Maximizing Value in a Court – Appointed Receivership

 

Given the current business climate, particularly in light of recent negative economic indicators, there is little question that more businesses will be showing signs of distress.

For example, the US business activity gauge contracted for the third consecutive month, according to an S&P index, as a result of high inflation and increasing interest rates.

Loan default rates have also more than doubled since the beginning of the year. Furthermore, US bankruptcies are forecasted to increase over 50% by the second quarter of 2023 compared to the prior year according to Trading Economics.

 

NO COMPANY IS IMMUNE …

It’s unsurprising then, based on the above data, that many businesses have been unable to cope with the rapid increase in inflation, rising interest rates and a slowdown in demand for their services or products.

No company is immune from these factors and their ability to cope with such challenges is typically hampered by management’s inability to deal with them in a timely fashion.

This inaction ultimately results in a rapid decline in revenue and cash flow and frequently leads to the business becoming insolvent.

 

ONLY A FEW CHOICES …

When businesses become insolvent, they have only a few choices to deal with the problem. The most frequent thing we hear in these circumstances is that “we will just file for bankruptcy and reorganize the business”.

Once management has contacted an insolvency attorney, they often find this option is either not a viable solution due to the lack of resources to pay professional fees, and/or they don’t have a realistic plan to generate enough cash to pay back their creditors.

The State of Washington laws provide for an alternative by way of a court-ordered “Receivership” or an “Assignment for the Benefit of Creditors”.  In this situation, a neutral third-party professional steps into the shoes of a business-owner and manages the process in a way that maximizes the value of the assets for the benefit of its creditors.

The “receiver” is considered to be an officer of the court and manages the process based on the powers they receive as outlined in the Washington State Receivership Act.

 

A BETTER ALTERNATIVE …

There is typically a belief that the receiver’s job is to rapidly wind down the business and sell the company’s physical assets at an auction. While this is a possible solution in some situations, it does not always provide the best return for the creditors or for the stakeholders.

There is usually a better alternative, where the receiver operates the business as a going concern and eventually sells the assets of an operating business to the highest bidder.

As part of this process, the receiver rapidly streamlines the business and optimizes cash flow, with the goal of generating enough free cash flow to pay all expenses including the expense of the receivership.

In many situations, the amount of cash generated can exceed the expenses and as a result the receiver actually improves the value of the estate by increasing cash balances.

 

ANOTHER SIGNIFICANT BENEFIT …

Another significant benefit of operating the company in a receivership, is to leverage the receivership statutes in a way that enables the receiver to collect cash that might not have been collectable otherwise.

For example, the receiver can compel collection of past due accounts receivable or payments on construction contracts, regardless of outstanding liens or other encumbrances.

The receiver has the support of the receivership statutes, their legal representatives and the court to compel these payments, when otherwise these amounts might not have been collected. These actions also increase the value of the estate by adding to the cash balances

 

A GOING CONCERN VALUE …

Selling the business as a going concern benefits the receivership estate by generating more cash than would be achieved by outright liquidating the assets of the business.

In these situations, the assets are valued based on their use to the individual buyers, as a package that generates ongoing cash and therefore has more value.

One additional benefit is that employees of the company are retained by the receiver and typically end up being employed by the company that purchases the assets subsequent to the sale of the business.

Another benefit is that the creditors of the business typically continue to supply goods and services to the receiver and often continue to sell to the company’s new owners.

 

OVER 30 CASES …

Since 2009, Revitalization Partners has served as a receiver in over 30 cases in Washington and Oregon.

During those proceedings, we have typically sold assets of the company as a going concern and have significantly maximized the value of those assets at a value in excess of what would have resulted from a liquidation of the assets of a non-operating company.

We have also gained valuable experience in managing the affairs of the estate in a way that increases the value to the creditors and stakeholders.

When companies, lenders and attorneys look at options to deal with insolvent companies, it is important to look at all potential possibilities.

When considering receivership as an option, make sure to talk to professionals who have the experience in maximizing the value of assets for all stakeholders.

 

Revitalization Partners specializes in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering, a State Receivership or Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.

The Risk of Waiting Too Long

 

There is no question that the high rate of inflation, supply chain challenges, and higher interest rates, have taken their toll on businesses over the past few years.

Many businesses have found creative ways to deal with these challenges, however, there are a number of businesses that have not made significant changes and are merely waiting for business conditions to improve.

