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assessing risk|realizing opportunities

Credit Redi, Helps Spot Small Business Credit Risk

The recession and credit crunch have shifted financial risk from banks to small and midsized businesses (SME) that often must extend credit to customers to make a sale. When companies extend credit, in effect making unsecured loans, they’re acting like banks but without the credit management tools and experience of a banker.

Credit Redi is designed for small businesses to quickly spot customer credit risk.  Small businesses typically don’t have access to information that provides transparency about customer credit worthiness.  Credit Redi is a credit risk management tool for small and mid-sized businesses.   It only takes one or two bad receivables to damage an SME’s  financial health.  Market conditions quickly change and its critical to have some type of business insight into the businesses SME’s work with.

Credit Redi is also an excellent tool to determine the financial health of critical suppliers.  A key supplier going out of business could have disastrous consequences for SMEs.  Credit Redi  monitors the financial health of existing suppliers and help managers make wiser choices in supply chain and business partner decisions.

Get Credit Redi here: 

Risk: SME, credit risk, supply chain, partnerships, customers, receivables

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January 10, 2011 Posted by | business, credit, Credit Redi, product, small business, SME, Sum2 | , , , , , , , | Leave a comment

Mom and Pop Go Chapter 11

american-gothic-large4The Wall Street Journal ran an interesting article about the devastating effect the recession is having on family owned businesses.  The SBA estimates  90% of U.S. businesses are family-owned.  During 2008 about 4.3 million businesses with 19 or fewer employees closed according to the Bureau of Labor Statistics. If 90% of those firms were family controlled businesses more then 3.8 million families have lost their livelihoods and most likely have also lost a considerable amount of personal wealth.  This drastic dissipation of  wealth and family control of assets  is yet another blow to the middle class.  Its impact of entrepreneurial activity and capital formation initiatives may create additional headwinds for the economy seeking to overcome the deep recession.

John Ward a professor at Northwestern University observed “that the economic downturn is really just the latest setback for family-run businesses. In the 1970s and ’80s, exorbitant income taxes and estate taxes forced many to close.  Before that, the anti-establishment movement during and after the Vietnam War made many children reluctant to take over the family business.”

Beth Wood, a family business market development specialist  at MassMutual observes that family businesses are “often steeped in tradition and not as flexible to change, tend not to have formal plans in place to respond to crisis.  They’ve seen reductions in top line revenue that they just can’t react fast enough to. Problems securing credit in this recession have also prevented some family businesses from getting the funding they need.”

Ms. Wood makes an interesting observation about the importance of business agility.  The need to assess the rapidly changing market dynamics is a critical exercise that SMEs must undertake.  Business as usual will not get it done.  SMEs  must begin to transform itself to better align its business model to rapidly changing markets.  Conducting a thorough risk assessment and opportunity discovery exercise is critical  to creating a sustainable business enterprise.  Sum2’s Profit|Optimizer is a critical tool that helps SME managers assess risks, spot opportunities and initiate actions to achieve business growth and profitability.

Family owned enterprises must overcome the gravity of generational business cultures that inhibit and resist change.  SMEs will survive and thrive if they can identify emerging opportunities the current business cycle is creating.  SME’s will survive and thrive if they have the will, resourcefulness and a supportive culture to change.  These are the qualities required for long term sustainability and growth.  Business as usual is giving way to a “New Normal,” where adaptability to structural market changes are keys to asset preservation and wealth creation.

You Tube Video: Willie Nelson, On the Road Again

Risk: family trusts, asset preservation, small business, bankruptcy

October 6, 2009 Posted by | bankruptsy, business, credit, economics, product, risk management, SME, Sum2, sustainability | , , , , , , , , , , , , , , , , , , , , , , , | 4 Comments

Sum2 Announces New Business Webinar Series: Recovery Tools for the New Economy

sum2 large corp logoGreat Falls Festival Paterson, New Jersey September 7, 2009: Sum2 is proud to be participating again in this year’s historic Great Falls Festival and is pleased to announce a new webinar series entitled “Recovery Tools for the New Economy.” The webinar series is designed to highlight the dramatic changes occurring in the economy and provide business managers with a set of tools to assess business risks and uncover opportunities the trying business cycle is creating.

The Great Falls Festival presents a perfect opportunity for Sum2 to announce its new webinar series. The Festival brings together leading industry executives, business associations, academic institutions, service providers, government agencies and capital market participants. Sum2 believes economic recovery will require concerted action by all these participants.  Sum2 invites all of their participation to more effectively address the problems and opportunities confronting business and industry to effect sustainable economic recovery.

Recovery Tools for the New Economy

The Recovery Tools for the New economy Webinar Series will consist of three modules.  Those modules include:

  • Macro Risk and Opportunity Assessment: Macroeconomic, STEEPLE, SWOT, Financial Ratios, ROI Analysis
  • Product and Market Segment Assessment: Product, Customer, Competition, Supply Chain, Market Dynamics
  • Business Function Performance Scoring, Management, Sales and Marketing, Operations, Accounting, IT, Human Resources, Facilities

Each webinar will provide participants with an SMB 360 workbook and a series of interactive worksheet templates to conduct assessment exercises.  Each webinar session will run approximately 1 hour in length.  Each webinar module subscription fee will be $75.00.  Subscribers can purchase a subscription to all three modules for $200.00. Subscribers that license all three modules can also purchase a Profit|Optimizer license for $200.00.  Subscriptions to the webinar can be purchased on the Sum2 website www.sum2.com.

