Digging yourself out of a financial hole

I have no more money to put into the business. Over the years the business has been good to me. It has supported lots of families — mine, as well as my employees. Right now, I need more cash to pay the bills, I can’t get a line of credit like I used to and I’m tapped out. I’m planning to sell the business in the next few years, but it’s going to take some work to get it ready for a good buyer. Have I dug a hole too deep or is there a way out?

Thoughts of the day: It’s a different financial landscape for many businesses today versus 10 years ago. Figure out what got you into trouble in the first place. Be a conservative borrower. Prove your business has high value by turning it into a money machine.

Business owners who have been around for years often complain that financing the business is a lot harder today than it used to be. They’re right. The credit ratios are tighter, the demand for good credit scores is higher and the documentation needed to get approved is stricter. All of that means it takes longer to get approved for a smaller pot of funds.

The good news is that tougher lending means it’s harder to get the business in over its head with debt. Pay attention when a banker says your business might not get approved. Don’t get mad, get smart. Find out what needs to get fixed and then do it. Ask your banker to give you an education on what they’re looking for.

Want to sell the business for maximum profit? Limit spending to things that will grow the business. Prove you’re profitable on your tax returns. Accurately record your re-investments in the business. Learn how to read your balance sheet.

Take a good hard look at your client mix. Focus on customers who can make you a profit. Eliminate predatory clients willing to hurt your business in order to help themselves. The same goes for clients that can’t or won’t pay their bills on time.

Go through income and expenses thoroughly. Are you paying too much for materials and labor and not charging enough for the product or service being delivered? How much waste can you eliminate? Cut out expenses that aren’t necessary, especially personal spending. Make sure that the business has enough margin to show a good profit.

When you’ve been turned down by traditional sources for standard loan terms, the offers may start flooding in from the less traditional, higher interest, more onerous loan sources. Owners can get themselves into real trouble thinking they can beat the odds. Lending doesn’t solve the underlying problems that got you here in the first place.

Wondering what to avoid when it comes to lenders? Steer clear of offers with lots of fees, credit insurance provided by the lender, prepayment penalties, balloons on the back end, mandatory arbitration, high reset percentages on variable loans and tying up most or all of your assets.

Avoid double-digit interest rates that can make it hard to ever pay off the loan. Subprime lending and overdraft loans are only two of the types that cause problems for many business owners. Financing accounts receivable or inventory with high-interest terms can be especially hard to get out from under.

Whatever you do, don’t panic. It’s time to buckle down and get things on track. Get costs in line by negotiating with your vendors for reasonable material prices and payment terms. Review employee cost and productivity to be sure everyone is delivering the value they need to — and correct any situations that are out of balance by being honest about what you expect and what you can afford. Focus on customers who can afford what you produce. Make a plan to slowly work your way back to fiscal health.


“Finance Your Own Business: Get on the Financing Fast Track” by Garrett Sutton and Gerri Detweiler.


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