Key Tactics: Reinvigorating and Recharging Your Business

1. Key Tactics: Reinvigorating and Recharging Your Business Alan Wink – Amper, Politziner & Mattia John Yoler- Sun National Bank Rothman Institute Family Business Forum September 23, 2009

2. What Does it Mean to Reinvigorate and Recharge Your Business • Is the recession really over? • Unease with small business right now. Business owners are nervous, retrenched and “cautiously hopeful.” • Reports have shown small business optimism to be at its lowest level since the 1979 oil embargo. • Small business is very often at the mercy of larger businesses and larger economic forces. • Today small businesses need to keep hustling for business and wring out a little more savings by tightening the belt. • These are indeed tough times for small business, but there are options that we would like to discuss. • Reinvigorating and recharging your business means searching for strategies for success in lean times.

3. Setting the Stage – Is the Worst Behind Us? • The current 2007 – 2009 recession while quite severe is no where near the severity of the 1929-1932 or 1937-1938 depressions. • We are experiencing a 3.8% decline in GDP, compared to over an 18.2% decline in 1937-1938. • We are also experiencing today unemployment in the 9.7% range , compared to 25% unemployment in 1932 and 20% in 1937-1938. • The 2007-2009 economy is characterized by long-term unemployment, mounting real estate foreclosures, healthcare costs rising out of control, and an aging worldwide population driving government spending through the roof. • No one really knows if the recession is over , but there are reasons to be optimistic - Recessions historically set the stage for future growth; Equipping more people with higher education and better technology has increased humanity’s ability to solve difficult problems. • Tough economic times tend to stretch the boundaries of entrepreneurialism. Half of today’s Fortune 500 companies were founded during a recession or bear market • Bloomberg example. • Optimistic approach can help you and your company seize the opportunities that lie ahead.

4. Cost of Capital • Senior Debt 4% - 7% • Mezzanine Debt 15% - 22% • Equity 25% - ?

5. Balance Sheet Strength Becomes Critical in Lean Times • Definition • Lenders’ Rules of Thumb • Collateral • History of Profitability • Management/Succession Planning • Examples (Weak/Strong)

6. Easy Money Can Hurt Your Business “Once I was out of cash, I had to get back to doing business the right way: Servicing clients well and working hard.” Fortune Small Business – October 2009

7. Lenders’ Rules of Thumb • Background of business • Business lines /products sold • Management/ownership • Customer base/concentrations • Competition • Suppliers • Plants/facilities • Significant events • Banking Relationships • Credit requested • Balance sheet/leverage • Collateral • Trends • Cash flow/debt service • Strengths and weaknesses • Owners’ personal financial strength/personal leverage

8. Some Interesting Current Statistics • 55% of CEO’s surveyed in Q2 expect business conditions to improve in the next six months. This is up from 17% in Q1. • Optimism Index developed by YouGov and RT Strategies based on US public opinion and daily economic and market forecast statistics on jobs, the stock market and economic growth predict the worst is behind us. • Rail freight traffic is down, but the decline is easing. • Median number of weeks unemployed decreased by almost 2.5 weeks since June.

9. Strategies for Success in Lean Times • It is still about “Blocking and Tackling” • Grow the top line – PROFITABLY • Improve operational performance • Reduce operating costs • Involve and engage your people • Reduce leverage on your balance sheet • Opportunities for acquisitions of weaker firms

10. Simple Financial Statement Sales Less: Cost of Sales Gross Profit Less: Operating Expenses Operating Income (EBITDA) Less: Depreciation/Amortization EBIT Less: Interest Income before Taxes Taxes Net Income

11. Government Stimulus $ Can Create Opportunities for Companies • $787 billion stimulus program trickling its way down to the middle market. • Stimulus dollars finding its way to NJ companies? • Small businesses still need to balance S/T project needs with L/T business goals. • “Growth can be the great destructor of business.” • Firms sometimes rush to grow too quickly and build infrastructure and business models on sales projections that never materialize. • Stimulus dollars are only temporary, so hiring decisions should be done cautiously. • Stimulus is a short-term answer and businesses need to develop a long-term strategy. • Consider investing profits from stimulus projects back into the business, to develop new products and services that might create more stable demand.

12. Business Growth Matrix Existing Products/ Services New Products/ Services

13. Revenue Growth Strategies • Look for new clients • Spend more on advertising, PR, business development, buying leads, sales training • Treat existing clients really well/Customer service • Add line extensions • Explore government contracts

14. Reducing Operating Costs • Zero based budgeting/elimination of non-value added activities • Streamline , simplify and standardize • Accountability /tracking of performance • “What gets tracked gets done” • Performance incentive programs • Renegotiating costs with all vendors and landlords • Review all vendor agreements for cost reduction opportunities • Empower your managers with an across-the-board reduction in operating expenses (ie. 20%) • If you must cut employee benefits, cut those benefits least valued by your employees • Reduce officers compensation • Eliminate unprofitable business/product lines

15. Retaining Good Employees in Tough TimesEmployee Retention Strategies • Engaged employees positively impact customer satisfaction and profitability. • Empower employees to influence positive change • Make staff feel involved and part of the decision-making process • Continue professional development activities • Increase the focus on team performance • Key: Understanding your employees motivation

16. Reducing Leverage on the Balance Sheet • Grow assets/shrink liabilities • Infusion of equity capital/improvement in debt ratios • Reduce debt through superior operating performance • Reduce debt by lowering owner’s compensation • Inventory turns/A/R turns • Sell off parts of business – repay debt • Operating leases

17. M&A Opportunities • Acquire competitors • Acquire Gross Profit/Eliminate SG&A • EBITDA multiples are down/Sellers struggle with valuation • Opportunity for acquisitions to be accreative immediately • Everything is for sale at a price

18. How Are Companies Represented Here Today Performing? Bullish or Bearish on the Economy?

19. What Steps Has This Group Taken to Reinvigorate and Recharge Their Business? “The material contained in this presentation is for general information and should not be acted upon without prior professional consultation.”