 

HEAVY INFLUX OF FUNDS …

The heavy influx of funding from the federal and state governments have certainly helped businesses cope with these challenges; particularly since a number of the loan programs allowed for the loans to be forgiven if certain conditions were met.

There was an expectation that these federal and state programs would assist businesses by injecting cash into the business to weather the COVID storm. It was assumed that as business issues associated with the pandemic began to subside, demand for goods and services would increase.

Furthermore, banks were given leeway by the Federal Reserve to defer loan payments for an extended period of time, which provided additional relief to businesses suffering from the impact of COVID.

 

LOAN PROGRAMS HAVE ENDED …

However, now that the federal and state loan programs have ended and banks are no longer deferring payments, businesses can no longer rely on these programs to support their operations.

As a result, there are a significant number of businesses that continue to struggle and/or have shut down as a result of their inability to make the appropriate operational changes in response to changing customer behavior.

The most recent U.S. Bureau of Labor Statistic report for the month of August reported that 1.9 million persons lost their jobs because their employer closed or lost business due to the pandemic.

While this is an improvement from the prior month, this statistic represents the significant long-term consequences for businesses unable to cope with the impact of COVID.

 

SOME WAITED TOO LONG …

There are other signs that a number of businesses have waited too long and are facing tough choices to survive, or worse, they are facing either a lender or creditor forced bankruptcy/receivership or liquidation.

For example, default activity in the U.S. leveraged loan market increased significantly in August. Coming off of historic lows, the dollar value of defaults doubled from July to August according to the Morningstar leverage loan index.

Furthermore, the value of US distressed loans has more than doubled since January 2022. Another important indicator is the number of August commercial bankruptcy filings which increased 16% over the previous month.

 

LENDERS INCREASING SCRUTINY …

Businesses that continue to incur cash flow deficits need to find ways to rapidly makes changes or face the prospect of losing their business.  Particularly, if they are highly leveraged.

Lenders have increased their scrutiny of businesses, particularly those having declining profits, or losses, given the changing environment of frequent loan defaults and the increasing level of bankruptcies and receiverships.

They are, in fact, taking significant action earlier as they start to see early signs of business distress or violations of financial covenants.

 

PROACTIVE MANAGEMENT NECESSARY …

It is really important in this business environment for management teams to be proactive in addressing operating challenges earlier in the business cycle.

  • They must frequently review key financial indicators relating to revenue and profit compared to the prior year, and, if there is a consistent month to month decline, work to develop plans to improve performance.
  • Management must also take a proactive approach in communicating with their lenders and if necessary, with key vendors.
  • Providing an overview of the business from a financial perspective, including financial projections, along with a written plan to improve performance will go a long way to instilling confidence with key creditors.

 

SEEK EXPERIENCED PROFESSIONAL HELP …

If management is unable to execute timely changes to improve performance, it is important to seek advice from experienced professionals, such as a turnaround professional and/or insolvency attorneys.

Staying ahead of the process and maintaining control of the business, regardless of the outcome, will provide a better result for the stakeholders, rather than deferring to lenders or creditors that could potentially force a solution that may not be in the best interest of the responsible parties.

Management is at significant risk, both from a business and personal perspective, if they wait too long to deal with declining cash flow.

Maintaining control of the business throughout the process is vitally important so management can be informed and empowered to take steps to possibly mitigate risks.

And early in this process, don’t be afraid to ask for help to improve the odds for success.

 

Revitalization Partners specializes in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering, a State Receivership or Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.

Why Are Businesses Still Optimistic?

 

A recent Goldman Sachs’ survey of small business owners found that 93% fear the coming recession, and 89% report that broader economic trends, including inflation, supply chain and workforce challenges are still taking a toll.

In spite of these challenges, the survey also found that 65% of small business owners remain optimistic about the future.

This is a staggering dichotomy between what the business owners are experiencing now and their belief that they can overcome these challenges in the future.

It’s important to understand why businesses are feeling relatively positive about the future and what lessons can be learned.

 

DIGGING A LITTLE DEEPER …

To better understand this optimism, one must dig a little deeper into the challenges these businesses are facing. 

According to the survey, difficulty in hiring and retaining workers remains the most significant problem facing small businesses, with 84% saying that hiring challenges have gotten worse or stayed the same over the past three months.

Record inflation and ongoing supply chain challenges continue to have an outsized impact on small businesses as well. 

