How can an entrepreneur prepare for a crisis? Is there a way to prepare for it? These are questions that many companies now have. Finannho Partners’ adviser Tom Lerch said it was possible.
I have this condition. And it does not invest in the company’s total profit, but its investment in financial reserves and other assets. He proved this even during the course of his client, who was a company in engineering and experienced a crisis in 2008.
Mj client company in metalworking. The business is characterized by great demands on machine track technology and equipment, according to a relatively expensive and skilled workforce. Thus, it is typical for him to look at several main customers and the verticality of long-term repeated contracts. The main factor of this is the long-term maturity of invoices, bn and half a year, describes the business of his client Financial Advisor of the Partners group Tom Lerch.
How has your client’s business developed since his arrest?
The client started his business in 1998. By the crisis of 2008, he was able to build a company with ten employees, equip the production with modern technology and gain the reputation of a good and reliable supplier. The turnover of the company in time was around eighteen million crowns, a profit of about one million. After the financial crisis of 2008, the volume of orders fell by about 70 percent, and despite the reduction of variable costs, the company faced a decision before deciding how much to redeem.
How many people did the company want to release?
The assumption was that you would be fired from ten out of ten employees. What was the most considerate variant, however, under the conditions that the owner from his own resources and family contributions will supply the company with a million crowns for further operation.
How did the employees in the companies accept the situation?
Fantastic. The employees drank with a suggestion that not to get lost, they preferred to cut their aunt’s ligaments. Thanks to that, the company did not have to go through and the crisis peilate. It took about two years before working and wage conditions returned to the original dormitories and the company started up again as before the crisis.
How has this experience changed your client’s business?
Primarily, within the financial management of the company, we began to create reserves at the level of the company and created space for the health of the company’s debt. We dreamed of overdrafts and short-term volumes. We have been involved in long-term volumes, including an investment company with a maturity of 20 years, and we have been working with the obscurity of invoices.
We started to use factoring for some customers with problematic payment standards. On the level of private pensions of the owner of the company, we worked with the fact that we began to reinvest in the company, significantly less profit. Before the crisis, the owner reinvested about 60 percent of the profit in the business. After the crisis, we agreed to reinvest in 30 percent of the profit and we began to transfer the remaining pension to the company’s owner’s own capital.
What financial instruments did you choose to store liquidity?
Due to the fact that we needed to create fluctuating reserves for both private needs and business needs, we used practically only bn and spoic ty. For the company and its owner, they did not mean a day. So they were practically risk-free.
Vnos vs nezajmal?
The added value for us was not input, because it provides the owner of the company with his business, but reduced the risks of his own business.
How have you had the financial results since the introduction of the new system?
Probably the most significant result was the reduction of the company’s overdraft from one million crowns to 300 thousand and the creation of a corporate reserve fund of more than one million crowns. At the private level, we managed to accumulate a reserve of one million crowns. Thanks to this, we managed to repay all the private loans that we needed in 2008 to heal the crisis. In total, however, we managed to withdraw less than three million crowns from the business into reserves within a few years. It was also important that it practically did not affect the development of the company. During this time, it grew from rent to its own premises, expanded the machine park and expanded the number of employees.
How did the current coronavirus crisis financially affect your client’s business?
This year of the crisis, similar to the one in 2008, saw without warning. In the spring of the jumps, the volume of orders fell by more than 50 percent. But during the holidays, the volume of orders increased again. Aktuln is a meziron volume drop in orders of about 20 percent.
How ev client souasn problmy?
Due to the created reserves, he is in a situation where he only limited his investments. He originally wanted to buy a turning center for five million crowns at the International Engineering Fair in Brno. The bag changed his mind and the fact that the fair did not even take place this year also helped him to grow up. As for the financial operation of the company, the owner takes the pension from the reserve fund, which we established after the crisis in 2008. So far, he has not had to borrow pensions to the company of twenty of his own pensions. However, there is a possibility that he will have to take this step.
You have used some of the support programs. And u skjky on pjky or Antivirus?
No, even with a relatively sharp decline in the volume of orders, the company did not need to demand a skill in the environment. The Antivirus program was then used only by ut employees out of twelve.
It follows from your client that he is prepared for the crisis d. But how to do it first?
For entrepreneurs, the basic principle of financial stability is that they do not invest the entire profit in the company, but that they invest the profit in reserves and other assets. The ideal state is that the entrepreneur’s assets have the structure: 1/3 own business, 1/3 real assets, such as your real estate, and 1/3 financial assets are exchanged for liquid reserves. The entrepreneur is thus able to support his own business, but also business risk.
Is it a universal advice?
Yes and no. To create such an asset structure, it is necessary to compile an individual strategy. It cannot be fully popularized, because a lot of factors of business growth, its profitability, the size of the company and the phase of its life cycle come into play. But so the size of the current assets and the union of the entrepreneur and the field of business and gave factors.