PRIORITIZE YOUR VENDORS!

In bad economic times most of the emphasis and attention is on failing companies. However, here's an interesting article about prioritizing debt for companies that are healthy. Start-ups and growth companies that can display positive operating cash flow and continue to maximize that cash flow can certainly position themselves to take market share in a down economy. While most company executives are immobilized, the saavy executive with a high tolerance for pain can create competitive advantage.

Here is a great article by Jane Hodges with some tips on how to prioritize your debt:


The scenario: A company’s cash flow is pinched, but the stack of bills to lenders and creditors is piling up fast.
The tactic: Steal a page from the Chapter 11 handbook: Follow the “absolute priority rule” and pay off debts in order of importance.
In a recession, sluggish demand and slower-paying customers can put a serious squeeze on cash flow, making it tough to keep paying the most important bills. One of the most important tactics finance managers need to follow in a serious market slump, says Sheila Smith, financial advisory services principal and national leader of restructuring at Deloitte, is to plot out the timing of major expenses, such as renewals of credit lines, bond-debt servicing fees, and balloon payments on debt. Look at which ones are due in the next three, six, or nine months, Smith says, and then stockpile reserves to fund them. In the normal course of business, this might be easy to do without deciding which of those is or isn’t critical to business. But in a deep financial crisis, prioritizing can help companies save and prepare.
If a company can’t pay all its suppliers or partners on time, or if it has multiple suppliers across several categories (three office-supply accounts, two travel agencies, etc.), then managers need to create a hierarchy that dictates which accounts get cash first, second, third, and so on. By never paying priority vendors late and exercising more liberty with second-tier partners, the company can assure that its most important business functions are under control and preserve short-term cash flow.
Prioritizing debt is a trick that healthy companies can learn from bankrupt ones. In a bankruptcy, a company follows the so-called “absolute priority rule,” in which the company pays off debts in a clearly delineated hierarchy. Outside of bankruptcy the hierarchy is not predetermined, but companies can still use a priority-setting process to establish a smart strategy for who, what, where, and when they’re spending money, Smith says. For example, an aviation company definitely needs to pay a cockpit-door manufacturer on time. But the same firm may have hundreds of light bulb vendors to choose from, so paying one late has few consequences other than changing vendor.
Smith gives another example: A company that works with three overnight mail vendors might want to choose one as the “critical” or most important vendor who always gets paid on time, then designate the other two vendors as “B” and “C” priorities who can get paid later in the billing cycle.
Caution: Prioritizing vendors, suppliers, and debtors can lead to less negotiating power if these parties wise up to their ranking. Lower-priority vendors may decide not to work as cooperatively down the line. On the flip side, companies can try using prioritization as a launch point for negotiation with priority partners — i.e., “We’ll ship 70 percent of our overnight volume with your company if you shed 15 percent of the fee.”

SHORT, BUT SWEET!

As most of you know, I am a big believer in keeping your business plan and presentation to investors brief and focused. Here is a snippit from a blog post by David Hornik on VentureBlog. David is blogging about an article he recently read in Wired about securing venture capital funding.

"ONCE INVITED" to present your plan (to VC), remember that brevity is a virtue: Use no more than 30 PowerPoint slides, and keep your presentation under 45 minutes." (Wired article)

(David's response) Yikes. 30 slides. Unless you are Lawrence Lessig, I don't think the words "30 slides" and "brevity" can possibly be used in the same sentence. I completely agree that you should aim to keep your presentation to about 45 minutes. If a VC gets excited about what you're working on, they'll spend more time with you in future meetings. But, as with entertainment, you are way better off leaving them begging for more. Get in. Pitch. Get out. There is no way that should take anywhere near 30 slides. I've blogged here before about the 6 -- yes, 6 -- slides you need to pitch your business. Even if you feel that 6 slides is too spartan, don't confuse quantity for quality. The fewer the slides and the more discussion the better.

(My response) Folks...I can't stress this enough. Resist the urge to take a presentation with a pile of slides. Simply put...don't do it. The goal of the presentation is to get their attention. Once you have their attention THEN you go into the details. Most Angels and VCs have their own process for going into the "details" of your idea.

TAKE YOU DOWN...DOWN TO CHINA TOWN!

