Is Your Business In Financial Trouble?
It’s one thing to read about and feel sympathy for companies hit by hard times, a cash crunch, or an industry slump. It’s quite another to experience the pressure yourself.
But there is a chance that at some point your company could run into problems, or fall victim to a weak economy or other challenges and end up behind in its debts. If the situation deteriorates enough, you get a few rinds from lending officers looking for payment.
That is precisely when you need to stay calm and develop a plan. Here are some
- Avoid denial. Show your banker you understand the situation and the problems. Do this quickly and convincingly. Otherwise the situation could worsen and your banker could start pushing toward liquidating assets.
- Make an offer. In exchange for going along with you, give the bank something it doesn’t have yet. Assuming you’ve already provided personal guarantees, agree to pay higher interest rates or to shorten the loan maturity with a balloon payment.
Your bank lenders probably won’t be the only ones calling you if your business hits a rough patch. Be prepared to sit down with any debtor to see if you can negotiate ways to spread out your expenses for a while. For example:
- Your landlord may be willing to accept delayed payments.
- Your distributors and vendors may be willing to provide you with some trade credit.
- Your creditors may be willing to negotiate payment extensions for as long as 90 days or be willing to accept instalment payments.
Negotiate firmly, but do not appear desperate. What you are buying from all your creditors is time and without it you might just be out of luck. Bankers often like to suggest that a simple way out is to bring in a new bank or investor. That sounds sensible, but if the business climate is difficult, you will find few banks willing to write new loans for troubled companies and few individuals willing to take risks, at least on terms you want to accept.
That leaves the bank two options: liquidation or staying with you. And clearly the only option from your perspective is the latter. That means talking the lender out of the liquidation possibility. Suggested manoeuvres:
- start digging for some real examples of liquidation values and some convincing arguments about how the values of inventory and accounts receivables plunge when a business closes;
- demonstrate that you know what to do, however difficult, and then do it;
- present a cash flow plan that lays out how you plan to generate the cash to cover your debt;
- corroborate information from trade journals and other independent sources to bolster your credibility; and
- tap the experience of professionals when it comes to complex matters such as projections and cash flow.