Better days ahead

ON THE SURFACE, it may seem there are few, if any, positives to a recessionary economy that is threatening the survival of businesses large and small. Yet, no matter how bad the economy gets or how long it takes to recover, there’s no reason for business owners to feel helpless or hopeless.

With the help of economic and business advisors that specialize in economic recovery, more local businesses are learning how to convert anxiety into optimism, transforming a one-time economic threat into the catalyst of beneficial change.

 

LAST FALL, Appleton-based Schenck Business Solutions created a “Financial Crisis Response Team” as the economy turned south. The team’s mission is to help businesses who have suffered a staggering financial blow regain their sense of control and confidence, moving beyond the paralyzing effects of the financial meltdown.

Businesses that feel as though they’ve run out of options have found renewed hope after teaming up with Schenck’s economic crisis counselors. Under the guidance of experienced accountants and advisors, companies on the threshold of disaster have maneuvered their business out of harm’s way, learning how to forecast cash flows and monitor internal controls more closely. In the process, they have saved money, secured financing and loan renewals, and may have ultimately saved their business by getting proactive rather than waiting for the economy to come around on its own.

“In the process of economic recovery planning, companies have gained new insights into their business and the role their business plays in the larger economy,” said Daniel Koszalinski, CPA, a shareholder with Schenck’s Appleton office. “They come out of the experience and realize that they’ve become much more (resilient) and better business people.”

Executives and entrepreneurs who have used Schenck’s crisis service range from new startups to established companies with annual sales in the $30 million range, Koszalinski said. In the past six to eight months, the businesses landscape has changed dramatically and the market patterns upon which companies based their past successes and future hopes no longer hold true.

“The biggest challenge that we have seen is the paralyzing fear – people don’t know when things are going to turn around,” Koszalinski said. There is the overwhelming sense that no matter what a business does, it won’t make a difference until the economy turns around, he said.

To business owners and companies whose profits and morale have taken a beating, Koszalinski brings a message of hope.

“In most cases, the people that are coming for help are feeling helpless, hopeless and maybe even a little bit ashamed – it’s not good feelings,” he said.

This Financial Crisis Response Team assists business executives and entrepreneurs overcome the psychological obstacles of confronting a Goliath-sized economic meltdown, helping them realize there’s more routes to economic salvation than cost cutting.

“You read all over the place about (companies) reducing payroll expenses through furloughs and things like that,” Koszalinski said. Yet, many businesses “have already done that and they’re still struggling with cash flow, so it might be independent of looking at cutting expenses.”

For most businesses, preserving cash is even more important than reducing costs, Koszalinski said.

One goal of Schenck’s Crisis Response Team is to help businesses understand how even minute changes in monitoring and reporting systems can have a significant impact on a company’s bottom line while also making a big impression on lending institutions and investors.

“A lot of our activity is working with the client to present their case to financial institutions, because that landscape has changed dramatically in the last six to nine months,” Koszalinski said.

Now, the process is much more objective, and banks are requiring even established companies with good credit histories to submit documentation showing that they are well-prepared to deal with the financial obstacles that lie ahead.

Koszalinski shares his experience working with a large retail company – an industry leader with an impressive track record and plenty of financial savvy. Schenck’s service helped the business add even more sensitive indicators to its already robust business-reporting system, extracting state-of-the-art information for decision-making. The end result not only impressed the company’s loan officers; it also won the confidence and respect of their shareholders, helping the company regain momentum it had lost when the recession made landfall.

Another triumph came from the manufacturing sector. After working out a business recovery plan with Schenck’s help, a local manufacturing company invested in new technology and immediately realized a savings in the mid-five figure range – a benefit the company will continue to realize on an annual basis.

Regardless of the level of crisis a business is experiencing – whether it’s preparing for a loan renewal meeting or trying to divert bankruptcy and financial disaster, the “sooner you go for help, the more flexible the response can be,”

Koszalinski said. “The hour glass is running; it’s not that nothing can be done, but your options – just like the grains of sand in the hour glass – become fewer and fewer” as time passes.

 

DALE GLEN, CPA, a partner with the Oshkosh office of Clifton Gunderson, has watched the recession unfold from a similar vantage point as his colleague Koszalinski.

With the bulk of Glen’s clients coming from the manufacturing, retail and contracting fields – sectors that were hit hard by the economic meltdown – Glen has witnessed first-hand both the financial battle wounds and amazing fortitude of area businesses.

