Best Credit Cards to Get for Consolidating Debt

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					Managing Cash Flow in a Credit Crunch

     Shobna Dhewant                                        Michael Wray
     Lending Manager                                         Principal
    RSF Social Finance                                 Hall Wray Consulting




               Managing Cash Flow in a Credit Crunch
    Overview of RSF Social Finance
•   Non-profit tax-exempt social finance services organization based in San Francisco
•   Partners with investors, donors, and social enterprises to realize financial transactions
    that promote a more sustainable future

•   Bringing social responsibility to all financial transactions

•   Social Investment Fund, Lending Program, Philanthropic Services
•   Core focus areas of Food & Agriculture, Education & the Arts and Environmental
    Stewardship

•   Loan sizes range from $200k to $5 million
•   Total loan portfolio size of $80 million as of 12/31/08
•   $150 million loaned since 1984; 0.1% losses




                            Managing Cash Flow in a Credit Crunch
Sample Borrowing Projects
 •   Prodecoop – Coffee cooperative in Nicaragua
       $500K in Purchase order financing with Root Capital and Calvert.

 •   World of Good – Fair Trade handicraft company
       $650K in Receivables and inventory financing. Grant funding for Fair Trade Calculator
          project.

 •   Sweetriot– US-based cacao importer importing and manufacturing entirely in Latin America.
       $250K in Receivables and inventory financing.

 •   Odegard, Inc. – US-based importer of carpets certified by RugMark.
       $5M in Receivables and inventory financing.

 •   Essential Living Foods – US based importer of Fair Trade food products including grains, nuts
     and berries.
       $700K in Receivables and inventory financing.




                           Managing Cash Flow in a Credit Crunch
Michael Wray
Working with Fair Trade companies since 2003

    • Asia Fair Trade Forum
        SCANs – evaluations of all aspects of businesses
        from Producers to Customers - India, Philippines, Nepal, Thailand

    • Workshops on Marketing

    • Field testing of Auditing Process which is evolving into new IFAT (WFTO) Sustainable
      Fair Trade Monitoring System (SFTMS)

    • Study of US market for Fair Trade handicrafts

Retail studies in U.K. and the Netherlands

                       Managing Cash Flow in a Credit Crunch
• Fair Trade Business Development
• Retail Consulting
• Audits – Social, Ethical, Environmental, Organizational
• Training & Mentoring
• Ethical Business and Social Entrepreneurship


    Also work with Small Business Administration, counseling to small
    businesses in San Francisco Bay Area



                     Managing Cash Flow in a Credit Crunch
Stormy conditions… are you prepared ?




             Managing Cash Flow in a Credit Crunch
Managing Your Business in a Credit Crunch


 How many of you are feeling the effects of the current
   credit crunch?
        • Not affected ?
        • Somewhat affected?
        • Severely affected ?


                Managing Cash Flow in a Credit Crunch
Managing Your Business in a Credit Crunch
             Understanding Your Business




               Managing Cash Flow in a Credit Crunch
Understanding your Business
a) Having appropriate systems in place
    •   What are current systems in place? Do they account for proper financial reporting? Are they efficient?

 Evaluating your systems
    •   Quickly and efficiently produce reports.
    •   Ability to reconcile and manage cash accounts.
    •   Easy to review and present to inventors, peers, clients, lenders, etc.

 Acceptable systems
    •   Quickbooks
    •   Moody’s Financial and TaxAnalysis

 Systems should
    •   Accurately reflect current inventory on hand
    •   Reveal current cash position
    •   Allow for month to month comparison



                               Managing Cash Flow in a Credit Crunch
Key components of a proper system
    • Proper upgrade and maintenance
    • Suitable for small business
    • The best reporting systems aren’t necessarily the most expensive.

Making the most out of your systems
    •Consistently and periodically run reports including cash flow and income statements, weekly.
    •Produce month end reconciled income statements, balance sheets, cash flow statements,
    accounts receivable aging reports and account payable aging reports.

Conclusion
    •Systems are the central component in managing and reporting the financial results of small
    business
    •Not giving attention to systems is equivalent to not giving attention to your business.




                            Managing Cash Flow in a Credit Crunch
b) Accurate financial reporting
   Periodic reporting
     • Monthly reconciled income statements detailing revenues, expenses and profit/loss.
     • Monthly reconciled balance sheets with assets, liabilities and equity components.
     • Monthly cash flow statements detailing sources and uses of cash.
     • Monthly reconciled accounts receivable aging and inventory aging reports.
     • Quarterly and Annual reportings

   Proper classification of accounts
     • Advance payments vs. accounts receivables
     • Purchase orders
     • Inventory adjustments
     • Accounting for bad debt




                         Managing Cash Flow in a Credit Crunch
Analyzing Data
    •Gross margin
         Managing cost of goods sold
         Margins on merchandise
    •Operating margin
         Total expense analysis
         Fixed costs vs. adjustable costs
    •Cash flow
         Cash at the end of the month/quarter/year
         Cash proceeds: sales, line of credit, asset alleviation, receivables receipt, stock
         proceeds
         Cash uses: purchases, payments of debt
    •Overhead
         Personnel expenses as a percentage of overall costs.
         Identifying key expenditures
         Quarterly and annual comparison of expenses
    •Capital expenditures
          How much in equipment and fixtures purchases are required in a given year ?

