To mitigate some of this risk, companies may consider:
- Entering into a
factoring arrangement, on a non-notification basis, to "insure"
against losses from bad debts by transferring the risk of loss from the company
to the factor. While these arrangements may be costly, they must be weighed
against the cost of one or two large bad debts, which could strangle the
company's cash flow and its ability to sustain operations,
- Stepping up
internal collection efforts, and improving credit monitoring procedures, to
avoid selling to retailers in significant financial difficulties, posing a high
degree of risk of loss.
Product Lines/ Brands
It is not unusual for specific product lines or brands to
operate at a loss, thereby negatively impacting the overall company
profitability. During this period, survival may depend on shedding losing
product lines or brands to improve profitability or minimize losses. Apparel
suppliers should:
- Ensure internal
reporting systems are in place to accurately account for profitability by
product line or brand;
- Eliminate losing
product lines or brands if they provide little or no "contribution to
overhead;"
- Review all
licensing arrangements and consider renegotiating with licensors to reduce
minimums or royalty rates;
- Where
appropriate, consider terminating licenses and negotiating penalties.
Financing
Apparel suppliers will need to have available sources of
cash to carry them through the lean times. As most banks and conventional
lenders have tightened lending standards, suppliers may find their traditional
lending sources unable or unwilling to extend additional lines of credit.
Owners of apparel manufacturers or importers may consider:
- Investigating "second
tier" lenders, who aren't subject to the same oversight and regulation as
banks, and often may tolerate more risk. Although rates are typically higher
than, banks' and traditional lenders', access to cash is more critical today
than the incremental cost;
- Exploring "alternative"
financing methods, such as purchase order financing;
- Monetizing and
borrowing against other assets, such as equipment or intangibles, in addition
to the traditional accounts receivable and inventory.
While every leading economist believes we are experiencing a
severe downturn, everyone expects that eventually a recovery will occur. When
that recovery occurs is a subject for debate. In the meantime, this article
outlines many survival ideas and considerations for apparel entity owners and
managers.
However, here is the important theme to walk away with:
owners and management must become proactive. Take important, business-sustaining
action. Do not sit around doing business as usual while waiting for the
recession to pass. Those who follow that path virtually guarantee that their
company will have "passed" along with the recession.
About the Author
Glen
Podhorzer, is a partner,
CPA, Weiser LLP. He specialize in providing auditing, tax, forensics,
litigation support, and management advisory services to clients in the apparel
and textile, import, distribution, and manufacturing industries. He also has
extensive experience working with troubled companies in various industries in
analyzing operations, and developing and implementing strategic plans to help
in the restructuring and turnaround of companies. He has worked on numerous
forensic and litigation support engagements for attorneys and insurance companies
and has acted as an expert witness at arbitration. For nearly a century, Weiser
LLP (www.weiserLLPcom) has provided accounting and consulting services to
professional services groups, business enterprises and high net-worth
individuals. Weiser ranks as one of the top 10 accounting firms in the New York metropolitan area and top 20 nationally.
