If you are losing money, are you looking at your options before you run out of cash? If you are in this situation, do you proactively deal with a crisis and try to turn things around before it’s too late? Do you look at your cash reserves, assets and borrowing capacity early enough to make changes while you still have time to do so? Do you know how much time you have left before you will face bankruptcy?

Hopefully you are looking at your performance on a regular basis to make sure you are not I or close to a crisis mode, but if you are there you must recognize reality, then act quickly and decisively to keep your company going.

How one gets into such a situation varies:it may be losing a major law suit, having write off a large receivable, a continuous string of losing months that add up, theft or embezzlement, a bank calling your loan, or it may be simply inattention to the slow erosion of the business over a period of time. Regardless of the cause, the sooner the situation is identified the more time you have to correct it before you run out of time and money. Then you are dealing with a crisis that requires emergency business triage to save the company from going under.

Assuming you have waited too long to take corrective action and now need emergency intervention to save your business here are a few things to consider doing ASAP.

• The first one is obvious; get your staff to produce like their jobs depended upon it, then reduce your costs by getting rid of non performing assets and expenses from people to facilities that don’t contribute to your overhead immediately.
• Next get more cash as quickly by providing a prompt payment discount and cutting prices if the incremental volume that will generate a lot more margin $.
• Next try to get a loan or gift from whoever can tide you over.
• After that you may have to make some really tough choices from non-traditional sources such as selling hard assets such as your home, liquidating pension plans, investments, selling off book of business, a facility or receivable, or liquidating the company. But if your operation is so depressed you may not have time to sell and are in a poor bargaining position anyway.

Assuming that you are in the process of turned the corner you have the option to rebuild your company, but the longer ones waits to make changes the lower the probability of rescue. For example if you are burning through $15,000 a month and have $60,000 in cash reserves, every week you wait reduces your chance of success by 25%, then 50%, etc. Making a decent triage type of decision now is better then making a really good decision 3 weeks later.

We welcome your questions as to the challenges you face in order to grow.

To see all articles in this series please go to http://optimal-mgt.com/blog.

Optimal Management is the premier management consulting company to the staffing industry. We act as mentors to owners and managers to maximize their sales, profits and value of their company. We become an extension of our clients operations and are there for all of their staffing and business needs, from sales, marketing and compensation plans, to finance, M&A, general management and everything in between.

It sounds like a simple idea. Profit is profit, so are there any real options as to how to measure profit? The answer is decidedly yes and the way you measure profit can be all the difference in the world as to the way you run your business and the decisions you make. Now we are not talking to the Controller or even the CFO who are primarily concerned with accuracy, adhering to professional accounting standards (i.e. GAAP or FASB). We are instead talking the CEO, President or those with P&L responsibility and need to make decisions based on the real performance of the company. This is often called management accounting.

Let’s start with the big divide, which is choosing between a cash basis or an accrual accounting system. To determine the performance of business one usually uses an accrual system so that for example how one elects to pay their bills for instance does not distort the real performance of the company. For example, if one forgets to pay their rent in one month and profits are higher, that does not mean the company is doing better, conversely if one doubles up next month and pays last months rent as well as this months rent it does not mean that they are suddenly doing worse. Accrual accounts books rent as an accrued expense in the month it should have been paid anddoes not double count rent in the following month, but treats it as a prepaid liability. Similarly, if one has a big Christmas party in December for a reward for a great year they should accrue for that expense each month as 12^th of the estimated cost. Otherwise December may look terrible when it really wasn’t. If one accrues for a $48,000 party and books $4,000 a month and the final bill comes in at $52,000 and we only have a $4,000 extra cost in December not $52,000. Not all costs can be anticipated but with a bit of planning a good many things can be anticipated and dealt with in this manner. Also owner’s compensation cost for small, private companies should be adjusted to reflect the fair market compensation and cost. Otherwise the owner can payout all of the profits in compensation cost and totally distort the true profitability of the company.

Other things that distort what a company is doing is not matching up revenue with expenses that are related to those revenues. For example if a sale is made in the first month and the commission or other compensation is not paid two months later, that expense should be accrued for in month 1 so we don’t overstate profit in month 1 and understate it in month 3.

There are many other such situations that arise, but I think this illustrates the choices one has. One can always revert from an accrual to a cash basis by registering changes in the balance sheet, so one can have both a management P&L which gives a more accurate picture of the company’s operating performance as well as a cash flow statement that reflects how much money is paid out and reflects a check book approach to accounting.

We welcome your questions as to the challenges you face in order to grow.

To see all articles in this series please go to http://optimal-mgt.com/blog.