                          Managing Cash Flow in a Credit Crunch
Conclusion
   Accurate financial reporting is a proactive approach to business
management which
   •Instills proper financial discipline for small businesses.
   •Provides analysis of key metrics to adjust for business
   seasonality, expense control and cash management.
   •Gives a clear financial picture to the business owner and outside
   parties, including lenders and investors.



                    Managing Cash Flow in a Credit Crunch
c) Understanding key financial metrics
           Metrics                           Acceptable Parameters
       Receivables aging              •     90 days or less
                                       •     20% of one customer account is over 90
                                             days
                                       •     Concentration – Keep total receivables of any
                                             one given customer under 20%
                                       •     Insure international receivables.
                                       •     Purchase orders or advance payments not a
                                             part of receivables.

                                       •     45-60 days maximum
       Stretching payables
                                       •     Mission of fair trade is to make sure
                                             producers are paid on a fair and consistent
                                             basis..




                        Managing Cash Flow in a Credit Crunch
c) Understanding key financial metrics - cont.
 Inventory Turnover        •    180 days or less
                            •    Inventory over 1 yr should be discounted for value if not sold
                                 at lower price. Considered obsolete.
                            •    Do not count packaging, trade displays, goods on consignment
                                 as a part of inventory value.
                            •    Maintain acceptable insurance with warehoused and in-transit
                                 inventory.

                            •    Calculate cash needs on a monthly basis including production
 Cash needs                     requirements, prepayment to suppliers and overhead costs.
                            •    Identify and monitor key sources of cash receipts to ensure
                                 coverage of expense and debt needs monthly.
                            •    Maintain cash reserve as best as possible.




                       Managing Cash Flow in a Credit Crunch
Suppliers & Supply Chain




Managing Cash Flow in a Credit Crunch
This what Fair Trade is all about……




               Managing Cash Flow in a Credit Crunch
… the Fair Trade Supply Chain is not simple

                           1. Producer


                            2. Exporter


                        3. Importer/Wholesaler


                             4.Retailer


               Managing Cash Flow in a Credit Crunch
Fair Trade Supply Chain Problems

           • Demand
              • seasonal
              • changing tastes
              • economic downturn
           • Supply
              • long lead times
              • supplier quality
              • communication (two ways)


               Managing Cash Flow in a Credit Crunch
     Manage &
   Communicate
    with all steps
in the Supply Chain




                      Managing Cash Flow in a Credit Crunch
Forecasting in the downturn




Managing Cash Flow in a Credit Crunch
Financial Forecasting- Historical Pattern
    0.8    0.75   1.0   1.0      1.05   1.1   .95     1.1       1.2   1.0   1.2   1.3



                              Forecast with monthly variations


                                                                                         growth

                                                    Base sales level



     Jan                                                                           Dec




                        Managing Cash Flow in a Credit Crunch
Forecasting in the Downturn …..



                                       ?



    Jan                                               Dec


 … shorter term but even more important

              Managing Cash Flow in a Credit Crunch
Cash Management
 • Monitor Sales Elements
            = no. of customers x average purchase

 • Calculate your breakeven level of sales.                 Work to
   reduce it

 • Manage all elements of cash flow
    •   Inventory
    •   Receivables
    •   Payables
    •   Finance costs


                    Managing Cash Flow in a Credit Crunch
Credit Sources

 1.   Credit cards
 2.   Banks
 3.   Small Business Administration (SBA)
 4.   I.R.S !!




               Managing Cash Flow in a Credit Crunch
Community and Smaller banks still lending

                                    INNOVATIVE BANK
 What Is a SOHO Loan?

 A SOHO Loan is a lending product developed by Innovative Bank to promote the Small Business
 Administration's (SBA) Community Express program to provide financial assistance, capital access,
 technical and management assistance to the underserved segment of the small business community.
 SOHO stands for Small Office/Home Office and is geared to small to medium size businesses in all
 geographic areas of the United States.

 What are the Terms of a SOHO Loan?

 A SOHO loan offers the potential qualified small business owner financing that ranges from $5,000 up
 to $50,000(Community Express minimum loan amount is $25,000). All loans carry an 84-month term,
 no pre-payment penalty, minimal paperwork, Innovative Bank paid technical assistance, as needed,
 and quick turnaround time. Variable interest rates are tied to the new Prime Rate published in the
 Wall Street Journal plus the Innovative Bank spread of 4.75% or 3.75%, depending on the amount of
 the loan.




                          Managing Cash Flow in a Credit Crunch
Superior Financial Group
      Walnut Creek, CA

Small Office / Home Office

Best suited for smaller or newer businesses needing working capital.
This program has less stringent personal credit requirements of the
owners.

