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If You're In Trouble, Reach Out for Help... Now!

Written by: Marijo McCarthy

Article Overview: Last week, I got a call from a client asking me to help a friend, the owner of a small manufacturing company. "What's a Forbearance Agreement?", she inquired. Gulp! "Tell me more," I suggested, knowing full well that a few months of trouble had certainly preceded her friend's question.

If You're In Trouble, Reach Out for Help... Now!

Last week, I got a call from a client asking me to help a friend, the owner of a small manufacturing company. "What's a Forbearance Agreement?", she inquired. Gulp! "Tell me more," I suggested, knowing full well that a few months of trouble had certainly preceded her friend's question.

Sure enough, out tumbled a familiar story: A small manufacturer of consumer products had run into back-to-back quarters of red ink and had fallen into a few months of late payments on their bank financing. As the late payment fees started to add up, cash flow slowed down and late payments became no payments. Next came a notice of default from the bank.

Without seeking advice and assistance at the beginning of her tumble, the business owner had slid far down the slippery slope of becoming another small business bank statistic. She had also made a tactical error: Instead of facing the problem with her banker head on with honesty and a plan, she had ducked her banker's calls. By the time I made the first call, I was already facing the firing line. More about this story later.

But first, how can you prevent this scenario from happening to your business in this less than robust economy?

Be vigilant. Watch your numbers like the proverbial hawk. If actuals aren't meeting projections, don't take your hand off the tiller since it may very well be an advance warning of rough waters ahead. Entrepreneurs who track their financial progress fanatically during an uncertain economy have a better chance of preparing for a storm than do "checkbook" business owners.

Be in control and anticipate. Cash flow is essential, but conserving your cash is an art. It may mean that you draw down on a line of credit now, rather than waiting for a specific purpose, just to have an emergency fund. It may mean that you don't pay your bills as lightning fast as you always have, although not so late that you incur late fees or mar your credit rating. Being in control now, before times get really tough, puts you in the driver's seat later.

Communicate... Now is not the time to hibernate. Not from your customers, not from your employees, not from your vendors and certainly not from your banker. If my client's friend had communicated earlier and honestly, her banker would have been much more likely to work with her - and without threats of acceleration of debt.

It sounds simple, but it isn't easy to keep your game face on when faced with slowing sales and rising costs. Reach out to your good customers and make sure they feel appreciated. Reach out to your colleagues to compare notes. And be sure to reach out to your banker now, before you need him, and give him the courtesy of a quarterly briefing on your industry and your business. If your banker calls, take advantage of it and make the most of the opportunity to communicate.

Happily, this story has a nice ending. The business owner had some private assets and an ability and confidence to invest those assets into her business. She has also now developed, with the aid of her accountant, an expense-shaving plan... a plan designed to move non-productive expense money into marketing dollars to put herself out ahead of the competition.

With a quarter-by-quarter plan for the business and some money to make a pay down on the outstanding line of credit, her banker was willing to delay demanding her note and has given her some breathing room, albeit with a short leash. She is meeting or talking monthly with her banker, who has moved from dire predictions to cheering her on.

Putting together a plan to meet an uncertain economy head-on is a very wise step in the right direction for all successful entrepreneurs. Only time will tell, but this is one small business owner whose plan pointed her in the right direction.

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Article Tags: credit, forbearance agreement, small business, uncertain economy



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