A practical action plan and other things to consider in restructuring business debt For book purchase, licensing for the stage or more information please visit our website. Watch video: http://youtu.be/bBvlJYTpW5g Available on Amazon from John DeGaetano Productions http://www.amazon.com/author/johndegaetano http://www.johndegaetanoproductions.com

1. Practical Strategies
to
Restructuring
Business Debt

2. Practical Strategies to Restructuring Business Debt
In this presentation we’ll discuss:
 Some Business Statistics
 What is Debt Restructuring
 The Warning Signs
 Business Questions to Answer
 Classifying Creditors
 Calculating a Monthly Budget
 Writing a Hardship Letter
 Business History Profile
 Payment Plan Cover Letter
 Initial Re-Payment Offers
 Other Basic Strategies to Reduce Debt

3. How Important are Small
How Important are Small
Businesses to the U.S.
Businesses to the U.S.
Economy?
Economy?

4. Small firms:
 Represent approximately 99% percent of all employer firms.
 Employ half of all private sector employees.
 And pay more than 45% of total U.S. private payroll.
 Have generated 60 to 80% of net new jobs annually over the
last decade.
 Create more than 50% of non-farm private gross domestic
product (GDP).
Sources: U.S. Bureau of the Census; Federal Procurement Data System; Bureau of Labor Statistics, Current
Population Survey; U.S. Department of Commerce, International Trade Administration.

5. Small firms also:
 Supply more than 20% of the total value of federal contracts.
 Produce 13 to 14 times more patents per employee than large
patenting firms. These patents are twice as likely as large firm
patents to be among the one percent most cited.
 Are employers of over 40% of high tech workers (such as
scientists, engineers, and computer workers).
 Are over 50% home-based and 3 percent franchises.
 Make up an average of 97% of all identified exporters and
produced approx 29% of the known export value.
Sources: U.S. Bureau of the Census; Federal Procurement Data System; Bureau of Labor Statistics, Current
Population Survey; U.S. Department of Commerce, International Trade Administration.

6. How many businesses open
and close each year?

7. Annual estimates for
businesses with employees:
672,000 new startup firms
and 545,000 closures
(* both are estimates and averages about 10 percent of the total)

8. For those
closures, the
clock was
ticking
Research shows
the majority of
closures is the
result of cash
flow issues
and the burden
of debt

9. What Is Debt Restructuring?

10. Debt Restructuring is the
process of negotiating new
payment terms with
existing creditors

11. The purpose is to satisfy
your creditors on a budget
you can realistically
afford.

12. In Restructuring Debt,
You Have to See…

13. The Warning Signs

14. The Warning Signs
• Cash flow isn’t enough to
handle all the expenses
• Debts are continually put off
• Some new or negotiated
payment terms with creditors
have now become a burden.

15. The Warning Signs
• Running past due on more
than a third of payables
• Shuffling to pay smaller
creditors verses larger
• Bouncing checks or have been
contacted by collectors

16. When these signs are present, it’s time to
develop a practical and realistic plan to
satisfy creditors and survive

17. You’re not
alone…

18. Basic Strategies to Get Out
of Excessive Debt
Reduce Costs
Increase Income
Restructure Liabilities
Restructure Assets
Raise more Capital
Exit the Business

19. 1. Reduce Costs
 There are two principle ways to reduce costs: look for big
savings, or make small cost reductions across the board.
 To make savings across the board, set a savings target (say, 10%)
and reduce each budget by that amount. Then take small steps to
reduce traveling costs or opting for equipment alternatives or
leasing, etc.
2. Increase Income
 Increasing the amount of money flowing into your business, as in
increased marketing, cross-selling to existing customers, offering
special deals for additional or advance orders, getting referrals
with other organizations and/or affiliates.
 Raise your prices based from a comprehensive study.
 Find alternative sources of income. Rent unused office space,
consider selling advertising space on your website (Google
Adsense, YPN, MSN Adcenter, affiliates) or in physical spaces
you have available, obtaining commissions from other
organizations.

20. 3. Restructure Liabilities
 Restructure liabilities for more cash, and/or reduce the amount
of debt.
 Agree to longer or reschedule payment terms with suppliers.
 Replace or consolidate existing loans with lower interest rates.
 Defer tax liabilities (requires specialist tax advice).
 There are two other principle ways to reduce costs: look for big
savings, or make small cost reductions across the board.
 For savings across the board; set a savings target (of approx.
10%) and reduce each budget by that amount. Reduce misc.
costs or opt for equipment alternatives, leasing, etc.
4. Restructure Assets
 Sell unnecessary assets (example: surplus/old equipment, cars)
 Convert necessary assets into liabilities: sell to a finance
company and lease them back.
 Factor invoices (this can reduce the asset value of the invoice,
but can raise immediate cash).
 Use investments or cash to pay off loans.