  • Ninety-seven percent of small business owners today, say that inflationary pressures on their business have increased or stayed the same compared to three months ago.
  • Sixty-five percent have had to increase the prices of their goods or services to offset the negative impact of broader economic trends and 38% have seen a decline in customer demand as a result of inflationary price increases.
  • Making matters worse, 80% say that higher gas prices are negatively impacting their business and
  • 78% say supply chain issues have gotten worse or stayed the same compared to three months ago.

 

DESPITE UNPRECEDENTED CHALLENGES …

Notwithstanding these broader trends however, as mentioned, nearly two-thirds (65%) of small business owners remain optimistic about the financial trajectory of their own business in 2022.

Despite the unprecedented challenges of the past few years, small business owners remain resilient, overcoming obstacles and finding innovative ways to grow their companies, create jobs, and strengthen their communities. One of the main underlying reasons for their optimism is business owners’ experience in surviving during the pandemic.

Over the past two-and-a-half years, small business owners have faced a once-in-a-century pandemic, once-in-a-generation inflation, unprecedented supply chain disruptions, and historic challenges in finding qualified employees.

Business owners, that have survived the most dramatic business conditions in over a century, have learned how to make changes to their operations in a way that improves productivity and lowers the cost of doing business.

 

MAJORITY EXPECT INCREASED REVENUES …

In many cases, businesses have thrived during this period and the ability to maintain or increase their level of revenue coupled with improving productivity has provided the foundation for their confidence going forward.

Given this level of confidence, it is not surprising then, that two-thirds of small businesses expect to increase their revenue over the next year and 43 percent plan to hire more staff, the highest figures in two years, according to a survey from the U.S. Chamber of Commerce and MetLife.

The report, which covered the period of April 29-May 17, found that small businesses are the most optimistic they’ve been since the start of the pandemic, despite growing concerns about the impact of red-hot inflation.

 

THE FUTURE IS DIGITAL …

One of the main drivers in helping small businesses accomplish these goals and an area that holds promise for small businesses in the future is digital technology.

Despite the myriad of challenges faced by America’s small business owners today, the majority remain optimistic about adapting to an ever-more-competitive landscape.

Over the past 12 months, 70% adopted new strategies to do business in digital spaces, such as:

  • online banking (52%);
  • accepting cashless payments (43%);
  • expanding social media presence (34%);
  • and creating an online sales presence (28%).

 

IN THE DECADE TO COME …

In the decade to come, 44% of business owners surveyed, plan to prioritize digital sales—and while word of mouth remains the most powerful marketing tool small businesses have on their side …

… 53% agree that social media has become one of the most effective marketing strategies.

While digital technology appears to be a significant tool to help small business owners increase revenue and improve productivity, these lofty goals cannot be achieved without careful planning and finding the best-suited technology for their business.

This process must start with developing goals for revenue increases and having an understanding of how the increase will be achieved. For example, will increased revenue come from existing or past customers, new customers, or increased pricing?

Most likely, it will come from a combination of these sources. It’s important to find the right technology to help the business owner analyze sources of current revenue, opportunities to create new revenue and to have the tools to develop programs to market and to measure how they are progressing towards achieving their goals.

While many companies are optimistic about their future, it will be difficult to achieve those goals without a plan.

Developing a well-thought-through plan that takes into account the appropriate technology for their business is essential. And don’t be afraid to ask for help from an expert, to improve the odds of success.

 

Revitalization Partners specializes in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering, a State Receivership or Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.

Impact of Inflation on Small and Mid-Sized Business

 

As the world seemingly gets the Covid-19 problem under control, and the outbreaks that are occurring can be mitigated, the United States, and especially small and mid-sized businesses are on the front line of managing a post-pandemic future.

While many businesspeople are excited about this future, an analysis by Deloitte shows that the next phase of the economy is an increase in gross domestic product that booms beyond pre-pandemic levels.

 

AND NOW WHAT …

Having survived the pandemic, now small and mid-sized businesses are being hit with surging inflation. It’s limiting their purchasing power and forcing them to significantly raise prices.

At the same time, they are absorbing higher costs within already thin margins.

Recently, a blog post from an economist at the US Chamber of Commerce made clear that business raising prices is not a cause of inflation.

Rather, businesses are responding to greater market forces such as supply and demand, worker shortage and monetary policy, rather than generating inflation themselves.

 

THE BEST DEFINITION …

Forbes Magazine has the most straightforward clear definition of inflation. It defines inflation as a rise in prices and a decline in the currency’s purchasing power over time.

