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Financial Feasts

Financing message forum where you can get and give insights found nowhere else. Belly up to the table and request funding. Or tell your money tales. Any money talk is fair game except ads.

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Show Me the Money!
Belly up to the Financial Feasts table and talk turkey about money... what to look for, where & how? All money talk is fair game. Go


When You're in Trouble

You're aware of a pain in the pit of your stomach day after day, and you know it's not because you've been eating too much chili lately. You suspect that gnawing feeling means you're in real financial trouble -- but you hate to find out more because it might be true.

However serious the problem, it doesn't mean the world will end (although you might wish it would). Ask any successful entrepreneur if their biz (and life) was ever on the brink of financial disaster, and you're bound to hear "you bet!" In fact, most say those days/months of disaster became the catalyst for their later success.

Maybe you don't have enough money flowing in. Maybe you don't have enough clients. Maybe your fees are the culprit -- too low. Or maybe the industry-wide downturn is dashing your enterprise against the rocks.

Whatever the reason, you're hitting tough times -- and you're scared. Let's look at the challenges ahead and create a plan of attack.

1. Collections: Getting What's Coming to You

2. Bankruptcy: The Very Last Resort

3. Dealing With Guilt

4. Communicating With Creditors

5. Web Links

6. Resources

1. Collections: Get What's Coming To You

If your business is suffering because people who owe you haven't paid, that's the first place to put your attention. You, like most business owners, probably hate to have to ask for the money you're owed, but considering the alternative, just dust off your pride and go to it (or get an employee, contractor, or collection agency to do it for you).

First, stop being such a nice guy. Just explain -- up front -- your company's collection policies and stick to it. Here are some tips you can start using today to stop future bleeding. (Remember it's YOUR money we're getting here; if clients won't pay, they aren't worth dealing with.)

Tips: Scaring off deadbeats

  • Turn down clients who look like poor credit risks.
  • Require a full or partial upfront payment.
  • Ask for progress payments during the life of a long project.
  • Offer a small discount for early payment.
  • Add an interest charge to late payments.
  • Stop work for non-paying clients

Tips: Reeling in deadbeats

You can't afford to be patient. The sooner you start calling overdue accounts, the sooner you'll see your money, and the shorter the collection process will be. In fact, set the pace by calling accounts a few days before the payment is due just to be sure they received the bill, don't have any questions, etc. and to ask if they'll be making the payment on schedule.

Don't wait more than 5 days after the payment is overdue to call. You don't have to be mean or demanding (yet), just inquiring about whether they have the bill and find out when they plan to pay.

Sit down every month and review all the bills owed you. Take some action on every past-due account. Mail a second invoice, with a notation or stamp that says "past due" or "second invoice." Follow up with a phone call.

If you still don't get your money, write a straightforward letter reminding the client the bill is overdue. Follow up with a phone call.

Still no payment? Send another letter, explaining that your policy is to turn over past-due accounts to a lawyer or a collection agency if payment is not sent by a certain date.

Hire a lawyer or collection agency.

2. Bankruptcy: The Very Last Resort

Only after you have totally exhausted all other avenues, should you even consider bankruptcy. Even if you just declare bankruptcy temporarily and manage to work your way back out of it, it'll be much harder to run your business "as normal" in the future.

It will be extremely difficult to get loans, new credit cards or other types of credit.

If you do manage to get any financing after a bankruptcy, it's likely to cost an arm and a leg.

The stigma of the bankruptcy may scare away many of people your business needs most -- good employees, suppliers and customers.

There are basically two flavors of bankruptcy -- both bitter:

Bitter-sweet: A Chapter 11 bankruptcy is a chance at reorganization. The filing halts all collection, foreclosure and lawsuit actions. This buys you time to reorganize your debts by devising a payment plan with creditors. Unless a judge says otherwise, you retain ownership of the business and control of its operations.

Bitter-bitter: A Chapter 7 filing -- the end. This means liquidation! A judge appoints a trustee to oversee the business, and can order the sale or seizure of assets in order to repay creditors.

