Managing your firm through
the global financial crisis
Stephen 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
AFR – 22/5/2009
2 ASIC
3 ITSA
1
Reality Check
 Well known companies have already been
affected by the current economic turmoil
 These include:
- Nylex
- Strathfield Car Radio
- Handy Hire Trailers
- ABC Learning Centres
- Storm Financial
- Hans Smallgoods
- Midas
- Great Southern Ltd
- Timbercorp
Industry Trends
 From May 2009 survey of members:
% of Businesses 'Strongly Profitable'
40%
45%
40%
35%
30%
25%
20%
11%
11%
15%
10%
5%
0%
12 months ago
Currently
In 12 months
Industry Trends
% of Businesses recording ‘borderline result'
38%
40%
32%
35%
30%
25%
20%
11%
15%
10%
5%
0%
12 months ago
Currently
In 12 months
Industry Trends
90%
Reasons for downturn
90%
80%
60%
70%
60%
50%
30%
40%
20%
30%
20%
10%
10%
0%
Less sales
per customer
Reduced
sales price
Commodity
price
increases
Loss of
customers
Increased
finance cost
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 discord
5. 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
Block 1
RISK MANAGEMENT
Risk Management and Printing Industries Members
The recent Printing Industries survey indicated the
following:
 Around 60% of Printing Industries members
have never undertaken risk analysis
 More than 5% do not know what risk
management is
 Under 1 in 3 members think they understand all
the business risks they are facing
 Almost a quarter of those performing risk
analysis do not understand all the risks their
business face
Risk framework
Identify
Risks
Prioritise
Risks
Address
Unacceptable
Risks
Monitor and
Review Risks
Risk framework
Management
Risk




Threat of new entrants
Bargaining power of suppliers
Bargaining power of customers
Industry risk
Business
Risk




Leadership of the business
Skill level of management
Human resource management
Succession






RISK
Financial
Risk
Stock
Profitability
Finance arrangements
Debtors
Creditors
General
Case study and group discussion
Identify
Risks
Prioritise
Risks
Address
Unacceptable
Risks
Monitor and
Review Risks
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
Identify
Risks
Prioritise
Risks
Address
Unacceptable
Risks
Monitor and
Review Risks
 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 average
 Almost 10% of members have either a poor
relationship or have never really thought about it
 10% of members never see their bank
 1 in 3 see their bank only on an ad-hoc basis
 1 in 3 members do not know their banking terms
or covenant arrangements
Block 2
CASH FLOW MANAGEMENT
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 profit
Cash 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
DOs
 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
Cash flow management tips
DON’Ts
 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
Cash flow management tips
DOs
 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
Cash flow management tips
DON’Ts
 Pay your debts late without contacting the relevant supplier(s)
 Be unplanned when it comes to your suppliers
Cash flow management tips
DOs
 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
Cash flow management tips
DON’Ts
 Order stock in an ad hoc manner
 Underestimate the level of cash tied up in inventory
on hand
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
Block 3
BUSINESS OPPORTUNITIES
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
plan
 Those 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