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Tips to Survive and Take Advantage of Unique Opportunities
There are several steps business owners can take to survive the challenges ahead. In this article, we present tips to help you operate your business that are appropriate to today’s market conditions. In addition, we also offer some purchasing opportunities to consider — through bankruptcy asset sales — that in a strong market might otherwise have been out of reach.
By Marc E. Albert, Alisa C. Lacey, Katherine M. Sutcliffe Becker and Tracey M. Ohm, Stinson Morrison Hecker LLP
 First, consolidate your operations and protect your business:
Conserve Cash — Cut Costs
Reducing cash expenditures requires rethinking every aspect of business. In a down market, the goal is for the business to survive long enough to weather the down cycle.
In order to accomplish this, you need to be able to operate twice as long on half the cash. Reduce overhead operating expense every place you can.
Common expenses that can be cut include:
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Staff: Most businesses can operate just as effectively, perhaps more so, with far fewer people. Experts can usually reduce payrolls by about half within the first 60 days. Work toward a skeleton team, but take care to comply with the U.S. Department of Labor Worker Adjustment and Retraining Notification (WARN) Act requirements, but eliminate dead weight.
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Office Space: Evaluate the business’ square footage needs. Are you using all the space you have, or could you operate out of smaller facilities? Renegotiating your lease, subleasing or selling the building can allow you to cut costs or bring more cash into your business during the down market.
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Outside Services: Are you paying third parties for services that could be done in-house?
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Inside Services: Likewise, would it be less expensive to outsource some tasks that are now being done in house, i.e., hiring an accounting firm instead of maintaining an accounting staff.
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Non-Critical Expenses: That lawsuit that you once thought was very important to pursue is probably not critical to everyday operations. Neither is marketing or advertising in a down market. Reducing or eliminating these expenses can free up cash to sustain core activities.
Protect Against Personal Liability — Keep Personal Assets Separate
When desperate, principals often decide to increase their own personal exposure rather than let their business fail. This is a terrible mistake.
- Pay the Payroll Taxes. This is a must. You are better off missing a payroll than not paying the taxes. The payroll tax liability is often viewed by employers as the “bank of last resort.” The problem is that you can never, ever escape the resulting personal liability.
- Do Not Guarantee Trade Debt. If your business cannot pay the debt and a lawsuit is threatened, let them sue the business. Do not agree to sign for it personally. Collection lawsuits take time. Use the time to try to pay the debt off. If you still cannot pay by the time the judgment was obtained, then the business was probably doomed anyway, so don’t expose personal assets to business liabilities.
- Reconsider Existing Debt. Carefully consider your existing liability to your bank or lender. If they are asking you to increase your exposure, determine what you are getting in return? Keep in mind that this downturn is expected to last another two years. If your business can’t survive that long, a temporary extension won’t help.
- Don’t Use Retirement Assets to Pay Company Debt. Your retirement assets already have legal protection from creditors. In the event you have to consider a personal bankruptcy filing, these assets are generally exempt and you would be able to keep them. Don’t use this protected money to pay your company’s debt.
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Don’t Cross Collateralize. If you have more than one business or entity with assets, your lender may ask you to “cross collateralize” or pledge assets from another entity to protect the loan. Don’t. Remember, you initially set up these assets separately in order to protect them in one of them failed. Cross collateralizing destroys that protection.
Work with Your Lien Holders
Most lenders are willing to work jointly with borrowers. They really don’t want to own your project or property and, in general, would rather try to jointly market than foreclose.
In today’s market, the issue is trust. Does your lender trust you? If he does, he will almost always work with you. If he doesn’t, he will ask you to turn over operations to a trustworthy operator.
Asset Sales in Bankruptcy — Watch for Bargains and Opportunities
In Chapter 7 bankruptcy cases, an appointed trustee who is not related to the company arranges to sell all assets that have any apparent equity. Even in a Chapter 11 reorganization bankruptcy, most businesses cannot successfully reorganize without selling assets. Generally bankruptcy cases are simply a forum to sell assets.
