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Be proactive in stabilizing finances for 2011

cash-flowAlthough the vast majority of outdoor furniture specialty retailers are going into 2011 more upbeat than a year ago, the recovery continues to lag more than most people would like.
      Even the most optimistic economists seem to be scaling back their enthusiasm in recent weeks. That doesn't mean a return to gloom and doom, but it does mean family businesses need to be rigorously proactive in managing their finances.
     A good place to start is bringing your bank into your reality, whether that reality is strong or wobbly.
     "What banks hate the most are surprises," said Jeff Sands, a director with Dorset Partners LLC ( and a retail turnaround specialist. "Go in with your annual budget and show them your plans for the year. Tell them you'll keep them updated good or bad."
     One of the bright spots in the second half of 2010 has been more flexibility by the banks in helping to keep struggling businesses afloat.
     "They seem to be getting nicer and more willing to deal," Sands said. "I'm in a situation right now where the bank is willing to take a 60% shortfall, basically letting the business owner off the hook rather than forcing them into bankruptcy. Six months ago, I didn't see that."
      Another area to be proactive in is managing cash flow. Sands recommends maintaining a 13-week cash-flow forecast, a tool he uses in every turnaround situation he enters.
     "If you're going to run out of cash in 10 weeks, you better start making cuts right now," he said.
     You'll know where to make those cuts if you're clear on exactly what your core business is. The majority of outdoor furniture retailers have adapted to running with less inventory. What other unprofitable parts of the business are you holding onto for a "future" strategic advantage? Something that might be costing you even a few hours a week in time should be dropped if it's not providing a cash return.
     This is also the time to review staff issues.
Has everyone been trained to do their job well? Are family job descriptions clear? Do you have a formal communication process in place to resolve tension before it blows up and damages the business?
     The longer the recovery takes, the greater the risk that stress might eventually erode a small business's bottom line.
     Discounts and meeting competitors' pricing, particularly online pricing, can be another aspect to review if your cash flow isn't what you'd like it to be. Do you make the sale to turn stale inventory or stand your ground to hold your margins?
     "It's situational," said Sands, adding small retailers can sometimes make a too principled fight against discounts.
     In this gray area, merchandising to freshen the showroom can make a set that had sat too long much more likely to sell.
     More important than discounts is avoiding sloppy pricing.
     "Sloppiness is just saying that we're going to keystone everything and just push it across the board," he said. "Whereas instead of a 50% margin you should have a 40-60% range. If you work that well, you can grow your 50% margin to 53%."
     Accessories are the obvious category to make that higher margin, allowing you to keep the big item prices competitive.
     For wholesalers and retailers who give their customers credit, Sands recommends an aggressive systematic collection policy. Send the invoice the day of shipment or delivery, follow up with a reminder letter at 20 days and call and send another reminder at 35 days. When everyone's cash is tight, the squeaky wheel reigns supreme.
     Finally, although estate planning may seem counterintuitive when a family business is strapped for cash, funding exempt assets is a good way to protect some of what is at risk. Retirement accounts, annuities and college funds are all protected against bankruptcy.
     "Even a struggling little store should be putting at least $500 a month in exempt assets," Sands said. "Some owners are not taking a salary and (are) putting that money in to exempt accounts."
     This is vital for businesses unstable enough that they can see the need for a turnaround specialist on the horizon. A bankruptcy judge will look at monthly deposits into an IRA account as a legitimate retirement plan, for example, while writing a $20,000 check for the account right before declaring bankruptcy is a no go.
     "The court will take it back. So be consistent," Sands said. "I would stick as much as you can in the exempt assets to protect your cash."

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