Have you ever had a time when you feel like your helpless? No matter what you do nothing seems to work and yet, those around you seem to be doing incredibly well. This is what it’s like to be in the grip of a business failing.
Running a failing business is a scary proposition. There isn’t enough cash to pay all the bills and creditors start hounding you for money. You never know whether you should answer the phone or not because you’re not sure if it’s someone about to bring some business in or someone chasing you for an outstanding debt.
The stress levels at work increase dramatically and this often impacts loved ones as the days disasters spill over into home life. Is running a business supposed to be like this? Isn’t the reason why you’re working so hard is to provide a better life for your family?
If the business completely fails, then what is the outcome? Many people (especially males) tie their self-worth to their businesses and they end up getting more and more depressed as they scramble to save what is often unsaveable.
The first thing a business owner needs to realise is their self-worth has NOTHING to do with their business but has a LOT to do with their personal integrity while going through the tough time. The measure of a person is how they behave during adversity not how they act when things are going well.
Over the years I’ve helped a lot of business owners out and without exception they believe either;
1. A big deal that’s just on the horizon will solve their problems OR
2. If that investor just put a lot of money in then all will be good.
The reality is those two answers rarely happen (if ever) and they are more of a pipe-dream. There is a solution to this problem and it will involve a lot of humility combined with making some really tough decisions.
The first thing to do is get everything on the table….warts and all. This means getting all the financial records together and most importantly, who you owe money to and who owes you money. From this you can put together a cashflow that will form the basis of a plan moving forward (or not).
From this position you will be able to see if the business should be immediately closed, put into receivership or you should declare bankruptcy. The law in Australia is actually quite forgiving (check your own country out) when a business fails and, in many respects, wipes the slate clean in the event of receivership or bankruptcy. What it’s not forgiving about is if you trade while insolvent……this can end up with jail time (not good). Whatever you do, get some good advice on this!
Assuming the business still has some legs in it what should you do? The first thing I would recommend is personally meeting with each of your creditors, showing the problem and outline the plan moving ahead. This may mean you will be asking them to get of your back for a period of time so you can focus on the solution. You will then need to commit to getting back to them on a regular basis on the progress you are making in the plan.
Most business owners will respond positively to this approach as one hundred percent of nothing is not a good outcome for anyone. Depending who the creditors are, there could be some other options as well…..such as swapping the debt for equity etc. If they are a supplier this could be a good outcome.
While you are doing this cut all expenses you possibly can. What you’re trying to do is reduce your monthly outflow. As an example, leases can be great to reduce your tax when you’re profitable, but they can be a noose around your neck when you’re not.
Also, most small business owners that get into a financial stress rack up massive credit card debts. This is REALLY BAD DEBT! If you possibly can, restructure this debt to move it off the ridiculous interest rates. Don’t think getting another credit card to pay off the first credit cards is a solution to the problem.
The lifeblood of any business is how it manages its debtors. If you have people stretching you out, then you may need to pay them a visit to understand what’s going on. It may be worthwhile providing an incentive plan to get the cash in on a regular basis…..or even the right to automatically bill their account to a credit card.
Let me share with you a personal story. A couple of decades ago I was thrust into a really tough financial situation when I didn’t receive a couple of million-dollar payment. To cut a long story short, my wife and I sold our nice car and drove an old bright yellow Mazda 121, we took in overseas student borders and rented out our living room to another business.
We also sold anything that wasn’t nailed down (including the kids playground in the backyard), cancelled extracurricular activities and slashed our household budget. It's amazing what she cooked with cheap mince meat! In the end we saved our house, built several new thriving businesses, and have a LOT of empathy for those that are doing it hard.
If you are going through a tough financial time remember to get some good help and be prepared to make some difficult decisions. I think that too often we focus the “successful people” when the reality is that it’s through adversity that all of us can shine.
If you’re going through a tough time now, then feel free to reach out to me if you need an empathetic ear. Have a great weekend.