Watch the papers and trade publications in your area. Most sales of any size are advertised. The word “bankruptcy” is almost always prominent.
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Private Sales. Usually, but not always, these sales are conducted as auctions. If there is a particular asset or piece of equipment that you are interested in purchasing, do not hesitate to make an offer. Even if the trustee does not accept your first offer, you’ve started negotiations. Haggling is normal and bargains are the order of the day.
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Bankruptcy Trustees. You can get a list of the local trustees and ask to be put on their mailing lists for any future sales. Trustees are interested in the best combination of price and terms. If you are aware of a bankruptcy case that has assets and are interested in buying, call the trustee directly.
Always keep in mind that it is all about the money. If it is a significant asset, consider building into your offer a “break-up fee” or cost reimbursement provision to cover your costs in case you are not the winning bidder. (The trustee might refuse, but there is no harm in asking.) Some, but not all, trustees are lawyers. However, you do not need a lawyer to do a simple asset purchase in most bankruptcy cases.
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Show Up and Bring Your Money. If a sale is advertised as an auction, you should show up. Many times the sales are not well attended. Even when a sale is conducted in court, the judge will almost always ask if there are any other interested parties in the courtroom who want to bid.
As a buyer, so long as you have authority to act for your company or enterprise, and the court is satisfied, you can bid without a lawyer. There may be time limits on closing the purchase, but the court or trustee will explain these and ask if you or your company agree to the deadlines.
Although the market has fallen, following the preceding tips can help you weather the storm. By reducing expenses on non-critical elements of your business, you may even be able to conserve enough cash to add value to your business by purchasing from a bankruptcy asset sale.
Stinson Morrison Hecker LLP, with more than 360 attorneys in nine offices and five states, has experience in more than 45 practice areas and represents clients in a full range of corporate, transaction and litigation matters. For more information, visit http://stinson.com.
To find hundreds of similar articles on being more effictive in today's market, visit NAHB Biztools.
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Sluggish Credit Markets Expected to Ease
The Federal Reserve announced some very aggressive steps aimed at unlocking the sluggish credit markets, with a major focus on further lowering mortgage interest rates. The Fed said it would significantly expand its ongoing program of buying Fannie Mae and Freddie Mac mortgage-backed securities (MBS) and debt. The Fed increased its planned MBS purchases by $750 billion, making the new target $1.25 trillion, and doubled its slated debt purchases to $200 billion. In addition, the Fed announced a new program to buy up to $300 billion in long-term Treasury bonds over the next six months.
These initiatives are just the thing NAHB has pushed for in our recent meetings with Federal Reserve officials and should send a strong signal to consumers that homes can be purchased on very favorable terms. Mortgage rates should drop significantly in response to the Fed moves. Some lenders have already lowered posted rates by a quarter of a point. This should be encouraging news for potential home buyers who have been sitting on the fence, waiting for the right reason to get back in the market. To view the Fed announcement, click here.
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Builders Gather on Hill in March to Drive Home Message
More than 500 home builders visited Capitol Hill this week to drive home the message that housing is the key to our nation's economic future.
 Our 2009 March Executive Board and Legislative Conference week was truly productive, with a strong contingent of NAHB members participating in Hill visits that included hundreds of meetings with individual legislators and their staffs. The Legislative Conference was particularly well-timed as Congress gets down to the job of repairing the nation's struggling banking and housing finance sectors. A number of great resources were created to help NAHB members lobby our key issues on Capitol Hill, including the following (note: you need to be logged into NAHB's Web site with your username and password to view these members-only resources):
2009 Legislative Conference Booklet and General Talking Points
Housing’s Critical Role in the Economy background information
Addressing the AD&C Crisis background and recommendations
Preserving the Mortgage Interest Deduction background and recommendations
Housing Finance System Reform background and recommendations
Reinstating the Down Payment Assistance Program background/recommendations
Green Building/Promotion of the National Green Building Standard background/recs
Card Check background and recommendations
AD&C Lending Crisis Video Briefing
Protecting Housing Tax Incentives Video Briefing
Also during the week, NAHB's Executive Board considered and approved on an "emergency basis" one new Resolution dealing with energy efficiency targets for reductions in greenhouse gas emissions, which is a topic that is currently being debated in Congress. The Executive Board also hosted a panel discussion in which several industry experts discussed the potential direction and outcome of ongoing financial regulation reform efforts. For more information on the approved resolution, contact Jay Shackford, x8406. For more on the panel discussion, contact Dave Ledford, x8265.