As most of you know, I run a boutique firm that specializes in helping entrepreneurs define their start-up idea or business and be able to explain it to potential partners, employees, vendors, investors, bankers, etc. Without a doubt the most common element that our clients overlook is their EXIT STRATEGY...more specifically a COLLECTIVE EXIT STRATEGY. This is the process where all founders, partners, investors, etc. have a clear understanding of how each will exit the business and hopefully capture ROI through a liquidity event.

Here are some common exit strategies:

1. Sell the business to another party such as a competitor, strategic partner, or other business of some type
2. Take the company to the public markets
3. Don't exit and keep the business as a cash flow or life-style business

At any rate, whatever your intended plan is to exit the company you would be well advised to have detailed and thorough discussions with all shareholders prior to launching the business. Also, discuss these strategies with an attorney that specializes in exit strategies. It's well worth the expense.

Here is a great video that is brief but highlights some key points when considering an exit strategy. It's from our friends at FundFindr.tv.

CRAZY CREDIT CATASROPHY!

Yo...I ran across this interesting blog post from a member of Start-Up Nation. Of course your's truly posted a comment, but I would like to hear from others on what they would do with their business if access to credit vanished.

This used to be one of those "what if" questions. Not anymore.I've learned of a recent report from economist Peter Schiff that indicates that for the first time in decades, credit card companies cannot find debt buyers. You won't hear this widely talked about on television. People do NOT want to hear this stuff.For years credit card companies would extend credit to businesses and individuals, bundle them up and sell them off to investors, domestic and abroad. Places like China, Japan, Germany, etc.. A lot of this had to do with counting on a strong dollar. But, just recently, these credit card companies/banks have found nobody willing to take on this debt. Without buyers the card companies are left holding all of the risk and with the economy in trouble, these companies are faced with two choices-- tighten up, or shut it down. Some of you may have already felt this.We were worried about the Mortgage bailout but that is just a small fraction of the bailout that would be required to cover credit debt. How much? Nobody seems to know the exact number, but it is in the hundreds of trillions of dollars! A global recession could cause the credit industry to grind to a halt and it's highly unlikely that any bailout package could keep this from happening.I believe that we will still have a modest level of credit but it won't resemble anything that we have become accustom to over the last 25 years. I remember a time when my parents got by with two credit cards... a Shell gas card, and Sears Department Store. As I remember, those companies were so strict about issuing these cards that just having one of them indicated that you were likely to be a dependable payer....responsible/ worthy of credit. My, how times have changed.

Question:How would you modify your current business or alter your your business plans if credit was to all but disappear?

READ THIS FIRST!

Well it's election day and I'm sure we are all distracted. However, I just read through this blog post from Rob James. It's a good one and he breaks down the 8 things he wishes he had been told prior to starting his business. I especially like his paragraph about business planning.

Here's a sneak peak...

3. Have a model, not a planOk, this is a bit of a ‘bum steer’. You do need a plan, but a fully documented business plan that is 100 pages long is so, um dotcom. Nobody reads those things, and at this stage, your business is changing by the day, if not the hour. The reason you have a business plan is to show that you have thought through all the issues. Good sessions in front of the whiteboard, and scribbling in paper gets the same result. You may want to have a 2 pager, but I generally find that whenever someone asks for one, I will rewrite from scratch anyway. But I can’t stress enough how important a model is. A model is just your spreadsheet plan of how you are going to make money. Not only is it good for any potential investors, but it is good for you. Because in your grand plan, you may have not worked out how to make money out of this idea yet. Well, if you don’t figure this out, who do you think is going to do it for you? The investors? Keep dreaming cowboy! Firstly, I speak to a lot of Angel Investors, Private Equity and VC’s and they are constantly frustrated by how many people come to them this way, and its a waste of time. If the VC does see the money potential, do you think they are going to disclose it to you? Of course not! They have to think of their investors. So they will try and get into the deal for as little as possible, and then they will make money from it. The model is also going to be good for you. After putting it together, you might see that you are not going to be cashflow positive for 24 months, can you last that long? How will you last that long? Or you might see that to realise a profitable business, you need 10 Million registered users, is that realistic? Believe me, you will live and die by your model - work on it often and don’t be scared to change it!

Read more here...

GUY KAWASAKI - THE IMPORTANCE OF TWITTER!

Guy Kawasaki is a well-known author, entrepreneur and the Founder of Garage.com and Alltop. He discusses how he uses Twitter to drive interest in Alltop.

See this video on Vator.tv »