21. 5. Raise more Capital
 Find investors or sponsors.
 Issue more shares to current investors.
 Obtain grants if applicable.
6. Exit the Business
 Sell the business.
 Sell off all or limited business assets (including the business
goodwill, or partial client base) and use the proceeds to pay
off liabilities of issue.

22. A Practical Action Plan

23. A Practical Action Plan
Business debt can be a good thing and working through it
can be a very stressful event. It can help you to establish
your business, fund growth or invest for the future.
On the other hand, if the level of borrowing becomes
excessive it can lead to many problems without a
practical action plan.

24. A Practical Action Plan
If the level of borrowing becomes
excessive it can lead issues such as:
• Running out of cash
• No contingency to deal with unexpected
costs
• Reducing the value of the business
• Losing the confidence of stakeholders
• Inability to invest
• Reduced service/product quality
• Employee conflict and many more...

25. In a turbulent time it’s important to
remember a few vital steps

26. Businesses in a Restructure
Process Need To:
• Realize that the business is in
economic crisis
• Reinvent the business mission
and vision
• Redefine the business’ value
proposition
• Refinance the business

27. Businesses in a Restructure
Process Need To:
• Redefine leadership and roles
• Rethink marketing and
communication
• Redistingush from competitors
• Resign the organization and
network

28. Some Other Things to Consider
Before Restructuring and
Questions to Answer

29. • First, what is the future
potential of the business?
• Then, is restructuring worth
the time and energy that it
takes to work on a recovery
process?
• Is the business willing to
revise and renegotiate?

30. • Which debts need to be
restructured and their
amounts?
• What amount can be
realistically put towards
these debts?

31. How Should Creditors
be Restructured?

32. Classifying Creditors
Non-Essential
Creditors
C
Essential Important
Creditors Creditors
A B
Decision Maker

33. A List – Essential Creditors
Without their product, services or equipment, you
would not be able to operate.
There is really nowhere else to purchase the
product, service or equipment as priced.
These creditors should not be restructured and are
critical to survival of the business.

34. B List – Important Creditors
Creditors that are still willing to sell to you.
Their products, services or equipment may be
important, but could be purchased elsewhere.
Currently carrying a past due balance, but not
pushing for payment.
Vitals

35. C List – Non-Essential Creditors
Are no longer willing to do business with you.
Have stopped giving you credit and you do
not need to do business with.
Are not critical to your survival.
Have placed the account in for collection.

36. A Framework for
Recovery

37. How Much Can You Afford Each Month?
What a realistic amount to pay on a consistent
monthly basis toward excessive debts?
What is your cash flow and how much is left
on average each month without designated
restructured debts amounts?

38. Calculating A Monthly Budget
1. Calculate your average
projected monthly revenue.
2. Then calculate the greatest Average Projected
monthly variable (example: Monthly Revenue =
your high revenue month
minus –
minus your lowest) This is
your number for next slide. Average Projected
3. Now calculate your average Monthly Expenses =
projected monthly expenses.
4. And then subtract average Equals = Average
projected monthly expenses Monthly Gross Profit:
from your average projected
monthly revenue.
* Please refer to workbook guide

39. Calculating A Monthly Budget
75% of Avg. Monthly
5. Now calculate 75% of your Gross Profit =
average monthly gross profit.
6. Then multiply by your multiply by item #2
greatest monthly variable
then, divide by total
(from item #2 of previous).
7. Divide by total designated designated debts =
debts. equals =
8. This equals your profit Profit Variable:
variable.
9. Now subtract your average subtract Profit Variable
profit variable from average from Average Gross
gross profit Profit =
10. This is your debt payment
monthly budget. Monthly max Debt
* Please refer to workbook guide Payment budget =

40. Calculating A Monthly Budget – worksheet
75% of Avg. Monthly
Average Projected Gross Profit =
Monthly Revenue =
multiply by item #2
minus –
then, divide by total
Average Projected designated debts =
Monthly Expenses =
equals =
Equals = Average Profit Variable:
Monthly Gross Profit:
subtract Profit Variable
from Average Gross
Note: taking a conservative approach
Profit =
when calculating your revenue and
expense projections will help in times
when cash flow is exceptionally tight.
Monthly max Debt
Payment budget =

41. Calculating A Monthly Budget – example
75% of Avg. Monthly
Average Projected Gross Profit = $1,875
Monthly Revenue = $10,000
multiply by item #2 $3,000
minus –
then, divide by total
Average Projected designated debts = $25,000
Monthly Expenses = $7,500
equals =
Equals = Average Profit Variable: $225
Monthly Gross Profit: $2,500
subtract Profit Variable
from Average Gross
Profit = $2,275
Monthly max Debt
* Please refer to workbook guide Payment budget = $2,275