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Managing During a Recession - Delegate
By Dennis DuRoff
 Of all of the challenges managers and owners face in a recession, nothing is more painful or more difficult than laying off valued, loyal employees. It is gut wrenching to the owner, the employee and the entire staff.
Aside from the psychological anguish, cut backs create another set of difficulties: The need to get tasks done with fewer employees. This requires existing staff to take on new and sometimes unfamiliar duties and responsibilities.
Delegating is an art. The skill of the business owner to effectively delegate can go a long way toward maintaining staff morale and productivity.
Most Owners Resist Delegation
Many business owners and managers I coach resist delegating responsibilty and with good reason. They have been burned, let down and disappointed in the past. People make promises and have not come through. The owners experience dictates the following:
- If you want it done right, do it yourself.
- Nobody cares as much as I do.
- It's quicker to just do it myself.
- Employees never seem to get it right
- I shouldn't have to tell them. It’s just common sense!
These are the thoughts and concerns that drive owners to hover over employees, micro-managing their every step. Ruminating over these thoughts is both stressful and the source of many a sleepless night.
So what's the way out? What strategies would help quiet the mind, produce more consistent results, and allow businesses to grow consistently and predictably?
Five Strategies to put You on the Path Toward Effective Delegation.
Ask, Don't Tell
When you delegate you collaborate. Respectfully ask an employee to perform a task, don't order him or her. When asked, I find that the vast majority of employees are delighted to take on additional tasks. It gives them greater responsibility, enables them to add value to the company, and enhances their sense of self.
Match the Task to the Position.
Be sure the assigned task is within the general scope of the job description of the employee.
Get Progress Reports: Feedback Loops
Be sure to receive feedback during the process so that you are assured the work is progressing as agreed upon. These 'reporting loops' provide managers the certainty that the work is being performed as expected, eliminating the need to micro-manage. A simple e-mail, a consistent check-in, or completed checklists are examples of efficient and effective feedback loops. Be sure the feedback is provided with sufficient time to take effective action should an employee drop the ball.
Give the Staff What They Need to Succeed
Make it your responsibility to provide employees with the training and resources needed to produce the agreed upon result. If they lack the time, help them to prioritize their activities to produce the requested delegation. When delegating, be sure your employees have the tools to win!
Delegate in Writing.
Add credibility and power to your requests by putting them in writing whenever possible. It creates clarity, minimizes confusion and helps insure everyone is on the same page.
Regardless of the economic climate, effective delegation is an important managerial skill. During a recession it is critical. Clients who embrace these strategies attest to their effectiveness. They are often surprised at how open and willing staff is to take on new tasks and go the extra mile for the team.
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Registration Open for Spring Construction Forecast Conference
Registration is now open online for the 2009 Spring NAHB Construction Forecast Conference. During the daylong Conference, held on Thursday, April 23, at the National Housing Center in Washington, D.C., nationally-recognized housing and economics experts will provide answers to the most critical questions facing the industry today.
Panelists at the conference, which will also be presented via webcast, will discuss key questions including:
- How will the American Recovery and Reinvestment Act of 2009 stimulate the economy and spur new residential construction?
- How will the mortgage markets change?
- Will some regions see an earlier recovery?
- When will the housing market reach bottom?
The CFC's panel of expert speakers, including NAHB's new Chief Economist David Crowe, will look at the national and regional markets, the state of the mortgage finance industry and housing prices.
