Tag Archives: debt

Re: New York Times: U.S. Racing Toward Debt ‘Shock’

The reason this headline is so important is because while many companies and entrepreneurs will continue to do well in this country, what is possible to accomplish is being extinguished by our government and what is being achieved has a high probability of being extinguished  by the burden of debt.

For a long time I would look at our politicians and the general trends and conclude that is not an arena that I appreciate and it is somebody else’s life.  Now I look in the mirror.  I and all the voting citizens in this country are responsible.  That is right. As a nation, we voted for people who look to the latest trend of what is popular so they are re-elected. We voted for a president who campaigned on being critical of the debt of the prior administration and then came in and drove that debt into the stratosphere. Obama should be fired now for that fact alone among others. Just for the record, there are a lot of people who should be fired and leave with him. Nothing personal …this is business.

Have we ever voted for a person who stands for the principles of our Declaration of Independence and Constitution? Actually I am not aware of anyone winning on that platform. I am aware of people running on that platform. We didn’t like that idea because that platform holds us as individuals accountable for life, liberty and the pursuit of happiness. It does not say, I am from the government and will solve your problems.  That formula clearly does not work.

This is a business blog with my focus being to offer sound guidance on helping companies and entrepreneurs move their businesses forward in profit at accelerating rates of profitability. Notice I said at accelerating rates of profitability, not accelerating debt like our government is doing.

So Why The Political Platform?

This is not a political platform. It is a business platform on the topic that our policies are going to drain America unless we take action. The action I recommend is based on business principles as I am not a politician at all.  If the US Government were a consulting client this is how I would approach it:

1. Clear definition of purpose: I feel there is a clear definition of purpose for our government and we the people have allowed people in office to ignore it. So let’ s use our foundation principles as the evaluation point and if our elected officials have not demonstrated compliance, we fire them.

2. Who replaces the masses that are fired?  People with experience running large organizations and know what it means to be accountable for compliance with the charter of why you are formed. Who are these people?  There is no shortage, there just is not a system in place to elevate them including a fair compensation system.  Get past the “you have to have been an angel all your life standard and we are only going to pay you $400,000 a year for being President. I would vote for paying the right leadership $100 million dollars a year  and link that to performance standards with base pay of $25 million. Now you have the attention of  some talent.

3. Key Tenant: basic economic and universal laws.

4. Tough stuff: the one way for this to be accomplished is to recognize the difficulty people have with change and then have leadership in place prepared to deal with the constituencies that say these changes are unacceptable.  These opposition groups should be in the minority if the leadership and related communication is in place.

Who Am I To Speak?

I am an American and I have my share of successes and failures. As a human, I have made good choices and some I would do differently. Do I have all the answers? No  but I do know this…I support  the founding principles of life liberty and the pursuit of happiness and our government does not. I am tired of that and I am speaking out .. and you?

Sending you energy of health, happiness, prosperity

Steve Pohlit

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About: Steve Pohlit is a CPA,MBA and has been the CFO of several major domestic and international companies.  Steve is a business owner and an expert business consultant focused on building profits and net asset value. He is very experienced with Internet marketing and social media marketing.  All articles published by Steve unless specifically restricted may be freely published with this resource information.

More

There is going to be more from me on this and I hope a lot of others as well. For now here is the article that resulted in my conclusion I have had enough.

New York Times: U.S. Racing Toward Debt ‘Shock’

Monday, November 23, 2009 1:51 PM Article Font Size minus Re: New York Times: U.S. Racing Toward Debt ‘Shock’ plus Re: New York Times: U.S. Racing Toward Debt ‘Shock’
A page one, top-of-the-fold New York Times report Monday warns that U.S. debt is rising so fast that the federal government is careening toward a “payment shock” in the not-too-distant future.

The Times lead headline read: “Federal Government Faces Balloon in Debt Payments: At $700 Billion a Year, Cost Will Top Budgets for 2 Wars, Education, Energy.”

The Times headline appears eerie just as the Senate moves to push forward on a radical healthcare reform — with CBO estimates for a final bill costing nearly $1 trillion dollars over the next year.

The national debt now stands at over $12 trillion and the White House estimates that the cost of servicing the debt will rise to more than $700 billion a year in 2019, up from $202 billion this year. The Times suggests that $700 billion annual payment cost may be conservative.

The additional $500 billion a year in interest payments would surpass the combined budgets this year for education, energy, homeland security, plus the wars in Iraq and Afghanistan, the Times observes.

Treasury officials face not only huge new debts incurred in response to the economic meltdown but a balloon of short-term borrowings coming due in the months ahead, and interest rates that are certain to return to normal levels when the Federal Reserve concludes that the fiscal emergency has passed.

“Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages,” The Times reported on Monday.

Interestingly, the alarming Times analysis comes as the nation is in the midst of a debate over healthcare reform proposals that could add many billions of dollars to the overall debt.

Record deficits have arrived just as payments for Medicare and Social Security benefits are set to explode, with the oldest Baby Boomers approaching age 65. This will result in what experts have long warned will be a “fiscal nightmare” for the government, the Times article notes.

“What a good country or a good squirrel should be doing is stashing away nuts for the winter,” William H. Gross, managing director of the Pimco, a bond management firm, told The Times.

“The United States is not only not saving nuts, it’s eating the ones left over from the last winter.”

As for the balloon of short-term borrowings coming due, that debt now accounts for 36 percent of overall debt, compared to the historic average of less than 25 percent, and more than $1.6 trillion is due by March 31.

Another problem: The Federal Reserve’s purchases of Treasury bonds and mortgage-backed securities to prop up the economy pushed down long-term interest rates by about half of a percentage point, but the Fed is set to reverse those policies — that alone could add $40 billion to the government’s annual debt service expense.

The Treasury Borrowing Advisory Committee, a group of market experts that advises the Treasury on debt management, declared this month: “Inflation, higher interest rate and rollover risk should be the primary concerns. Clever debt management strategy can’t completely substitute for prudent fiscal policy.”

And The Times warns: “There is little doubt that the United States’ long-term budget crisis is becoming too big to postpone.”

The Key To Business Profits In A Difficult Economy

The phrase “cash is king” is widely recognized because it is true.  When you solidify cash flow you solidify your business.

Cash of course can be borrowed. For  many companies, traditional sources of financing are nearly non existent.  Lines of credit are being tightened and there is little or no room for  loan covenants variations.  In this and all situations, the sooner management accepts responsibility for  the state of their business, the sooner they are in a mindset for moving the business forward.  What are the primary options for restructuring a business facing these circumstances?  The primary alternatives are:

1. Secure a lending facility from a source that is not a traditional bank.

2. Negotiate a new note with your existing bank – very unlikely right now.

3. File a restructuring plan under Chapter 11 of the US Bankruptcy code – an action of last resort and very costly.

4. Sell the business: viable if your business is attractive to a strategic buyer. You will need a creative contract if you expect to get much more than having your personal guarantees removed from the debt.

5. Close the business and do something else. You may feel you may want to do that but be careful since if your business assests upon liquidation do not cover the senior debt, your personal assets may be at risk. In this environment institutions are taking homes .

You may be thinking the above is written for a business experiencing losses in market share and profits.  Companies with bright pictures being painted are experiencing the impact of banks not lending. The money channeled to banks from the government is not flowing through to  companies deserving loans.

For this reason, alternative sourcing of funds is often needed.  A lot of time and energy can be spent finding the right deal or you can select a firm with the contacts that will get this done quickly on your behalf.

Last week I was in a meeting discussing options, strategies and pricing for services. It is very common for owners to begin calculation how much money firms make when a deal closes. This money is commonly called success fees. I explained that success fees are in proportion to the solution delivered.  The right professional firms have the experience and the contacts to move quickly and get results. How valuable is that when considering the alternatives?

Sharing with all my readers the energy of peace, happiness and abundance

Steve Pohlit, The Profit Expert

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The Exact Steps Required To Turnaround A Business That Is Cash Flow Negative (In Trouble)

I have led companies in the retail, real estate, transportation and restaurant industries from  near catastrophe to stability and profitable growth. Companies find themselves in a dire straits position for a multiple of reasons when the economy is strong as well as weak … more so when weak.

The current business climate is tenuous and an increasing number of businesses find themselves in a profit and cash flow crunch. If you or someone you know is in that position, time is of the essence. Literally every hour that passes is critical when a company’s profit and cash flow are on a downward trend. The faster action is taken to restore the business to a positive cash flow position, the more likely it can be further strengthened to renewed profitable growth.

The following steps are the major ones that I have guided clients through who have been in this situation:

1. Stop issuing checks until Step 2 and Step 3 are completed. The exception would be payroll and any utilities if you are at the point of being shut off if the bill is not paid. If you have a trucking company you have to buy fuel. If you are a restaurant you have to buy food. If you don’t have the funds to pay “life support costs and expenses” there are still options but they would have to be addressed on a case by case basis. You want to avoid getting to the point of not being able to pay the must have expenses.  There is a wide variation of the definition of must have items. The clients I have helped were very surprised at the literal definition of “must haves” but they thanked me later.

