Houston, We’ve Had A Problem
Following their successful liftoff and interstellar press conference en route to the moon, Apollo 13 astronauts James Lovell, Jack Swigert and Fred Haise carried on with their mission as America settled into the “routine” of its manned spaceflight program. Some 56 hours and 200,000 miles later, the crew encountered a loud bang that changed their mission from exploration of the lunar surface to fighting for their very lives.
While their story had a happy ending, it was all predicated on a thorough, systematic regimen of identifying the problem, understanding the problem, correcting or mitigating the impacts and for future’s sake, preventing recurrence of the problem. Creativity and teamwork certainly had their place in the outcome, as well.
According to the Small Business Administration, business deaths have exceeded business births for the past several years. Between 2010 and 2011, over 900,000 businesses closed their doors, of which over 108,000 filed for bankruptcy. That’s nearly 1300 businesses just like yours failed each day. 1300 business owners lost their livelihood each day and in many cases, a family-owned legacy that served the community for decades was lost.
Bankruptcy is the means to an end, in most cases, after all alternatives were identified, all the options were explored, and all the corrective measures were taken. Or were they? More importantly, were they identified, explored and implemented in time? The answer, by definition, is “no.” When you finish reading this article, you’ll understand not only how to avoid an imminent financial disaster, but exactly how soon to act.
Emerge 180: The Creditor Negotiation Experts
Awhile back, Emerge 180 received a frantic call from the owner of a restaurant in California. He was in a panic because the Sheriff was conducting a “Till Tap” in his restaurant, standing next to the cash register and taking all the money from his customers during the lunch hour. A “Till Tap” is where the court authorizes a creditor to send the sheriff to a business and collect any money in the cash register and any money collected by the business throughout the day. We had spoken with the owner a month before and had warned him of what actions the creditor could take, but the owner had failed to take any action or heed our advice.
Unfortunately, this is not uncommon. As the old saying goes, “If I had a bucket for each time I see this happen I would have enough water to fill the Atlantic Ocean.” Everyday we speak to business owners who waited too long to ask for help. These owners had the best of intentions and thought they were doing the right things to keep the business going, but in reality they ignored or were unaware of clear signs that their business needed outside help to survive.
Just imagine the astronauts, in their crippled spacecraft, despondent and unresponsive to their predicament. Lead Flight Director, Gene Kranz took his mission control specialists aside and uttered those immortal words, “Gentlemen, failure is not an option.”
“I have never seen a business benefit from doing nothing.”
Emerge 180 President and CEO Jonathan Field used that to summarize years of debt restructuring experience after watching too many businesses take too little action simply too late. In medical trauma parlance, there is the “Golden Hour” concept: The first hour following an accident or medical trauma is the most critical for the application of life support and health care. When a business faces a similarly devastating financial setback, there is a critical window of opportunity for extraordinary action – before it’s too late.
“One of the most difficult things for a business owner to do is admit they need help, especially when it comes to the issue of debt. However, the earlier we get involved with helping a business, the better the chance the business will survive and the more money the company is likely to save in the process,” says Field.
Since 1993, Emerge 180 has been helping businesses and during that time have identified several warning signs that may indicate the business needs help with managing its debts. We’ve broken these indicators into three categories:
Since Emerge 180 is dealing with debt, it is natural to think everything is financial-related, since there is more money going out than coming in. The reality is that businesses may not always think in those terms and the impact of debts may show up in an Operational or Personal capacity before they are realized in a Financial capacity.
Financial Warning Signs
Accounts Payable Report – Businesses using an accurate accounting system should run an Accounts Payable Aging Summary. There are two items to look at on this report.
1. Take the dollar amount greater than 90 days past due divided by the total dollar amount for all accounts payable.
2. Count the number of creditors greater than 90 days past due and divide by the total number of creditors on the report.
If either of these or both are above 30%, it is an indication that the debts may not be manageable without assistance. Consider downloading Emerge 180’s Debt Dashboard application. It’s free and lets you monitor the financial vital signs of your business in real time.
Payroll – is the business struggling to meet payroll on a consistent basis? If the company is not paying other debts in order to meet payroll or is not paying payroll taxes it may need help.
Bounced checks. This one speaks for itself.
Collection / Legal Actions, Collections Calls and Letters. Leasing companies threatening to pick up their equipment? Does the company have a lawsuit or judgment filed against it?
Terms Negotiated but can’t be honored: An arrangement was reached with a creditor that would work but the company is falling behind again.
Operational Warning Signs
As previously mentioned, all creditor issues stem from not having enough money to pay them. However, it sometimes does not creep into the mind of an owner until there is an impact with the operations of the business. Below are warning signs that show up while running the operations of the business.
Suppliers pull or will not issue credit terms: Although the company may be caught up with a supplier, they will no longer issue credit terms because of payment history. Requested credit terms from a new supplier are denied.
Paying for materials on a credit card: Is the company running up credit card debt paying for supplies and materials for the business? Has the business recently received a “cash advance” on a personal credit card and now having difficulty making ends meet now?
Buying items at the last minute and in small quantities: Is the company unable to build up appropriate inventory for orders? Does it find itself rushing to by a small quantity of one item to fulfill an order and end up paying a premium for it? If this is a consistent practice in the business, this is an Operational Warning Sign.
Equipment is not properly maintained: Is equipment not working at its best because of deferred maintenance? Has the company spent an inordinate amount of capital repairing one piece of equipment, putting off a much needed equipment replacement?
Personal Warning Signs
Sometimes the clearest warning signs are how the business is affecting the owner personally – both mentally and physically.
Uncompensated owner: Has the owner deferred compensation, or only receiving a minimal amount? Is the owner living off credit cards or a secondary income?
Impact on health: If the owner’s health has deteriorated at the same time the business has declined, it is possible the two are connected. Another indication is a high fluctuation in weight, whether gained or lost.
Stress affecting sleep: Is the business causing sleepless nights? This may occur even if the business is going well, but the key difference is thinking about new ideas to grow the business versus searching for ways to save the business and cover debts.
What happened with the frantic call from the restaurant owner? After he called us, we spoke with the attorney for the creditor. The attorney agreed to cease the “Till Tap” and we had a conference call with the Sheriff resulting in the Sheriff leaving the premises. Within an hour, we worked out a long-term payment arrangement for the owner and the Sheriff never visited the owner again. We worked with the owner on several other matters, and eventually he caught up with his outstanding debt and was able to run a profitable restaurant going forward. He also identified root causes and was able to prevent a failure from happening again.
While we were able to help the restaurant owner, he could have saved a significant amount of time, money, and stress if he had started the process earlier. Of the 150 businesses that file bankruptcy every day, how many could have been saved with the proper guidance and experience in place? By sharing these Warning Signs it is our intent to help owners recognize when they should seek outside assistance that can prevent additional hardship and unneeded stress.
1.Identify the Problem immediately
2.Understand the Problem
3.Consider all the options to solve the Problem with creativity and teamwork
4.Execute the solutions, monitor progress and make adjustments as needed