Managing your firm through the global financial crisis

1. Managing your firm through the global financial crisis Stephen Michell, Partner HLB Mann Judd

2. Overview of Workshop • Introduction/Purpose of Workshop • Industry Overview and Trends • Block 1 – Risk Management • Block 2 – Cash Flow Management • Block 3 – Business Opportunities

3. Introduction • Purpose of workshop: • Help assess how your business is travelling during the financial crisis • Implications of being inactive/reactive in managing your business • How to proactively manage your business during these difficult times

4. Signs of the Downturn • As at 31 March 2009 the ATO had 194,734 debt cases and payment arrangement worth $2.54 billion.1 • This is a 12.5 per cent increase in the number of cases and a 8.8 per cent rise in value compared to a year earlier.1 • March 2009 saw 1,095 companies enter into some form of insolvency administration. This is the worst March result since ASIC commenced recording statistics in 1999.2 • The number of companies entering some form of insolvency administration for the year ended 31 March 2009 was 9,775 (7,540 in 2008).2 • There were 7,164 new bankruptcies in the March 2009 quarter against the March 2008 quarter (6,303) a 13.66 increase. Bankruptcies also increased 7.75 per cent on the December 2008 quarter.3 1 AFR – 22/5/2009 2 ASIC 3 ITSA

5. Reality Check • Well known companies have already been affected by the current economic turmoil • These include:

6. Industry Trends • From May 2009 survey of members:

7. Industry Trends

8. Industry Trends

9. Industry Trends • Last recession (early 90s) a large number of printing businesses ceased trading or went into liquidation • The survey trends illustrates the importance of being proactive in such times

10. Implications of Failure • Potential for civil or criminal sanctions for insolvent trading • Could be made liable for debts to the ATO through a director penalty notice • Bankruptcy – call up of guarantees / loss of family home • Domestic discord • Potential for being banned as a director

11. What do successful businesses do that those which fail don’t? • Risk management • Cash flow management • Making the most of opportunities

12. Block 1 Risk management

13. Risk Management and Printing Industries Members The recent Printing Industries survey indicated the following: • Around 60% of Printing Industries members have never undertaken risk analysis • More than 5% do not know what risk management is • Under 1 in 3 members think they understand all the business risks they are facing • Almost a quarter of those performing risk analysis do not understand all the risks their business face

14. Risk framework

15. Risk framework • Leadership of the business • Skill level of management • Human resource management • Succession • Stock • Profitability • Finance arrangements • Debtors • Creditors • General • Threat of new entrants • Bargaining power of suppliers • Bargaining power of customers • Industry risk

16. Case study and group discussion CASE STUDY • What risks can you identify? • What is the implication of each risk? • What can be done to reduce or overcome the risk?

17. Monitor and Risk Review • Establish systems to monitor risks • Monitor risks and strategies deployed to manage • Remember risks threaten the ability of your business to achieve set objectives • Remember risks can threaten the ability to survive this global economic crisis

18. Summary – Top 10 Risks to Look out for • earning expectations are not met • cash flow is tight and operating losses persist (there never seems to be enough cash!) • credit lines are fully extended. The company is not in compliance with debt covenants • vendor and customer relationships are deteriorating

19. Summary – Top 10 Risks (cont.) • market share is declining • the business is reliant on one or two customers • BAS statements are lodged but payments are behind • creditor calls demanding payments have increased, or creditor has stopped supply

20. Summary – Top 10 Risks (cont.) • You can not obtain meaningful financial information from your accounting system • Staff turnover is high (especially with key staff)

21. Please take 25 minutes for Morning tea

22. Bank Presentation Introduction The recent Printing Industries survey indicated the following: • 2 in 5 Printing Industries members describe their relationships with their bank as average • Almost 10% of members have either a poor relationship or have never really thought about it • 10% of members never see their bank • 1 in 3 see their bank only on an ad-hoc basis • 1 in 3 members do not know their banking terms or covenant arrangements

