By Jerry Lynch
Check out some additional information Jerry has for the guests on tonight's show!
The Studio Group
By Jerry Lynch
Jamie & Aaron have tremendous energy and you have to admire what they are trying to do…save their Aaron dad’s company. Due t
o the mismanagement of the company, the business is in some serious financial and customer relations issues that need to . If they want to get out of this, they need to do the following,
Re-negotiateSalesPotential Strategic Partner- (sales person or key vendor)CommunicateTimeframe-
Re-negotiate- with the financial institutions. ($250k personally Guaranteed/ $150 not personally guaranteed) Set up a meeting with the bank and walk them through the current situation and what they are trying to do. Banks do not want to not get paid nothing and if Jamie & Aaron walk away, they get nothing. Try to get the following
- Stop payments for 6 months
- Lower interest rate
- Better terms
- This could give them a little wiggle room to get through a few months
Sales - Critical in any business, especially this one. Revenues need to increase substantially…at least double. Their sales people need to be on their game. Target previous clients as well as new ones.
Strategic Partner- The business needs two things right now. Sales and money for the expansion. I would look for either a vendor or potential vendor that would need these services to see if they would want to partner on this part of the business. The other option is to recruit a top sales person on a straight commission basis with the intention that they get equity in the company over a period of time.
Communicate - With the existing employees and with their vendors the issues that they are facing and how they are addressing them. You have a great story of trying to save the family business and people will buy into that. They need to know that you are committed to them so that they do not leave. Protect what you have first (existing employees and vendors) and work to get new clients.
Timeframe - Give yourselves 6 months. If you do not see substantial improvement, it may be time to go.
Great effort and I admire what they are doing!
Set Tech Inc.
Sean started his business about 2 years ago, first part time and then full time. He has had phenomenal success in terms of sales, bringing his revenues up to over $3 million and the company has great potential. The issue is not profit; it is mainly cash flow and vendor issues.
Cash Flow- Clients are paying slow (up to 60+ days) and he has to pay the vendor in 30 days. These orders are large and fronting the money if very difficult and killing him financially. He need short term financing.
Vendor- he has one that he gets all his supplies from. When they had delays on product, it slowed down Sean’s cash flow, which resulted in Sean not being able to pay them, and then they froze his account. He needs more potential suppliers to give him alternatives.
Basically he needs about $200k in cash in the business to float these types of transactions. I see a few ways to potentially do this
1) Borrow - If you know that you will be paid, I have no issues with borrowing short term, provided you pay it back immediately. AGRESSIVELY look to banks, family, lending companies. Bring in the Purchase Orders, and have the financial info in a nice package for potential lenders and make it into a nice binder. It should include your Bio- business info, a list of clients and your financials
2) Asset Back Lending- this is a loan program secured by accounts receivable. Generally the rates are higher, however, short term it is a cost of doing business.
3) Manage the cash flow process- Best way to solve a problem is to avoid a problem. Understand the payment process and get to know someone in accounts payable. Use flowers, or tickets (check company policy first). Stop thinking like a sales person and start thinking as a business owner.
4) Develop your own cash reserve (long term) which increases profit by 20%
This is a profitable business with great potential. He just needs more vendors and to deal with the short term cash flow needs.
Melissa has two businesses. The first is a web design and the second is her passion project, Natural Lullabies’, a pregnancy and family center.
Melissa is working three jobs. She is a mother of 3 boys all under 6 and one only 4 months old. She works 40 hours per week at the business and another 10-15 hours per week with the web design. In spite of this she is in debt in excess of $120,000.
What is working well-
- Has reduced staff to save about $1,000 per month in salary
- Has gone from last year substantial loss to a small profit
- There is a real need for this service.
- Facility is getting busier.
What is not working well
_ Debt- it is starting to get out of hand and interest ranges from 6% to over 20%. It is killing them
- Products- starting to get away from selling products (because she can not afford to pay for the products)
If they want to get back on track she needs to do the following.
1. Increase Sales
2. Increase pricing
3. Market more effectively
4. Reduce debt
Increase Sales & Marketing Efforts- A lot of here costs are fixed, and new business is virtually all profit. She needs to maximize classes
- Marketing through more organizations
o OBGYN offices
o Community outreach programs
o Continuing Education
- Have products available (doesn’t want to sell products because she would have to pay the vendor
o Personalized consignment items- payment on sale.
o Drop ship from supplier so no inventory
- Shower Registry
Increase Pricing- Pricing on the classes start at $90 and go up to $200. About ½ of the people are selecting the top option. Let’s give them 3 options, starting at $140, and maybe going up to $300. People will spend money on this
Debt- Got to get it down. We have to try to pay down $4,000 per month in principal (not just interest.
Top ways to reduce the debt
- Negotiate with lenders- they are very sensitive now about people defaulting on their loans. Try to get interest removed, better terms, etc
- Home Equity (may need a cosigner) to consolidate the credit card debt (5% Vs 20+%
- Increase pricing- which hopefully will go to the bottom line
- Consignment Selling – from local vendors- no inventory costs other then space.
- More internet (drop ship) based products.
Jerry Lynch CFP CLU ChFC