But bankruptcies are often avoidable, even at the eleventh hour. You might be able to sell or lease-back assets, recapitalize (albeit at high interest rates), or offer rights for shareholders to purchase more shares at bargain prices.

Steps in undertaking bankruptcy:

Timing is key. You may not want to succumb, but wait too long and your assets may deteriorate to the point that a successful Chapter 11 reorganization isn't possible. 

Hire an attorney who specializes in bankruptcy to file a petition in Federal Bankruptcy Court and advise you. 

Small firms, whose aggregate secured and unsecured debt is $2 million or less, may not be required to meet with a committee of creditors. Instead, if the court agrees that enough information has been supplied to all creditors, they can present a repayment plan for approval by the court.

Small firms must file a reorganization plan within 100 days of the bankruptcy filing, and all plans within 160 days. 

Bigger firms must file a plan within 120 days, and all plans within 180 days. 

A business which is unable to resume after a Chapter 11 filing can file for liquidation under Chapter 7.

3. Dealing with Guilt

After you identify the causes of your business problems and the extent to which you were responsible, resolve to make this a learning experience. Remember that all smart people make mistakes -- but the really smart people recognize them when they happen. Remind yourself that Thomas Edison failed hundreds of times before he successfully invented the electric lightbulb.

Olivia Mellan, a Washington, D.C., author and psychotherapist who specializes in money issues, offers this advice:

You lost some money--okay. But don't berate yourself. You're not "flawed" or "bad." These powerful words can derail you if you're not careful.

When you're panicked and can't think clearly, use your favorite relaxation technique to calm down -- exercise, music, a bath, walk, meditation.

When you're calmer, analyze what went wrong. Figure out what you contributed to problem, and what was due to forces beyond your control. Did the market dry up? Were you undercapitalized? Did a partner make unwise decisions without your knowledge? Or did your business just spend more money than it could make?

After you've analyzed the situation, learn what you can from it and move on.

Resolve feelings of shame by sharing them with non-judgmental people. This can be a friend, family member or therapist.

Read a few articles or biographies of famous business people. Reading about their mistakes and failures can be comforting.

Remember that you are not alone. This has happened to lots of entrepreneurs.

The best way to deal with guilt is to take positive action. When you're in the midst of feeling guilty, you often feel that there's nothing you can do to change the situation. Don't expect to turn everything around all at once -- take one small step at a time. Don't give yourself impossible goals ("I'm going to pay all my bills entirely next month."). Instead, give yourself achievable, although sometimes unpleasant, small tasks ("I'll talk to one overdue credit account today and make arrangements.") Biting off small tasks may make it possible to swallow all the bad feelings and make a big improvement.

4. Communicating with Creditors

When you're in trouble, your natural inclination is to run away from it -- dodge telephone calls, have your employees make excuses, ignore letters -- hoping by some miracle that if you ignore it, the trouble will go away. Not so, of course, so whatever you do, don't give creditors any reason to think you're avoiding them. Just explain the situation -- it may not be what they really want to hear -- but at least it's the truth, and you won't catch yourself up trying to remember what lies may have been told to whom.

Each creditor, of course, wants his money. But ask if there's any barter arrangement that might provide them of something of value your company could provide (that's not money, per se).

If they don't go for that option, get out partial payments to all creditors whenever you get any money in. Even if the amounts of each payment are embarrassingly low, it'll show people you are alive and trying, and give them the best confidence that eventually they'll get paid. And it will give you the most freedom from their phone calls -- if creditors feel like something positive is happening, they may not have to bug you as often, so you can focus on trying to make money.

5. Web Links

Site of Debt Counselors of America a non-profit group that assists individuals and families trying to clean up their debt.

6. Resources

For debt management:

Harrison, Lynn. Extending Credit and Collecting Cash: A Small Business Guide (Crisp Publications, $15.95)

Mellan, Olivia. Overcoming Overspending (Walker, $18.95), and Money Harmony (Walker, $9.95).

For industry statistics and financial ratios:

Robert Morris Associates
1650 Market Street, Suite 2300
Philadelphia, PA 19103



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