy, is enjoying a “61 percent increase in operating income”. Apple’s net income was “up 94 percent last quarter.” And “Mercedes-Benz is having a record sales year…” How can this be? The chief economist of the International Council of Shopping Centers (ICSC) stated that the retail recovery at the end of 2009 “…was all dollar stores and luxury.” And it appears the spread is continuing.

The rich, while adjusting to stock market peaks and valleys as well as real estate declines in values, are still maintaining their lifestyles and apparently, are still willing to splurge on lavish lifestyle expenditures in the high-end market. On the other end of the spectrum are the unemployed/part-time employed/low-wage employed that are supporting a flourishing market on the low-end, i.e. discount and dollar stores. They are simply either conserving capital, trying to survive, or are afraid of the future and thus saving rather than spending. One view suggests that a number of people are cutting overhead budgets by shopping at discount stores for basic necessities so they can justify splurges like a BMW or expensive daily lattes from Starbucks.

This is important information as it can be the basis of new strategies for retailers, wholesalers and even service providers. What do you do with this information? Absorb it, reflect on your current strategies and come out with a high-end or low-end strategy that somehow accommodates the changing mood swings of the market place and delivers what the consumers want. Selling less, but more profitably, is a winning strategy if your costs and overhead can be controlled.

This is a perfect situation in which debt workouts are critical, as debt chokes so many businesses with reduced revenues; this prevents you from using your capital to emerge successfully with your reinvented business model. This is also a perfect example of what reinventing your business model means. Figure out what your customers want, do your debt workout, accommodate these changing marketplace conditions and market your business efficiently. That’s the path to success in today’s marketplace.

Call for help if you need it: 413-584-2581. Norm will arrange a no-obligation teleconference to discuss your needs.

Too Good To Be True? Our Credit Card Workouts Are Very, Very Good.

The most frequent obstacle we encounter when we talk to prospects as they consider becoming clients is the fear that what we are offering is “too good to be true”. I understand, as we do an exceptional job and deliver what seems to be the impossible.

Suffice to say, after thirty years of doing this we’ve got it down and we do deliver what we promise. Secured debt workouts, SBA-guaranteed loan workouts, preserving business and personal assets and reducing the personal guaranty to pennies on the dollar… that’s all good, and true.

Another area we work on for our commercial clients is their credit cards. Often, these are used for business purposes and sometimes to support personal life requirements as these business owners do not take a paycheck or they take an insufficient one. Thus, without much fanfare, we go to work on all our clients’ debt issues, focusing on the secured debt but also dealing with vendor debt, lease debt, landlords, and of course, their credit cards.

Because of our understanding of the system and our exceptional preparation for demonstrating why a high level of forgiveness is required (rather than just begging) we offer a more complete and professional approach, similar to what we use with the banks and their secured loans. When applied to the credit card companies the results are as expected: phenomenal.

We recently completed working out a few hundred thousand dollars worth of credit card debt for a client which resulted in an overall reduction of 83%! Now that’s good and it’s true. While we do not represent clients with only credit card debt, but rather handle the credit card debt for those clients who retain our services for bank workouts, we always do the best job possible, not settling for anything other than the lowest possible payout. 83% on large credit card balances is very, very good, well above the industry average.

We do the impossible every day. Call Norm for a no-obligation teleconference: 413-584-2581. We can discuss our strategies with you.

In a Workout, Must You Be In Default On All Your Credit Cards?

This is a great question, often discussed amongst us and our clients. First, if you are operating below break-even and in default on your loans, then credit cards should not be your first priority. Secured debt should be paid first. As frequently advised, total default tells the right story for a few reasons.

Let there be no question—if a bank sees a fistful of credit cards being serviced while their secured loans are in default they get very hostile, very quickly and rightly so. Secured debt takes priority over unsecured debt and credit card debt is “new” borrowing. Payment on unsecured loans is lower in priority. The bank has a right to object when they see this and they do; this can be a show-stopper for the workout process.