Therefore, if you feel like your dollar does not take you as far as it used to before the pandemic, you are not imagining it. The effect of inflation on small to medium-sized businesses may seem somewhat insignificant in the short term but can quickly make an impact.

Reduced purchasing power means that businesses will sell less and at potentially lower profits. Lower profits mean decreased ability to grow or invest in the business.

Since most companies with fewer than 500 employees are started with the owner’s savings, it puts them at significant financial risk as inflation rises.

 

THE FIRST EFFECT OF INFLATION …

The first effect of inflation is often just a different way of describing inflation. Inflation hurts the purchasing power of a currency as prices of goods and services go up. Interestingly, prices go up fast during inflation but are gradual in coming back down, if ever.

You may already feel the pressure of inflation as an entrepreneur, but its full impact is yet to be felt. Inflation is not linear; it ripples through an economy differently, at different times, and affects businesses differently. One of the most immediate impacts is a shortage of supplies that may prevent the completion of production goods.

When manufacturers cannot get all the raw materials they need to produce finished products, the entire market hurts. While Just In Time (JIT) manufacturing was developed to address such a potential problem, the inter-connected market leaves many entrepreneurs’ funds tied up in inventory-in-process, accumulating losses and driving demand and prices higher.

So, the economy isn’t doing so well.  But optimists paint a rosy and colorful picture of the economy once the pandemic problems are dealt with. If your business is hurting financially, why not just take a small loan to insulate it in these challenging times? During inflation, the cost and availability of loans can cause major problems down the road. This may not be an issue today, but it could be a bigger issue in the future.

No matter what industry you do business in, your business must make the right strategic decisions in a time of inflation.

The decisions that you make to manage inflation may determine whether the business sees its next anniversary or not. Here are five steps your business can take to forestall the effects of inflation in 2022.

 

STREAMLINING YOUR BUSINESS …

Optimize the products your business deals in during inflationary times.

The most effective approach is to analyze product or service streams, compare performance over time, and get a good picture of the business and available options in different geographical markets, client types, and distribution channels.

The whole idea behind streamlining your business during inflation is to cut costs and maintain profitability in a slowing market. To this end, a business may shift its production to focus on higher-margin products and services and protect the business’ bottom line.

Analyze potential short and long-term effects of the shift and understand how it will affect the future of the business before implementing it.

 

ANALYZE YOUR COMPETITION …

The prices of almost every product go up during inflation. Your business, too, will have to consider price hikes to stay in alignment with the rising costs in the market.

Even if economic inflation does not immediately impact your industry, it pays to be proactive by strengthening your product’s pricing and improving your business’ competitive market position.

Before increasing prices, analyze the competition and let their prices be one of your guiding points. You will also need to be upfront with customers about the price increases and why they are necessary.

Transparency will help customers adapt to the new situation, and it helps them prepare for higher costs without compromising their loyalty to the business.

A modern business supply chain can be long and complex. Contrary to popular belief, the process by which a product moves from raw materials through manufacture to retail is riddled with risks.

One effective way to prepare your business for inflation is to protect the supply chain, especially if you deal in physical goods.

 

MITIGATE SUPPLY CHAIN RISKS …

There are many steps you can take to mitigate supply chain-related risks in your business in a time of inflation. Some of these steps may include:

  • Setting up an alternate supply chain – not merely finding an alternate supplier
  • Stockpiling critical supplies that have a low holding cost
  • Putting in place an expedited supply strategy
  • Reviewing stock levels at every stage of the JIT supply chain

Each business has different supply chain risks and now is the time to critically look at yours. What changes can impact the near-term and long-term health of your supply chain?

 

A HEALTHY INVENTORY …

When prices start going up, a healthy inventory can be a competitive advantage.

By the same principle, it is more profitable to keep a minimum inventory when prices are going down.

Understanding your inventory levels and keeping them in line with market demand will help you make better decisions to maximize profitability.

It also helps to improve internal accounting control, business oversight, and inventory management processes and accuracy while you’re at it.

Proactive entrepreneurs take the time to anticipate potential scenarios of inflation.

You can use the ‘What If’ technique to consider various possible scenarios that will affect your business. For instance, you can anticipate wage increases, higher material prices, and disruptions in the supply chain.

Any time you forecast a scenario make sure to consider the amount of money your business needs to get through each scenario.

 

CASH IS KING …

Cash is always king.  More than ever, in inflationary times, you should not let your customers use your business as a bank.