42. Calculating A Monthly Budget – example
• If you can afford to pay 9.1% of Monthly max Debt
the designated debt each month it Payment budget = $2,275
would take approximately 10-12
months to pay off and is Divide by total
considered a moderate cash flow $25,000
Designated Debts
issue.
Equals % = 9.1%
• Above this percentage would be
This is the max monthly % you can
considered a minor cash flow afford to pay toward debts
issue and take less time to pay off.
• And below this percentage would
be considered a major long term
cash flow issue of more than a Example shown above. Percentages may
year. vary and it is advisable to seek
professional help for major debt issues.
* Please refer to workbook guide

43. Writing A Proposal and What To Include
 Hardship Letter
 Business History and Profile
 Payment Plan Cover Letter
 Initial Re-Payment Proposal

44. Writing Your Hardship Letter
Can you demonstrate your hardship? If so, creditors may be persuaded to go
beyond their normal outstanding balance settlement parameters. A hardship letter
is personally addressed to the creditor and should adequately describe the issues
affecting you and your business that have contributed to your financial dilemma.
A template hardship letter should include things like:
 Any personal tragedy such as aa
 Any personal tragedy such as  If you are personally liable and you
 If you are personally liable and you
serious illness, divorce or death in
serious illness, divorce or death in have little or no assets or equity in
your family. have little or no assets or equity in
your family. your home.
your home.
 Any disaster, such as aafire, flood or
 Any disaster, such as fire, flood or
property damage adverse weather  The loss of key equipment due to
 The loss of key equipment due to
property damage adverse weather
issue.
issue. repossession or breakdown.
repossession or breakdown.
 If you are behind on any taxes and
 If you are behind on any taxes and  Any secured loan that is in default or
 Any secured loan that is in default or
whether there are any tax liens
whether there are any tax liens is in the process of consolidation.
against you or other debts. is in the process of consolidation.
against you or other debts.
 Any existing lawsuits or changing
 Any existing lawsuits or changing
 If your home is in, or close to being
 If your home is in, or close to being
in default or foreclosure. regulatory issues.
regulatory issues.
in default or foreclosure.

45. Business History Profile
Your profile should be in a checklist format and include a
detailed analysis of the following items:
 Your general company information.
 Start date, business type and company description.
 Financial hardship and how the company has been
affected in the areas of – Sales, Cash Flow, Expenses
and/or Operations.
 Three year sales history verses expenses and net profit.
 Lawsuits or judgments pending, taxes owed or any
other extenuating circumstances.
 Actions taken to resolve the debt issue.

46. The Cover Letter
Should include:
 Your contact information on company stationary.
 A brief introduction along with an explanation of your
current financial situation.
 A request in working together to resolve your debt
issue and reference review of the attached documents.
 Respectfully ask the creditor to hold off on any legal
action and ask for their help in attempting to save the
business.

47. Initial Re-Payment Proposal
Separate creditors into classes. Example: Class A, B, C, D, etc
 Rate Class A creditors for minimum amount of total debt
they will accept as settlement. For example 16% to 20% of
the total amount to be paid in full within one month.
 Rate Class B creditors who will accepts 30% to 35% of the
total debt to be paid in three or four monthly installments
with first payment deferred for two to three months.
 Rate Class C creditors who will only accepts a minimum of
60% to 70% of the total debt to be paid in seven to eight
monthly installments and deferred to begin in six months.
Variance

48. Initial Re-Payment Proposal
 Rate Class D creditors who want to be paid in full only with
one lump sum to be negotiated for payment after twelve
months or more based on agreement.
 Rate Class E creditors who will accept a combination of
class agreements and monthly installment payments.
 Agreements: By both (the business and the creditor) should
include a cease to any and all collection efforts unless there
is a default in the agreement. All workable payments plans
should be reviewed by a financial advisor as results will vary
based business debt and revenue factors.
Variance

49. A Few Tips to Remember
1. Put aside your monthly budget like clockwork, even
if no payments are scheduled to go to creditors.
2. Keep a good accounting of your reserve funds.
3. Just because a settlement sounds good, it doesn’t
mean you can afford it. Be conservative and
understand situations will vary.
4. Don’t promise more than you can deliver. Don’t be
in a rush to settle what you can’t afford to pay.
5. Cut expenses. If feasible, scale back on an employee
or an expense that doesn’t translate to revenue.

50. A Few Tips to Remember
6. Don’t avoid creditor calls… communicate consistently.
7. Some collectors can be rude. Never sink to their level.
If they are unprofessional, ignore rudeness and maintain
composure.
8. Contact the creditor if you fall behind on scheduled
payments and work out a time to resume payments.
Don’t send any further payments unless the creditor
agrees to accept the future payments under the existing
terms.

51. Note: A Framework for Recovery should
include seeking the advice of a
Financial Advisor and an Attorney
A List B List C List

52. Obstacles in Restructuring Debt?
Even if you’re on the right track, you’ll get
run over if you just sit there.
Will Rogers

53. so there you have it…

54. Practical Strategies
to
Restructuring
Business Debt

55. For the full version of this presentation
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