Fearing Bankruptcy, Firms Rush to Fix Business Plans.

WHEN it comes to small businesses, cash flow is king. Without cash, rents don't' get paid, payrolls can't be met, lights get shut off sometimes for good.

So it's no surprise that the shutdown of the nation's travel system for nearly a week dealt a major shock to many small companies. Some of the hardest-hit -- travel agents, air-freight companies, hotels, restaurants -- practically shut down for several days.

Within hours of the attacks, Joe McClure was at work on a plan to save his company. With more than 160 employees and annual revenues topping $100 million, Montrose Travel is one of the largest area travel agencies. In that first week, business fell by 80 percent.

McClure, the firm's president and a co-owner with his wife and sister, set out his goal: "Batten down the hatches and preserve cash, to last out a slump to the end of the year."

'Standing amid the rubble'

Ten days later, on the afternoon of Friday, Sept. 21, McClure was announcing a plan at a company-wide meeting. That day, he had given pink slips to 16 workers. The remaining employees received temporary pay cuts of 10 percent. The three owners forfeited all of their pay and lowered the rents the business pays on family-owned office buildings. Long-distance rates were renegotiated and advertising was cut by 20 percent.

"I laid out what our strategic plan was for the next 90 days, exactly what was expected of them in terms of daily production," McClure said. "We will be one of the travel companies standing amid the rubble when January rolls around, and there will be a lot of rubble."

In all, McClure cut $100,000 in expenses from a monthly operating budget of $750,000. The firm's cash cushion of three months' typical operating expenses will last until late March if business remains depressed by 50 percent. "If it's worse than that, then we're all in serious trouble," McClure said.

No one could have anticipated the events of Sept. 11, but unexpected sales drop-offs aren't uncommon to small businesses. In fact, they're the third-most frequent cause of cash-flow problems, after slow collections and seasonality, according to the National Federation of Independent Businesses.

The best defense is to prepare for the unexpected. "Lots of times companies will go to banks and get working capital lines" that can be tapped in times of need, said Ron Leibow, a partner at Kaye Scholer LLP, a bankruptcy-oriented law firm in Century City. Other companies don't ever borrow, he said, and they will turn to other methods, such as slowing their payments to vendors, reducing inventories or offering discounts to get business in the door.

Drastic action

Companies already on the brink of insolvency face fewer choices. In a month or two, problems with collections "could have an effect on people's cash flow," said Bron Hafner, chairman of Celtic Capital Corp., an asset-based lender in Santa Monica. "One of the problems that a lot of small businesses have is they don't pay attention to (prompt) collections until it's almost too late."

"We initially were shut down from Tuesday (Sept. 11) through Friday," said Tom LaVoy, chief financial officer at SuperShuttle International Inc., an operator of airport-shuttle services in 14 cities, including Los Angeles.

With 80 percent of its payments in cash, Phoenix-based SuperShuttle had to move quickly to resize the company. Fortunately, LaVoy said, SuperShuttle was near the end of its fiscal year and already had been working on its business plan. It took a week to revise, and by Sept. 19, the company had laid off 500 of its 3,000 workers. At SuperShuttle, drivers work on commission, so it made sense to cut enough staff to let the remainder generate meaningful income from the reduced passenger loads.

The other piece was to marshal support from lenders and investors. SuperShuttle has presented its revised business plan to 16-percent owner GE Capital, the financing arm of General Electric Co., and its other partners, LaVoy said.

"It is a matter of us convincing people that ... once we get past the next six months or so, the business will stabilize," LaVoy said.

If it's difficult to elicit backing from existing lenders in a crisis, it's even tougher to forge new relationships. "Banks are scared stiff, and their risk profiles have just become much more conservative, virtually overnight," said Chris Malburg, a partner with investment bank Global Capital Markets Inc. in Irvine.