A high inflation rate will pile risks on a business, and it hurts more when its receivables become uncollectible.

During inflationary times, you need efficient systems and processes to drive greater visibility into your business, so you can act fast and stay ahead of the competition. The real question is, do you know your numbers?

Post-pandemic inflation is already with us, and businesses are taking a hit. No matter your industry, you need a solid financial and operational strategy to evaluate the risks to your business and put measures in place to minimize them.

And if you’re not sure how, do not hesitate to ask for help. Before it’s too late.

 

Revitalization Partners specializes in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering, a State Receivership or Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.

Why Do We Have a Critical Pilot Shortage?

 

Cancelled flights, pilots striking over working hours, air fares up over 38% from pre-pandemic levels and every airline blaming, in part, a shortage of pilots.

The United States is facing its worst pilot shortage in recent memory, forcing airlines to cut flights just as travelers are returning after more than two years of the Covid-19 pandemic and the crisis has the industry scrambling for solutions.

 

NEW LEGISLATION?

Sen. Lindsey Graham, R-S.C., is considering introducing congressional legislation that could raise the mandatory airline pilot retirement age to at least 67 from the current age of 65, according to people familiar with Graham’s plans.

About a third of the airline-qualified pilots in the U.S. are between the ages of 51 and 59, and 13% of the country’s airline pilots will reach retirement age within five years.

A regional airline proposed reducing flight-hour requirements before joining a U.S. carrier, and airlines are rethinking training programs to lower the barrier to entry.

Earlier this year, Delta Air Lines joined other big carriers in dropping a four-year degree from its pilot hiring requirements.

 

RESTRICTED GROWTH AHEAD?

“The pilot shortage for the industry is real, and most airlines are simply not going to be able to realize their capacity plans because there simply aren’t enough pilots, at least not for the next five-plus years,” United Air Lines CEO Scott Kirby said on quarterly earnings call in April.

The Covid pandemic halted pilot hiring as training and licensing slowed. Airlines handed out early retirement packages to thousands of pilots and other employees aimed to cut labor bills when travel demand cratered during the depths of the crisis.

Major U.S. airlines are trying to hire more than 12,000 pilots combined this year alone, more than double the previous record in annual hiring, according to Kit Darby, a pilot pay consultant, and a retired United captain.

 

IT STARTED WHEN …

The beginning of the pilot shortage can be traced to February 12, 2009, when Cogan Air Flight 3407 crashed in terrible weather on approach to Buffalo Niagara Airport killing all on board.

The National Transportation Safety Board (NTSB) eventually concluded that the crash was the result of both pilots failing to respond properly to cockpit warnings that the aircraft was about to stall.

In its infinite wisdom and wanting to demonstrate a response, Congress increased the minimum number of flight training hours for commercial pilots from 250 to 1500. From a policy standpoint, the logic behind the law makes little sense.

Both pilots on the Cogan flight had well over 1500 hours of flight experience. And the law requires only 50 hours of cockpit time in multi-engine aircraft while the remainder can be in single-engine aircraft, which bear no similarity to commercial flying.

 

BIGGEST HURDLE IS …

One of the biggest hurdles to bringing in new pilots is the cost of schooling. While salaries for widebody captains at major airlines can exceed $350,000 a year, that level takes years.

At ATP Flight School, the largest in the country, it costs close to $92,000 for a seven-month, full-time program to get initial licenses. It can then take about 18 months or longer for pilots to build up enough hours to fly, often by instructing student pilots or sometimes by flying banners near beaches.

In December, United started teaching the first students at its own flight school, the United Aviate Academy, in Goodyear, Arizona, with a goal of training 5,000 pilots there by 2030. United says it aims for half of that number to be women or people of color.

The company covers the cost of pilots’ training up to the point of receiving their private pilots’ license, which it estimates to be around $17,000 per student.

Other carriers have turned to low-interest loans or other initiatives to ease the financial burden on students.

As Darby stated: “There’s no quick fix.

 

Revitalization Partners specializes in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering, a State Receivership or Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.

A Fork In The Road For The Auto Industry: The Shift Towards Electric Cars Presents A Dilemma To The Industry’s Supply Chain

 

The auto industry is rapidly shifting its focus from gasoline-powered automobiles to electric vehicles (EV) for a variety of reasons.

The main driving force for this change is an increasing global focus on climate change and reducing the carbon footprint of gasoline-powered cars.

