So – you’re stressed beyond belief. The business you’ve dreamed of your whole life has shown moments of promise – maybe even moments of brilliance – but you just can’t seem to keep it going.
You’re trying to keep customers happy and deliver on the promises you’ve made. You’ve worked your ass off to get this far, and to see it all slip away is more than you can bear.
You have one eye on the bills you owe and the debt you ran up (by the way that payment is 15 days past due). Your other eye is on your dwindling bank account balance.
You know that payroll happens again this Friday and you’re not sure how you’re going to pay every- one.
Let’s take a pause at this point to paint this picture in a different light. Think of it this way: You’re in a boat on a river. The boat has started leaking and it’s taking on water. You’ve been busy bailing with one hand and rowing with the other for hours, or is it days? You realize that you haven’t even looked up for quite some time, so you’re not sure how far downstream you’ve drifted. Come to think of it, you’ve been hearing a roaring sound for awhile now, and it’s gradually been getting louder. It’s a waterfall. Quickly now – you may have only moments to make a few key decisions. These decisions are going to dictate whether you reach safety, or tumble over the edge. What do you do?
Even though things seem dire and you can’t bear the thought of taking a breather at such a critical time, you may well pitch right over the roaring precipice – still rowing and bailing like there’s no tomorrow. If your business means that much to you, you’ll take the time right now to survey your options.
Assess your situation
• Specifically, this assessment should include 3 things:
- If you haven’t done so, sit down and do a quick and dirty ”cash received” forecast. Sales on credit don’t count here – only cash. It doesn’t matter if this is written on a cocktail napkin or in a fancy spreadsheet. Do it. I’ll wait while you write ”cash received” at the top of your napkin. Done? Great. You need this to show how much in cash you will receive EACH DAY for the next 30 days, so you’ll need a wide napkin that will hold 30 columns.
- At what rate are you spending cash? Highly paid MBA’s call this your cash-burn rate. I suspect that’s because MBA’s are secretly excited about the concept of burning cash. They just know it would make the most beautiful glow. – Anyway – we’ll call this ”cash outgoing.” In our boat example, it’s where you stick your finger in the water to see how quickly you’re being carried toward the waterfall. Turn your napkin over and fill this out with a number for each of the next 30 days. It includes any and all money that will be leaving your account. If you’re really not sure (this is very common), that’s ok. Start by looking at your last 3 months’ bank statements. Identify what each withdrawal on those statements was for. Then just decide if each one of them is going to come out again in the next 30 days. If the answer is ’yes’ – or even ’maybe’ – it goes on the napkin.
- Mind the (cash flow) gap. (Just take the daily totals from #1, and subtract the daily totals from #2). Any days that this is a negative number, you’re ”burning” cash. At some point, you will run out. Based on what you see from #1 and #2 above, you now know when that will happen.
If your cocktail napkin shows that you’ll still have some cash at the end of the 30 days, great. You’re farther upstream than you thought.
You’ll want to get 11 more napkins, and do monthly cash-flow forecasts for 11 more months. (these are easy compared to what you just did – just one monthly total for cash in and one for cash out).
If, on the other hand, your cocktail napkin shows that you’ll be running out of cash in less than 30 days, you have something specific to work with (instead of that nasty feeling in your gut telling you that you were in trouble, but not how much trouble or when.) Believe it or not, this is better than not knowing.
Pause briefly to think
It’s time to clear your head. Get somewhere away from distractions, somewhere different than where you might usually go. Turn off the cell phone and anything that beeps, buzzes, or otherwise demands your attention. Close your eyes, take some deep breaths, and center yourself. This is where your business lives or dies. Understand that either outcome is possible.
It is easy for me to say this, but try for perspective here – you are not actually going over
Got that unpleasant possibility processed? (or at least begun to?) Okay. Here is where the rubber meets the road. If your business is going to survive, this is how it has to happen:
Remember that cash gap you identified above? Double it. You cannot operate with exactly zero in your bank account. By adding this cushion, you provide yourself a realistic level of cash to move beyond this 30 days. This number you’ve identified is how much cash you need to raise right now.
Look around you for options. You need cash, and now you know how much. Find it. (Legally, please). Some ideas for potential sources: Uncle Joe who recently retired and has some savings; Your bank or credit union; Friends. Here’s an often-overlooked option: call successful business owners you know and respect. They have likely experienced what you’re going through and may be willing to help you – especially if you can show them how they have a vested interest in seeing your business succeed. Depending on which one of these sources says ’yes’, they will likely want to see that you have a plan to move past this period of crisis. If your napkin has tear stains or is excessively wrinkled, now would be a good time to consider upgrading it (unless mom is your funder, then tear stains may have upside).
Get help. There is a good chance that you’re very good at your craft – whether that is baking cupcakes, brewing beer, building homes, designing websites, etc. In cases like this, what you need is oxygen. You need room to move around your business, helping where needed. Your customers need to know you’re there. Your business partners and vendors need to know you’re on the front lines working your magic. Remember why you started this business? Whatever you were passionate about in the beginning, do that. Find people to help you do things you’re not good at or not passionate about.
You cannot be all things to all people, so the chances that you can continue to be on the front lines and operate your business (row and bail that boat), while at the same time making the additional plans you need to move beyond this 30 day period, aren’t good. It isn’t that you can’t figure out the finance and operations pieces of this puzzle, it is more a matter of making the best use of your time and talents. What gives you the best chance at success is a turnaround team.
Here are some places to find your team:
- A local bank – specifically smaller banks. Look for the senior lenders and relationship people
- SCORE or Executive Service Corps
- A local accountant
- A local businessperson willing to serve as a mentor
- I would avoid having Uncle Joe on this particular team. What you want here is objectivity
Don’t make your team too big. It needs to be as small, as nimble as possible, and willing to help take you beyond this 30 day critical window.
If you aren’t in dire straits, now is the perfect time to build your team – BEFORE you hear the waterfall. Who is on it?
I will gladly discuss this with you free of charge. If I cannot help, I will tell you so (nicely). If I can help, we’ll talk about how.
Whatever happens, you deserve congratulations for having the courage to face the job ahead.