23. Block 2 Cash flow management

24. Cash Flow Management and Printing Industries Members The recent Printing Industries survey indicated the following: • Almost two-thirds of members have had their cash flows impacted by the economic crisis • Almost 4 in 10 members do not prepare cash flow forecasts • Half of those that do forecast never compare this to actual cash flow • More than a quarter of members indicated that their customers either hardly or only sometimes meet their terms of trade • More than 10% either never or only sometimes meet their suppliers’ terms of trade

25. Cash flow management • Cash flow is not profit • Cash management is critically important

26. Signs your cash flow may be a problem • Your bank overdraft facility is sitting at its maximum all the time • You are not paying your company’s statutory obligations on time (e.g. tax liabilities, superannuation contributions etc.) • You are stretching your payments to your trade creditors • Stock levels are building up (stock turn is declining) • Debtors are taking longer to pay you (average debtor days is increasing)

27. Cash flow management tips DEBTORS • Review terms of trade with your customers – ensure they are up to date and signed • Monitor your debtors closely and regularly • Choose your customers wisely • Have a plan for recovering money owed to you • Consider offering discounts for early payment • Consider obtaining personal guarantees from your customer’s directors which can be used in the event of non-payment • Include an “all-monies” retention of title clause. Consider having your terms of trade printed on the reverse side of your invoices with reference on the front of the invoice DOs

28. Cash flow management tips DEBTORS DON’Ts • Ignore the function of debt collection • Give further credit to those customers who have exceeded their trading terms • Give credit before undertaking a credit check of the customer • Agree to additional time for payment without documented agreed arrangements

29. Cash flow management tips CREDITORS • Seek suppliers willingness to supply stock on consignment • Negotiate with suppliers to extend credit terms when appropriate • Maintain healthy relationships with suppliers and ongoing discussions. If a creditor is made aware of your difficulty to stick to the paying terms, they may be more willing to extend your credit. • Develop a contingency plan on how to obtain supply of goods or services should a supplier fail DOs

30. Cash flow management tips CREDITORS DON’Ts • Pay your debts late without contacting the relevant supplier(s) • Be unplanned when it comes to your suppliers

31. Cash flow management tips INVENTORY • Make sure your business has a good purchase order system • Ensure you have an accurate listing of your supplies and prices • Ensure a competent person is responsible for ordering • Have a documented set of procedures for ordering DOs

32. Cash flow management tips INVENTORY DON’Ts • Order stock in an ad hoc manner • Underestimate the level of cash tied up in inventory on hand

33. Cash Flow Management Conclusions • Develop a process to monitor and collect debts • Ensure you have signed terms of trade with customers • Send out statements on a monthly basis • Contact all debtors outside normal trading terms • Stop credit for delinquent payers • Obtain firm commitments from debtors • Do not over order stock • Negotiate with creditors – stay in contact

34. Block 3 BUSINESS OPPORTUNITIES

35. Business Planning and Printing Industries Members The recent Printing Industries survey indicated the following: • 3 in 10 of those respondents contemplating retirement in the short term have deferred their plans due to the economic downturn. • More than one fifth of these people have deferred their retirement plans by more than 5 years. • More than 70% of members do not have a business plan • Those that do more than 10% never review it

36. Case study • What are the opportunities presented in the case study?

37. Thriving - making the most of business opportunities • Understand your business and where you make your profit and losses • Conduct opportunity cost analysis and prepare a business case before making any commitments • Ensure management has a strategic focus and plan • Evaluate outsourcing options • Look at procurement opportunities and inventory decisions

38. Tips - making the most of business opportunities • Consider developing strategic alliances – focus on your competitive advantage • Consider acquisition of complimentary businesses • Consider tax planning – optimise your tax position • Explore all Government incentive programs • Don’t be afraid to seek professional help

39. Conclusion • See HLB Mann Judd