Furthermore, there has been a significant governmental shift in providing incentives and imposing regulations that favor the production of electric vehicles to support these initiatives.

And, in recent years, younger generations have expressed a heightened concern over climate change and are supporting that concern by purchasing electric cars.

 

A SLOW START …

The shift started off slowly in that there were close to zero EV cars purchased around the world in 2010. Five years later, the total had reached 500,000 cars.

Nearly every year after 2016 the number of EV cars sold worldwide has nearly doubled and topped out at 2.3 million cars in 2019. The sale of EV cars has continued to climb exponentially and in 2021 sales totaled 6.4 million and registered a 98% increase over sales in 2020.

 

GROWTH IS NOW PROJECTED AT A 21.7% CAGR  …

According to a report prepared by the research firm, Markets and Markets, the global electric vehicle market size is projected to grow from 8.1 million cars in 2022 to 39.2 million cars by 2030, at a CAGR of 21.7%.

The transition to electric vehicles and the manufacturing that supports them won’t happen overnight, however most of the major auto manufacturers have started taking steps towards the conversion and the pace of change will be rapid.

For example, Japan-based Honda said it plans to launch 30 electric vehicles by 2030 with production of 2 million vehicles per year. Stellantis (formerly Fiat Chrysler) has indicated that it has a goal of 24 battery-electric products by 2030.

And Volkswagen is planning to increase their share of electric vehicles to 50% by 2030.

 

A SEISMIC SHIFT AHEAD …

There is no question that the current and projected growth in EV cars will require a seismic shift in the way automakers and OEM manufacturers operate. They must plan to change their focus from producing parts and manufacturing from gasoline-powered cars to electric vehicles.

This shift, in fact, has already begun and will require a massive amount of investment to retool and change the way these companies operate.

This transition has the potential to seriously disrupt the legacy automobile industry in the US and across the world.

 

ADAPT OR ELSE …

A recent study conducted by Ananth Iyer, professor of management, along with a team at Purdue University’s Krannert School of Management focusing on Indiana auto manufacturers, suggests those companies could see revenue and employment drops of 32% if they don’t take steps to adapt to the electric vehicle market.

The study further revealed that an estimated 25% of the companies could see their revenue decimated.

This significant negative impact is largely attributed to the fact that some of the basic components of internal combustion vehicles—like traditional engines, fuel systems and transmissions—aren’t needed in pure-electric vehicles.

The good news is that the study also suggests that if companies take an innovative approach, the potential impact to revenue could be as little as 3.8%.

 

START PLANNING NOW …

“The earlier we get people thinking about this … the more competitive they will be, and manufacturers should not look at the electric-vehicle trend with a “doom and gloom” mindset”, Iyer said. “I really think, if they think in advance, new opportunities may open up.”

Companies should be looking at their capabilities with a wide lens—considering not just what they do now, but what they could do with their workforce, equipment and know-how.

In some cases, a company might investigate new markets in adjacent industries.

A company that makes pumps for automobiles, for instance, might be able to move into making pumps for dishwashers.

Reshoring, or the trend of bringing supply chains back to the U.S. from overseas, could provide other opportunities, according to Iyer. 

A parts-maker might be able to find new customers who are interested in having domestic-sourcing options.

 

DETERMINE YOUR CAPITAL NEEDS …

Obviously, there are many more options available to companies that are planning a transition to the electric vehicle market.

This will require extensive planning, collaboration with key suppliers and customers and a well-thought through strategy with benchmarks to evaluate progress along the way.

This transition will also require determining the amount of capital needed for investment in equipment, as well as new technology and the retraining of employees.

Furthermore, sources of capital must be identified and secured as part of the planning process.

Companies should also investigate what type of financial assistance that may be available from state and local governments.

Most states have allocated funds in the form of incentives or rebates to assist companies with this important transition, as it is important to them to ensure that the manufacturing base continues to prosper, to maintain and grow their respective tax-base.

 

A MONUMENTAL TASK …

The transition from gas-powered to electric vehicles is a monumental task and is unlike any prior changes in the automobile industry in the past.

Companies that start the planning process now will have a leg up on their competition and improve their odds of success.

Those that don’t take these steps will likely fall by the wayside with the loss of jobs and investors and lenders run the risk of losing their monetary investment.

Revitalization Partners specializes in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering, a State Receivership or Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.

Is the Sky Falling? What Does Your Banker Think?