Sum2: Sound Practice Thought Leader

For the past three years Sum2 has used the occasion of the Great Falls Festival to announce a new product or market initiative.  Last year Sum2 unveiled The Hamilton Plan.

Sum2’s announcement of the Hamilton Plan is in response to the compounding economic and political crisis that is confronting the United States. The credit and energy crisis, inflation pressures, trade deficits, geo-political instabilities, global warming and ecological degradation are the result of long term systemic problems that government and industry has failed to address effectively.

Sum2 put forth a 10 Point Program that squarely addresses these pressing issues.  The previous year Sum2 announced the SMB|360° product series which has grown to include the Profit|Optimizer, IRS Audit Risk Program and the Macroeconomic Risk Assessment program.

The Profit|Optimizer is a qualitative risk assessment and opportunity discover tool. It assists SME’s to identify and score business vulnerabilities and opportunities. The Profit|Optimizer conducts over 200 assessments encompassing products and markets, business functions and critical success factors. The Profit|Optimizer aggregates risk assessment scores and presents action items on a series of dashboards that enable managers to decide what initiatives mitigate the greatest risk and produce the greatest return.  The Profit|Optimizer demonstrates to shareholders, bankers and other stakeholders that company management are effective risk managers and are committed to corporate governance excellence.

Sum2 offers a series of products and services to help SME’s effectively manage risk, improve stakeholder communication, implement effective corporate governance that create sustainable business practices to assure long term profitability and growth.

Sum2 also offers the award winning PACO™ (Patriot Act Compliance Officer). PACO™ helps financial services companies comply with the anti-money laundering provision of the Patriot Act.

About Sum2, LLC

Sum2 was founded in 2002 to promote the commercial application of sound practice programs. Sum2’s sound practice program addresses risk management, corporate governance, shareholder communications and regulatory compliance. Sum2’s objective is to assist businesses and industries to implement corporate sound practices that add exponential value for stakeholders, employees, customers and to be exemplary citizens within the communities in which they operate and serve. Sum2 manufactures, aggregates, packages and distributes innovative digital data content products to selected channels and markets.

For more information on this program or to order products offered by Sum2 please contact customer.service@ sum2.com or call us at 973.287.7535.

September 8, 2009 Posted by | IARP, product, SME, sound practices, Sum2, Uncategorized | , , , , , , , , , , , , , , , , , , , , , | 1 Comment

The Yin and Yang of Inflation

Yin YangInflation like all risk is a double edge sword. Its negative nature will upset the apple cart and pose uncomfortable challenges for business managers that have grown accustomed to the status quo. It will force managers to reconsider their well conceived business plans and perhaps more closely scrutinize this quarters P&L or the company balance sheet. It will present serious challenges for businesses supply chain and client relationships. It may raise the eyebrows of your shareholders and credit providers perhaps provoking some pointed questions concerning your management skills and the validity of your business model.

That said inflation does have an upside. Like all risk factors it has the potential to create opportunities for your business. Inflation will drastically alter market conditions. It will reveal inefficiencies that nimble businesses can actively engage and manage to turn those market conditions to their advantage. The key operative words are management, intentionality and active engagement.

Inflation is a silent killer. It stalks all businesses threatening to gobble up product margins, revenue opportunities and bottom line profits. It diminishes customer buying power and may threaten the solvency of your largest customers and suppliers. It drives up the cost of capital, making credit more expensive while it forces state and local governments to raise taxes and fees.

The inflation bogey man lurks in the profit and loss statements of all businesses with small business being particularly vulnerable to its effect. Inflation dramatically shows itself on the expense side of the ledger in the increases for basic materials, energy, delivery services, T&E, administrative expenses and employee benefits. Inflation also affects the income side of the profit loss statement. It erodes the buying power of your customers and threatens collection of receivables by extending days outstanding, increased write offs or the sale of uncollected debt for pennies on the dollar.

Small business profitability is particularly sensitive to the effects of inflation because of economies of scale, concentration of risk factors and lack of pricing power.

Many small businesses lack pricing power. Pricing power suggests that if price of a product rises to a certain level demand for that product will not diminish. For a small business to have pricing power it must offer a non-commoditized product to dependent buyers. Its product or service cannot be easily replicated or widely available from other sources.

While pricing power escapes most small businesses numerous factors inhibit their ability to become low cost producers. They deliver product or service differentiation to their customers by other means then low price. Inflation erodes consumer purchasing power driving buyers to seek low cost producers. In this environment small businesses may suffer when buyers trade down to low cost providers. Key customers may compel small businesses to lower prices to be more in line with lower cost producers. This is a major threat to small businesses.

