Published in The Tennessean January 26, 2015
By Ed Rappuhn – SCORE Nashville
“My business is in serious trouble. We are losing money, unable to pay our bank loan, and my house is on the line. Any advice?”
Having recognized your situation, it’s time to triage your options. You might try to save the business, take on a partner, sell the business, or simply walk away and start over.
Be honest with your bank. The bank wants to be paid; they don’t want your house! If you have a plan to get the business on track, share it with the bank. Ask for concessions such as a temporary halt to accruing interest, a new payment schedule, and even a partial forgiveness of principal. But only ask for help from the bank when you can show them the sacrifices you, your employees, vendors, etc. are making to save the business.
Are your value propositions (products and services) still meeting your customers’ desires? If not, consider revising what you do to meet their needs. Blockbuster is an example of a company that continued to offer a value proposition that customers no longer wanted.
Can you reduce costs? Could you work from home and rent shared office and meeting space on an “hours-per-month” basis rather than paying full time rent? Review salary and wage expense, including your own. Employees might be willing to take a pay cut to preserve their jobs. Negotiate with vendors or find alternative sources to reduce your production costs.
Find ways to increase sales. Spend more time selling and engage reps to sell on a commission basis. Have a marketing professional review your website, branding and advertising programs
Do you have assets you can sell without damaging your business? For example, a late model delivery vehicle could be replaced with an older van or delivery could be outsourced.
Should you take on a partner to bring some money or expertise to the table? You might lose control of the business, but keep your house. You will need to show the potential partner steps you will take to turn around the business and how he or she will contribute to the effort.
You might sell the entire business or sell your customer list and other assets separately. With negative cash flow it’s unlikely you’ll sell the business for as much as you’d like, but something is better than nothing.
The option of walking away is something to consider only if there is no other choice, but sometimes it’s necessary to cut your losses and move on. Many successful entrepreneurs have one or more failures in their past.
Good luck with your turnaround. Continue monitoring your value propositions and expenses and driving new sales after you’re back on your feet.
Ed Rappuhn is a mentor, workshop facilitator, and the past-chair of SCORE Nashville. SCORE mentors guide entrepreneurs in starting and growing their businesses. Sign up for a free SCORE mentor, find out about our reasonably priced workshops and other services, or volunteer to become a SCORE member at www.scorenashville.org .