However, there is an important exception to this rule: A small amount of credit (less than a few thousand dollars a month), if used and repaid monthly, rotating the money in and out, being used for small business transactions or simply for financing your living overhead if you are not taking a check, is acceptable. You have a right to a paycheck and the bank will acknowledge this fact. You must survive. You have not yet closed your business so normal operations are acceptable. Paying down large amounts of significant credit card debt and remaining current on highly used cards does not work. This is the issue. When in default, with the bank the rules change.

Do not use your cards for any more than necessary living expenses if you have depleted all resources and have no real revenue. If this is how you have always run your business and need this flow for transactions, this is also acceptable—in low dollar amounts. However, a few cards should be in default and not paid down. Remember, all of your credit and payment records are available to the bank so there is no hiding out on this issue.

Further, if you are going into default and workout, looking for debt forgiveness, using your cards at this point is abusive to the system and tantamount to larceny, as you know you will not be repaying that debt and are using the cards anyway.

Default, default, default, that is the rule. If you are in a workout there is no reason, nor advantage, to paying off unsecured debt unless you are using the card for basic requirements or small business transactions. All your other cards should reflect your financial condition and be in default out of respect to your higher priority—the secured party banks—and the general condition of your finances. Do not pay them off out of a sense of obligation or to have them available should you need them; it is the banks money once you go into default on your secured loans.

Collateral Damage In A Workout Is Sometimes Unavoidable.

A good secured bank loan workout, when started in advance of the banks pursuit of legal action and done well, is seamless and invisible. Only a small handful of participants are aware of it: your banker, us, perhaps some unsecured vendors, and of course, the secured and guaranteed creditors. There will be neither public recital nor publication in any way, both of which can hurt businesses in meaningful ways. There are no public filings, no public notice, no advertisements, no signs on the yard, no destruction of reputation, just goodwill and business opportunity.

However, debt workouts are not always smooth sailing. While they are most of the time, collateral damage can occur, usually when you start the workout after the bank launches its legal armada. If the workout is addressed late in the game after legal action has been precipitated by the bank, or if your bank is particularly feisty and extremely aggressive (very unusual) there could be expensive and distracting collateral damage—bodies laying on the side of the road, so to speak. Some of your customers, some employees, some vendors… It’s unlikely, but sometimes it is an unfortunate yet necessary cost of doing a workout, especially when commenced later in the proceedings.

Since our clients are small business owners in default on their loans, with reduced revenues and ever-increasing overhead, who cannot pay their loans and who wait until they are in desperate straits, under enormous pressure or deeply into default before they ask for help, the banks often have begun to take aggressive harmful liquidating steps. In this situation, the banks may be prepared to launch—or may have already launched—their scuds, sending out blanket collection letters to your customers, directing them to send payables due to you directly to the bank instead. That can be expensive and very destructive to your survival and emergence.

Or, perhaps the bank will seize collateral (e.g. trucks, equipment, assets of any sort), shutting down your operation. We can get it back and stop the procedures, however, there is a price to be paid. Collateral damages will occur beyond the immediate negotiation with the bank. Loss of customers, vendors and employees is a reality, your reputation will be damaged.

My response and context of this situation? When in a workout, while it infrequently occurs, collateral damage is sometimes a necessary part of the workout. It’s a part the small business owner must endure and attempt to control but cannot always prevent. Take the beating and work to overcome it; that is the only option. Lose a little but save the overall situation, cut off a limb to save the body, that is the context. Affordable losses are a problem that can be overcome.

Get in front of the issue, do preemptive workouts. When you understand that you will not be able to overcome the reduced revenues and be liquid enough to run your business and support the debt service, do the workout. Do it early and completely. This is the best way to prevent any collateral damage from occurring.

Call Norm for a no-obligation teleconference for us to discuss your options: 413-584-2581.