2. Be certain as to your exact cash and liquidity position. You need a very accurate snapshot of the free cash in your bank account, the quality of accounts receivables and a precise accounts payable listing that includes all invoices. You would be surprised as to how many companies do not know their actual cash position, ignore problems in their accounts receivable balances and forget that oftentimes there are bills sitting in unopened mail and desk drawers.

3. Develop an eight week cash receipts and disbursements forecast and don’t leave one cent off of the disbursements list. If you are not sure how to do this, there is an example at 10 Minute MBA This is a core schedule that I implement with all clients and is very valuable when used properly.

4. Document an organization chart with each person’s position and compensation.

5. If the business sells a physical product, it is important to evaluate the inventory. You cannot sell what you don’t have and you can’t replenish inventory if vendors have shut you off.

6. If there are debt agreements in place understand all debt compliance covenants.

7. Identify all critical support functions. For example, the company’s internet connection, maintenance agreements on machinery and equipment and key licensing agreements if any.

The goal is to have an accurate picture of all the facts no matter how dismal they are. I can’t tell you how many times I have been blind sided by additional pieces of information that were very important in finalizing the turnaround plan.

What Actions Are Typically Taken Once There Is An Accurate Picture of Situation?

1. Cut all non- essential spending and payroll.

2. Implement a temporary reduction in pay for as many people as possible. That is always difficult and may be impractical if there is a union or a large hourly workforce. Every situation is different but normally payroll has to be cut and it is often delegated to the outside consultant to handle.

Note: many of these steps are implemented quickly. Even while the entire picture is still being developed. That is where experience with these situations is very valuable. Experts with turnaround experience know how and where to act fast.

3. With people you want to take the action one time and then meet with those that remain and explain to them what is going on and how it is going to be fixed.

4. Vendors on the accounts payable list will need to be called and given a date when they can expect a workout plan. This is not fun work even for an expert consultant. However, whatever needs to be done to save the business and restore profitability should be addressed.

5. If there is a sales staff, look to move those people to full commission status and if possible add to the staff with full commission as the compensation package. Be careful if out of pocket expenses are paid. They have to be limited and per diems in place.

6. Assign clear accountability for collecting receivables and put in place a three step collection process. In certain cases discounts are negotiated for paying early.

Notice all the emphasis at this point is on cutting expenses and build cash once that process is in place then

Work on your building business and profits plan. Make sure it is realistic and focused on the next 90-180 days. When that is drafted including the financial projections you are now in a position to negotiate with bank debt holders, capital equipment lease venders and other long term lease agreements in place.

Some clients may need to file for chapter 11 reorganization. This should be avoided at all costs since it is very expensive, time consuming and a major distraction. However sometimes it is the only available option other than shutting your doors. Chapter 11 is usually the best answer where selling assets, selling the business or parts of the business is part of the the turnaround plan.

I hope this helps and while it addresses many points there are always more depending on the business. The following is right from my Turnaround Consulting Site

Do you worry about running out of cash?
Do most of your key vendors have you on COD?
Have checks issued by your business bounced?
Are revenue trends decreasing and accounts payable increasing?
Have any of your valued employees left for a “better opportunity”?
Are you spending all of your time fighting fires?
Do you wake up at night fearing you will be out of business?
Do you fear you will not have enough cash to meet your next payroll? What about the next?
Are you thinking or have been advised that a reorganization of your business under Chapter 11 of the US Bankruptcy code may be the answer?

“If You Answered Yes To More Than One of These Questions, Then You Need To Call Steve Pohlit at 727-587-7871 Right Now. That Is My Direct Line. I Will Personally Determine If I Can Help You Solve Your Business Problems or Refer You To Someone Who Can. This Call Will Cost You Nothing and May Well Save Your Company.”

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There are two reasons why companies ask me for business consulting assistance:
1. They know what to do but want an independent third party experienced business development consultant to drive the process as that approach demonstrates management’s commitment to achieving the goals.
2. Management understands the need for improved performance and understands they do not have the experience to implement what is required.
3. There is actually a third reason and that is where a business is in a crises situation and turnaround business consulting procedures need to be implemented fast. Nobody likes that situation, even the consultant. However, many companies can be salvaged with the right action. Think of the what goes into action when a person has a heart attack. Timing and action are the differences between life and death.

Be Well and Prosper,
Steve Pohlit
Business Development Consulting

Steve Pohlit has more than 20 years experience running very large and medium sized companies. Steve consults with clients to design and implement processes that will deliver improved business performance for the long term. Learn more about the process of Increasing Profits by 30% or More In 90 Days or Less by visiting 10 Minute MBA or you can call 727-587-7871 and speak with Steve directly. Have a question? Click Here To Visit Ask The Consultant