The panels include:
- NAHB Economic and Housing Forecast: David Crowe, NAHB
- The National Outlook : Maury Harris, UBS (invited); James Glassman, JP Morgan Chase
- Regional Patterns: Mark Zandi, Moody’s Economy.com; Bernard Markstein, NAHB
- State of the Nation’s Housing: Eric Belsky, Harvard University
- Finance: Frank Nothaft, Freddie Mac (invited); Doug Duncan, Fannie Mae
- Prices : Karl Case, Wellesley College; Richard Brown, Federal Deposit Insurance Corporation
In response to today's economy, NAHB is lowering registration fees by $75. See the new agenda and more detailed information at www.nahb.org/CFC.
To Register
Online registration is available through Friday, April 17.
To register and learn more, visit www.nahb.org/CFC.
Can't Attend in Person? Webcast of Conference Also Available
For webcast information, visit www.nahb.org/CFC. The purchase price includes unlimited access to the webcast archive for three months and electronic copies of the presentation materials.
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Spring Board of Directors - NAHB Business Management Meeting Schedule
Business Management Department Committees
2009 Spring Board of Directors
May 25 – 31, 2009
Marriott Wardman Park Hotel – Washington, DC
Tentative and subject to change
Thursday, May 28
Home Technology Alliance 10:00 a.m.–12:00 p.m.
Joint Business Management Committees 12:30–2:30 p.m.
Note: The Joint Meeting is for all members of the Business Management & Information Technology Committee; Custom Home Builders Committee; Single Family Production Builders Committee; and, Single Family Small Volume Committee.
Custom Builders Symposium &
Design Institute Subcommittee 3:00–5:00 p.m.
Friday, May 29
Single Family Small Volume Committee 7:30–10:00 a.m.
Business Management &
Information Technology Committee 10:30 a.m.–1:00 p.m.
Custom Home Builders Committee 1:30–4:00 p.m.
Single Family
Production Builders Committee 1:30–4:00 p.m.
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Business Management SubCommittees to Conduct Meetings Via Con Call
The Business Management & Information Technology Committee’s Subcommittees are holding their 2009 Spring Board meetings via conference call. NAHB will host the call for any members wishing to take part. The calls are tentatively scheduled as follows:
Tuesday, May 19
Education Subcommittee
11:30 a.m.–1:30 p.m., Eastern
Mike Penn, Chair
Publications Subcommittee
2:30–4:30 p.m., Eastern
Ed Nikels, Chair
Thursday, May 21
Information Technology Subcommittee
11:30–1:30 p.m., Eastern
Steve Lewkowitz, Chair
Financial Issues Management Subcommittee
2:30–4:30 p.m., Eastern
Emma Shinn, Chair
All background information for the calls – agenda, handouts – will be available at http://www.nahb.org/bmitmaterials. If you have trouble downloading and/or printing, please contact Agustín Cruz at acruz@nahb.com or at (800) 368-5242, x8472.
To participate in the calls, please follow the instructions below. In order to lessen the number of interruptions when people enter the call, please dial in at least five minutes before the discussion is scheduled to start:
- Dial 866 809 4014 (alternate toll number is 719 785 9323)
- When prompted enter the following pass code – 5091971 – and the “#.”
Things to keep in mind during the discussion:
- Once you join the call, all participants can hear you as well many background noises in your office – cellular telephones, typing, doors opening/closing, other conversations. Please use your telephone’s receiver and not its conference call function.
- Make sure to turn off your cell phones and/or pagers and close your office door.
- If you have to speak to another party, please mute your telephone using its mute function or press “* 6” to mute/unmute your line.
- When making a comment or asking a question, please preface your statement by giving your first and last name.
- Please allow anyone who is speaking to finish before proceeding with your statement or question.
- When you have finished asking your question and/or making your comments, let the call moderator and audience know by saying “This concludes my thought.”
- Please keep you statements and questions brief. The subcommittee Chairs have been asked to keep to the two hour time frame for the calls and will courteously ask participants to quickly summarize their thoughts or present their questions.
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