Loan amounts offered: $5K $7.5K $10K $12.5K

Growth Accelerator Assistance Program

Larger amounts for more established businesses seeking a quick
source for working capital. Due to the larger loan amounts this
program has stricter credit requirements.

Loan amounts offered: $15K $20K $25K


                 Managing Cash Flow in a Credit Crunch
American Recovery & Investment Act 2009
The bill provides $730 million to SBA and makes changes to
the agency’s lending and investment programs so that they
can reach more small businesses that need help. The
funding includes:

$375 million for temporary fee reductions or eliminations on
SBA loans and increased SBA guaranteed shares, up to 90
percent for certain loans

•$255 million for a new loan program to help small businesses
meet existing debt payments

•$30 million for expanding SBA’s Microloan program, enough
to finance up to $50 million in new lending and $24 million in
technical assistance grants to microlenders

                   Managing Cash Flow in a Credit Crunch
Surviving the downturn may require tough
           decisions and actions




      Managing Cash Flow in a Credit Crunch
Actions
    1. Discounts of merchandise and dilutions of inventory

•   Inventory should turn over 3 – 4 times annually and should not exceed 2 times.

•   Monthly review of inventory aging and slow moving merchandise is recommended,.

•   Sales should be periodic to maintain external perceptions of business.

•   In sales, include both popular and slower moving items for more balanced interest.

•   Consider offering discounts to larger and stronger retailers if you are a wholesaler.

•   Sell to mass retailer of gift merchandise at deeply discounted prices. May damage name brand but
    could bring additional cash receipts.




                              Managing Cash Flow in a Credit Crunch
Actions
2. Inform suppliers early of any discounts in merchandise.

•    Make necessary adjustments on purchase orders including reducing or eliminating shipments
    or working with suppliers to locate other distribution channels, including local outlets.

•   Link with peer retailers and wholesalers for possible distribution channels of discounted
    merchandise.

 Conclusion
  Discounting merchandise and alleviating inventory are necessary steps in maintaining the
  fiscal health of small businesses.
  While challenging, with proper approach and execution, inventory management will ultimately
  bring cash flow while improving operational efficiency.




                          Managing Cash Flow in a Credit Crunch
Actions

3) Talking to lenders early

•   Engage in active dialogues with secured and unsecured lenders early.
•   Keep and maintain key financial data for lenders to review. Understand and present clearly all
    financial obligations and overhead expenses.
•   Set up and present payment plans to lenders for review.
•   Maintain a working relationship with creditors, all parties face due recourse in case of default
    and no party is immune to economic recession.
•   Lenders and creditors, including the IRS, have been asked to work with debt holders
    accordingly.




                           Managing Cash Flow in a Credit Crunch
Actions
3) Talking to lenders early (cont’d)

• Engage in professional advice from credit counseling agencies and small
  business advisors
• Stick to any repayment plan of obligations and refrain from accumulating
  more debt, scale down rather than up.
• Always include a cushion for cash flow when drafting up or reviewing
  repayment plans.
• Keep personal and business expenses separate.




                      Managing Cash Flow in a Credit Crunch
Actions
4) Hibernation

• Close business operations during slowdowns, sublet rental spaces.

• May resort to selling online only until market conditions improve.

• Any hibernation strategy should include continuous contact with suppliers and
  commitment to working with them.

• Temporary strategy which will ultimately result in the perpetuation of the
  business.




                                                 34
                      Managing Cash Flow in a Credit Crunch
Actions
   5) Closings
           Underperforming stores
           Primary store

   • Possibility of sharing space or consolidating with another space
        Opportunity to partner with a fair trade retailer or similar organization.

   • Online sales or distribution.
       Reduces overhead and offers ability to sell though other online retailers.

   • Store closings should be seen as part of a cycle for long-term sustainability




                         Managing Cash Flow in a Credit Crunch
Check List

1. Financial Systems in place.

2. All elements of cash flow managed

3. Constant communication with stakeholders

4. Face tough decisions early

                Managing Cash Flow in a Credit Crunch
Check List

Hunker down

       Cut expenses

                        Hang in there…

                                                         .. It will
  get better

                                                          Candi Smucker

                 Managing Cash Flow in a Credit Crunch
                                Contact us at :

     Shobna Dhewant                                              Michael Wray

     RSF Social Finance                                        Hall Wray Consulting
    1002A O’Reilly Avenue                                           San Mateo,
   San Francisco, CA 94219                                           California


       Tel 415-561-3900                                         Tel 650-341-7170
      Direct 415-561-6173                                       Cell 650 224 6768
       Fax 415-561-3919

            Email                                                   Email
shobna.dhewant@rsfsocialfinance.org                     michael@hallwrayconsulting.com

    www.rsfsocialfinance.org                                www.hallwrayconsulting.com




                    Managing Cash Flow in a Credit Crunch

				
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