 

There is no question that major economic indicators are pointing in the wrong direction and as a result, small to medium-size businesses are facing a number of challenges in maintaining a profitable business, let alone trying to initiate growth plans.

Given that situation, one of the looming challenges that many businesses will face is obtaining or renewing lines of credit with their lender.

Since the start of COVID, federal and state governments have infused massive amounts of capital into the system through forgivable PPP loans and other related programs.

This has helped thousands of companies survive and in fact, in many cases thrive, as they used this new capital to take advantage of increased demand.

 

GRAVY TRAIN PROGRAMS ARE OVER …

However, those programs have now ended, and companies must now deal with multiple economic challenges that could negatively impact their operating results using conventional lines of credit and working capital to fund their businesses.

As these challenges continue to mount, with seemingly no end in sight, it’s important for companies to continually assess their relationship with their lenders.

In order to understand the current mindset of the lending community, we are providing an overview of the second quarter 2022 survey sponsored by Phoenix Management Services that outlines the current lending climate in America.

This survey was published recently and will give us some insight into what lenders are thinking.

 

WHAT ARE LENDERS THINKING NOW?

One of the most significant findings of the survey reveals that when lenders were asked which risk presents the greatest potential to impact the US economy,

SUPPLY CHAIN:  56% believe supply chain distribution problems are the greatest risk. The second biggest risk according to 22% of the respondents, relates to federal reserve policy.

INFLATION:  Another significant concern noted, is rising inflation, as it impacts most if not all of their borrowers. Seventy-two percent of the lenders surveyed expect inflation to continue rising, which will cause further economic stress in the U.S. by forcing consumers to decide which goods and services are no longer worth buying.

OPTIMISM:  Lenders’ optimism in the near-term U.S. economy decreased 10-percentage points from Q1/22. In the current quarter, the majority of lenders (39%) believe the economy will perform at a “C” and “D” level during the next six months.

 

WHERE IS THE GREATEST VOLATILITY?

Lenders were also asked which industries they expected to experience the greatest volatility.

  1. Topping the list with 64% of the lenders, was the belief that manufacturing industries will experience significant volatility, up from 57% the prior quarter.
  2. Forty-four percent of the lenders believe Real Estate and Rental/Leasing will experience significant volatility, which is up from 14% last quarter. This represents a dramatic threefold increase in three months.
  3. Registering third on the list is the Hotel and Foodservice industry, where 39% of lenders believe this industry will experience extreme volatility up from 21% the prior quarter.

And finally, it’s important to note that 71% of lenders expect that loan losses and bankruptcies will increase in the near term. This represents an increase -from the first quarter 2022 as well.

 

GREATER SCRUTINY AHEAD …

The combination of the above views from the lending industry, suggests that lenders will likely be more thoroughly scrutinizing financial reports from companies in their portfolio in an effort to head off potential loan losses.

Given that most lenders expect loan losses to increase in the near term, it is clear that lenders will be doing everything possible to mitigate having to write off bad loans.

This is a strong signal to CEOs and CFOs of all companies to make sure they have open lines of communication with their lenders and proactively discuss their company’s plans, challenges, and action steps to address operating issues that compromise cash flow early enough to mitigate risk to the lenders.

This is especially important if your company is in one of those top three industries that are of significant concern to lenders, as they will be paying particular attention to companies in these segments.

 

PAY CLOSE ATTENTION …

Pay attention to how closely the lender is reviewing your financial information and the type of questions they ask you along the way.

This may give you a clue as to where you stand with your lender, and if you are unsure, it’s important to have them give you feedback regarding any issues or concerns they may be having about your business.

What type of risk do they see in your company? Then, you can proactively let them know what you are doing to mitigate their perceived risk.

Remember, it’s not what you think about the business that’s important, it’s really important for you to understand what your lender thinks.

 

YOU MUST HAVE A …

While proactive communications with your lender are the first step, it’s also extremely important to have a plan B.

Maintaining relationships with a number of commercial and asset-based lenders is really important.

Understanding how other lenders view your business provides a different perspective and creates options to fall back on should your lender decide not to renew your line of credit.

Working proactively with your lender and understanding how they feel about the performance of your company or the industry you are in, may be the difference between having the lending resources you need to effectively manage your business, or scrambling at the last minute to find lending options that may not be the most effective for your business.

Also, don’t be afraid to ask for help along the way, as the future of your business may depend on it.

Revitalization Partners specializes in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering, a State Receivership or Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.