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May 8Dave Casebere

Seven tips for avoiding bankruptcy

May 8Dave Casebere

The original of the article below was published in CFO.com on October 27, 2011.  The author is Chuck Benjamin, President of Benjamin Capital Advisors.  I have made some changes so that the article more closely resembles my writing style but the substance and content are unchanged.  This is great advice for all business owners – read carefully.

Companies today are trying to navigate in turbulent, troubled times and many can’t stay on course.  Between 2006 and 2010, more than 208,000 companies filed for bankruptcy, according to the American Bankruptcy Institute.  The annual rate of bankruptcies nearly tripled during this period, with no end in sight.  And, the total number, staggering in itself, doesn’t include enterprises that have ceased to exist through non bankruptcy proceedings or that continue to limp along in some degree of financial crisis.

A detailed analysis of distressed middle-market companies would demonstrate that many could have avoided severe losses and often the loss of the business itself by following some seemingly simple and elementary business principles.

It is surprising how many experienced and qualified business owners, executives, and CFOs do not aggressively follow these seven principles. By ignoring them, management puts at risk the very survival of the business.

  1. Always maintain an updated business plan and be totally committed to its achievement. A business plan is critical to the governance and success of any company.   A proper plan includes these elements: a sales & marketing plan, an operating plan, a capital expense budget and, a cash-flow projection.  This is the roadmap that should guide every aspect of budgeting, sales, operations, and finance.  It is the primary tool that aids in executive decision making to keep revenues and expenses in equilibrium.  As markets change, for better or worse, it is critical that your plan be adjusted to reflect current circumstances.  View it as a living, breathing part of your business and keep it up to date!
  2. Strive to maintain cash-flow equilibrium.  Planning and executing the balanced inflow and outflow of cash is critical to the success of a company.  When financial conditions begin to deteriorate you must maintain constant vigilance over your cash flow.
  3. Be meticulously accurate, proactive, and timely in reporting and reviewing financial results.
  4. Ignore “sacred cows”, i.e. aspects of your company you think can’t be changed.  “We’ve always done it that way” is unacceptable when you must improve performance.  Maximizing corporate efficiencies; managing expenses, inventory levels, and capital expenditures; and, making the hard day-to-day decisions often determine the difference between success and failure.  Resolve to avoid judgments that follow historical, business-as-usual allegiances to people, processes, products, and methods.
  5. Always be transparent, timely, and precise in reporting to creditors of all types.  The presentation of reports to    creditors should be treated with extreme care.  Too often, reports are delayed or purged of negatives to avoid disseminating “bad news”.  This is actually counterproductive because once the real results become known, the trust of the creditor may be permanently impaired and the debtor company irreparably harmed.
  6. Be honest with yourself and others at all times!  The sooner you face the reality of a challenging situation, the quicker and better the solution.  If you fool yourself and those around you, the odds of failure are dramatically higher.  While painful, recognizing and dealing head-on with issues at hand invariably leads to a better result.
  7. Always be open to the counsel of independent professionals when facing difficult or challenging circumstances.  During this rapidly moving era of economic change, executives at all levels are attempting to track and      understand an increasing array of complex factors that affect corporate finances, markets, personnel, and virtually every other aspect of management.  It is difficult, if not impossible, to keep up with it all.  Merely focusing on the normal day to day operations of your business is often a challenging task in itself.  When in trouble, look for help.  Seeking the advice and counsel of knowledgeable, experienced outside specialists who can help you get back on track..

These principles essentially form the foundation of sound business practice.  They will help you maintain adapt and thrive more quickly.  In a downturn, companies have to step up the speed of response.  But, whatever your company’s circumstances, you should always act with a sense of urgency.

B2B CFO®

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