Small businesses tend to have greater risk concentration in their business model. Heightened risk concentrations are most pronounced in small businesses due to a limited product line, geographical risk, market cyclicality and in client and supply chain relationships. Consider a small manufacturer of finished steel products for the home construction industry. Generally, manufactures profitability is highly correlated to the price it pays for basic commodities and has an extremely high concentration of supply chain and product risk. Small businesses may not be able to recover or adjust its product prices to cover increased commodity prices due to existing contractual agreements with customers or its lack of pricing power. The abatement of market demand due to a recession may provoke larger customers to demand price concessions by threatening to move their business to lower cost producers. The pressure on this small manufacturer is compounded by a spike of smaller account losses and moribund demand due to weak cyclical market conditions in its target market.

It’s almost a perfect storm of negative business conditions. Small businesses managers need to understand how inflation touches all aspects of their business and must manage its impact to maintain profitability and sustainable growth.

Managing Inflation Risk with a WIN Campaign

Small businesses can meet the challenge of inflation head on by implementing a Whip Inflation Now (WIN) program that engages the numerous risks inflation poses. In deference to our former President Gerald Ford, business managers can initiate WIN Programs and actions to temper the impact of inflation and to seize opportunities that rapidly changing market conditions create. Small businesses must be extra vigilant and proactive in managing all classes of business risks.

Some small businesses will cave into the demands of their large accounts to cut prices to prevent them from going to a lower cost provider. This is very dangerous for small businesses and can result in “death by a thousand cuts.” Managers should not wait for their largest account to approach them seeking price concessions. Now is the perfect time to go on the offensive and alter the value proposition that only your firm can uniquely deliver to key accounts. Remember your largest accounts are experiencing the negative effects of inflation as well. Go to them and propose a WIN Campaign. A company’s WIN Campaign can offer a joint marketing program using WEB 2.0 techniques. Your WIN Campaign can implement an expanded training and support program tied to a business development program or supply chain rationalization. You may suggest a partnership to develop a new product or put in place a customer loyalty program. Your job is to create a unique value proposition that adds value to your product and convey it to your customer so they cannot commoditize your product. Together you and your clients can WIN the fight against inflation and turn it into a business development initiative. Your clients will appreciate the fact that you are thinking about their business success.

Another common knee jerk reaction to fight rising business costs is to reduce expenses by cutting expenditures on areas that do not support the mission critical functions of the business. Capital is allocated to maintain funding to support sales, production and product delivery. This is coupled with a lean administrative management structure and this model is seen as a recipe for economic survival. Being good stewards of corporate capital is essential during these times. Capital leakage is always a threat to business profitability and needs to be even more diligently managed during times of economic duress. But this strategy is a subsistence survival strategy. It is based on investing the barest minimum of capital to address fluctuating market conditions. This strategy may limit small businesses ability to literally capitalize on opportunities that changing market conditions present.

Cutting expenses for marketing is usually another budget casualty when businesses look to cut costs. This will reduce your current expense line for this quarter and will certainly help bottom line profitability; but skipping this year’s trade show will not help you to locate that new customer who is looking for a supplier because his current provider is struggling with product quality issues. Cutting this expense won’t provide you with the critical insights you need to stay competitive and ahead of new market entrants that are attending trade shows. Who by the way are also aggressively courting your largest account to get just a tiny slice of your business to demonstrate their “superior value proposition.”

Employee benefits and training is another area that is often the focus of budgetary cutbacks. Many small businesses need to closely consider the gains they will realize by cutting back on benefits offered to its employees. Cutting benefits could increase employee turnover. Training and hiring new employees are an expensive proposition for small businesses. The loss of key employees can potentially devastate a small business. Expertise, intellectual capital and critical business intelligence leaves the organization when a key employee walks out the door. This is doubly true if some key employees leave the firm and walk some major client relationships out the door with them.

Small businesses can also try to employ risk transfer strategies. Insurance purchases may help in some areas but to fight inflation small businesses can use financial instruments (capital permitting) to hedge against rising prices. The purchase of TIPs, FX forward contracts, commodity or energy futures can help to offset the negative effects of key inflation business threats. As the price of oil rose this summer a modest equity position in oil or other energy company would have helped to offset the increase in energy expenses.

Thankfully adverse economic conditions will force small businesses to take an honest look at their product lines and business model. Economic adversity provides an opportunity for management to make hard decisions concerning product lines. This is an ideal time to focus and fund the development of products that offer the greatest potential for long term profitability and sustainable growth.

Inflation is a significant problem for small businesses but it is a problem that can be managed. Changing economic conditions alter the landscape for all businesses that accelerate and starkly reveal market inefficiencies. These inefficiencies create market anomalies and opportunities that astute small business owners and managers can capitalize on through an intentional practice of a risk management and opportunity discovery program.

June 20, 2008 Posted by | business, commodities, credit crisis, economics, inflation, product, recession, risk management, SME, supply chain, US dollar | , , , , , , , , , , , , , , , , | Leave a comment