Financial Crisis 101: Part 2

Editor's note: You can view part one of this article here: <a href="/articles/financial-crisis-101-the-way-it-works">Financial Crisis 101: The Way It Works</a>. When the lead singer from Rascal Flatts complained to Bruce Springsteen how hard the music life was on his marriage and asked for advice, The Boss famously quipped, “If Mama ain’t happy, ain’t nobody happy.” If you read part one of this article, you'll understand when I say, same thing with the banks. The landscape is changing, the banks liquidity is drying up, ain’t no one gonna be happy for a while. Here’s what that means. There is a direct impact and an indirect impact. The direct impact comes from the liquidity drying up. There’s no cash. With no cash, there’s a credit crunch. And the first people to go down on one knee are business owners who use lines of credit to make their businesses run. These are manufacturers who have seasonal lines, or heavy equipment owners who need to purchase the equipment first before they on-sell it. Just a few examples of which there are many. Others already affected are those using a line of credit on their house to fund shortfalls in their business. Banks are finding ways to cut off the excess amount not already lent. So you could find your liquidity drying up as well. If banks, that are wobbling on that thin line of lending/capital ratio mentioned previously, can limit the amount they’ve lent by canceling unfunded commitments, they’ll do it, because then they won’t have to put up any more capital. It’s in their best interest to do so. For anyone on Biznik who has unutilized lines of credit, don’t panic. Just review which institution you have it with. A strong institution, likely all is good. If it’s a second tier institution reporting major losses in the last two quarters, call your banker and ask about whether the bank is foreseeing making any changes to its lending policies, particularly unfunded commitments. Ask if they’ve ever called a MAC clause before. MAC is short for ‘material adverse change’ and was put in loan documents to protect the bank on any contingency they hadn’t thought of. Extremely rare to call a MAC clause, but it happens. Check to see if you have one in your document. Basically anyone who has a relationship with a bank that they count on needs to review their documents and understand their risks. The indirect impact affects all of us, but in many different ways. If you sell to the people in the small business market (definitions vary widely but generally considered to be the $1 million to $5 million in revenue market), or middle market, ($5 million to $75 million), review your revenue concentration. If a significant portion of your sales comes from upstream or one or two customers, schedule a lunch, during which you discuss the market happenings and talk about the health of their company, and ask if you can do anything. No need to be surprised if this company comes back at some point and announces major cutbacks. Same goes for your credit extension policies. How long do some companies take to pay you? Should you wait that long? Should you ask for a retainer upfront? If you don’t sell upstream, if your customers are mostly individuals versus companies, times are challenging right now too. There will be pullback, and that means prospecting should move up a level in terms of the amount of time you spend on it every week. Not networking, not marketing, but prospecting, the active task of reaching out to NEW people and putting yourself in front of them. These are calls; they’re in-person visits. The sales cycle is elongating and the tails are dragging out. I’ve seen some research estimate that it should be about 60% of a good salesperson’s time each week! 3 days a week, calling, researching, and speaking to people! Sure kicks the butt of my maybe three hours a week, so I will be doing more as well. I offer these few tips as a way to be pro-active with your business, a way to feel a little more in control and to take steps to prepare. Hopefully, it will be an antidote to the crazy-making media frenzy we seem to face daily.Last words: if others are hit directly by this situation, offer them a hand up. Find a way to help. The only way any of us will get through this, is if we all get through it together. 2008-09-30T21:29:53Z

2008-10-01T20:05:14Z

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financial-crisis-101-part-2-what-can-we-do

2008-10-01T20:05:08Z

How the financial markets affect Small Business Owners and what we can do about it.

Financial Crisis 101: Part 2 - What Can We Do?

2009-02-24T09:46:16Z