I visited with a business owner the other day that was seeking our assistance. She sought our assistance in attempting to resolve a series of cash flow matters. Her business was very successful at one time, however, with changing economic conditions, her business had experienced some struggles and she had began to use credit cards as a way to help sustain the business. Sadly, she had maxed out several credit cards as well as having some loans and a line of credit that were fully utilized. I told her that I would be happy to visit to see if our firm could help resolve some of her challenges.
We were not in the conversation very long before I determined that we would not be able to assist her. Why not? Well, unfortunately, the business had been propped up on credit cards, 16 to be exact–and they were all maxed out, as well as having several bank loans and a line of credit at its upper limit with little, to no business to help sustain the payment stream.
The more we talked, the greater concern I had for this business owner. At the end of our conference, I told her that I would make a few phone calls to see if I could find a business owner that may be interested in buying her particular business. Sadly, there was nothing more that we could do for this individual.
Credit cards are a great tool and used wisely, are very beneficial to a business owner or an individual. The credit card should always be used sparingly, no matter what phase of the business life cycle you are in, however, you should always insure that there is no balance at the end of each month. What happens for many business owners is that the credit card becomes a “bridge” to get the business by a short period of decreased cash flow. Normally, the credit card debt continues to rise and before you realize it, you have reached the credit limit on the first card. Then, a second card is used to pay off the first card and the spiral continues.
If you are in this situation, the first step is TO STOP SPENDING–NOW. Here is where a talk with your banker and your business consultant can help you. There is no reason to continue in a downward “death” spiral. Yes, it may be humiliating and embarrassing, however, there is no reason to get into such a deep hole that you will never be able to recover, requiring you to file bankruptcy.
The steps needed to turn this around can be quite drastic. You may have to reduce staff, take a second job, sell off assets, take in a partner. The farther along that you delay the inevitable facing of economic reality, the tougher the decisions are regarding recovery.
Many business owners feel like going to see the banker is liking seeing the dentist. It just plain hurts! The truth of the matter is that the banker wants you to be successful— after all, he/she loaned you the money in the first place. The last thing they want is for your business to fail. However, the banker is going to provide some strong direction and guidance that you may not wish to hear. The cobnsultant is going to probably do the same thing. As painful as it may be, you probably need to heed the advice of both individuals. The real challenge here is usually business owner ego. Don’t let your ego become so significant that your business is allowed to fail. Both the consultant and banker can help develop a work out plan that may be painful, but will hopefully allow you to sustain and hopefully improve your business operations.