Extending companies an economic lifeline, Clifton Gunderson recently offered a “Finding Cash in Your Business” Webinar to help equip business owners with new skills and knowledge to better manage cash flow, minimize health insurance costs, and more effectively communicate with their bankers and loan officers.

Glen echoes the fact that there are a number of economically life-preserving measures companies can take without cutting staff or other critical resources.

“Companies need to manage their balance sheet, not just their income statement,” Glen said. “Many companies can focus on reducing inventory levels or managing accounts receivables.”

Another strategy is to structure debt and financing so that long-term assets and long-term financing are synchronized.

“Many companies like to finance capital additions with working capital to avoid taking on debt,” Glen said. “However, in times like these – when cash flows are being pinched, that strategy can really restrict a company. Companies should look at financing a seven year asset with five- to seven-year term debt, not three-year debt.”

The depth of the current recession means few businesses are making rapid recoveries. However, businesses are stabilizing their cash flow and soldiering on. The key to salvaging one’s business is anticipating change and taking action.

“Many companies look back and say, ‘if I’d have only taken these steps six or twelve months ago.’”

 

FOR MANY SMALL BUSINESSES, the first step toward economic recovery is coming up with a concrete plan. That’s also the first step in applying for a U.S. Small Business Administration-backed loan – one source of funding accessible to small businesses of any size.

Jointly funded by the SBA and the University of Wisconsin-Extension, the Wisconsin’s Small Business Development Centers specialize in helping new and existing businesses with 500 or fewer employees write start-up and expansion plans. However, over the last two quarters, many SBDC offices – including those in Oshkosh and Green Bay – have seen a surge in demand for a third type of business-planning assistance.

“We’ve gone from mainly start up and expansion planning to – now we’ve got a third category – which is business recovery plans,” said Bob O’Donnell, director of the SBDC office located at UW-Oshkosh’s Center for Community Partnerships. In fact, O’Donnell said recovery planning has become the agency’s most frequently requested service within the last six months.

One aspect of the economic climate has changed in business owners’ favor. The federal stimulus plan signed into law in February increased the SBA guarantee on its 7(a) loan program to 90 percent, removing much of the risk from the shoulders of the lender. To further remove barriers to financing, the SBA waived the 2 to 3 percent loan-processing fee through the end of this year or until funds run out.

The federal stimulus package has also increased the loan authority of regional assistance programs, enabling agencies such as the Fond du Lac-based Advocap, Inc. to increase the number of microloans it guarantees for $35,000 or less.

O’Donnell knows first-hand the hardships of surviving an economic recession and the doubt and anxiety that can undercut the financial recovery process. As an entrepreneur and businessman who’s survived five economic slowdowns, O’Donnell offers a few words of advice:

“From a personal standpoint, I found that the key to surviving is going back to the fundamentals of the business: ‘What do we do well? And how do we manage this business to take advantage of what we do well?’ Then, purposely take the time to look for those opportunities.”

Businesses can further increase their chances of surviving the economic meltdown by diversifying, becoming well-rounded providers of services and goods, rather than simply one or the other.

“There’s always some business that’s counter-cyclical and the key is finding those opportunities – the opportunity to change what you do, maybe just a little, to take advantage of new markets,” O’Donnell said.

To illustrate his point, O’Donnell cites a recent success story – the owner of a laundry service who came to the SBDC lamenting that demand for his service had diminished. Customers were purchasing cleaning supplies directly from retailers, trying to save money with the do-it-yourself approach.

In the end, a trend that seemed to spell out disaster actually held the secret to his company’s economic recovery and survival. With the SBDC’s help, the business owner realized there was money to be made selling products to consumers during the years when the service-end of his business was bad.

Although a recession may not seem like the best time to get adventurous, in some respects, it’s the ideal time to move into new markets and tap latent potential within one’s existing business.

“We have people coming into our office every day that are looking to start up a business…(and) we’ve got a number of clients that are looking to buy businesses,” O’Donnell said. “They’re seeing opportunities to take over companies that are struggling and make them successful.”

If any good comes out of the recession, perhaps it will be a subtle shift in the Wisconsin business community’s attitude toward risk-taking and economic struggle as more companies embrace bold, unconventional solutions.

“The difference between the East and West Coast is that if you start a business or enterprise on the East or West Coast, and it doesn’t work out, you’re considered an entrepreneur,” O’Donnell said. “If that happens here in Wisconsin, you’re considered a failure. Part of the challenge is we’ve got to get beyond that. Unless we help people take educated, measured, judicial risks  – we’re not going to grow.”