by Larry Chester
CFO Simplified is an IMA B2B Partner
Companies run into trouble from time to time. But why do some companies survive those troubles and others don’t? To me, there are two issues. First, it’s knowing when to ask for help. Second, it’s being willing to follow the advice that you’re given. But not everyone waits till they’re in trouble to ask for help. I remember getting a call from a business owner who said he was doing pretty well, he just wanted some help because he “didn’t know what he didn’t know.”
Sometimes I meet with companies that are in a different situation. They have waited so long for help, that drastic measures need to be taken to enable them to climb out of the hole that they’ve dug for themselves and their companies.
How do you know when you’ve waited too long, and when should you call for help? Usually, these situations present themselves when a company runs short of money. This doesn’t happen all of a sudden, it is mostly a slow path down the road.
I had been following up with a manufacturer for about 3 months, when he finally called me on a Tuesday and told me that we needed to start “tomorrow.” I arrived at his plant Wednesday morning, and he ushered me into his office, closing the door behind us. He gave me a strange smile, and said, “I’m so glad you’re here as my CFO. Your first job is to figure out how we’re going to get enough money to cover payroll on Friday.” And, he wasn’t kidding. It’s a longer story that I’m happy to share if you want to call me, but the short story is that we did it, but it wasn’t easy.
So, here are nine (9) warning signs that tell you that you need some help:
- You’ve bumped up against the top of your credit line again. It seems to be happening regularly now, and every morning your first task is to log into the online banking app, and see how big your credit line is.
- You’re running payroll this week, and you need to write a personal check to the company to make sure that you’ve gotten enough money to cover the payroll checks and direct deposits.
- You decided to put off making your 401K contributions this month. You’re a little short, but you’ll make a double payment next month to catch up.
- You’ve started pushing off payments that you used to make on a prompt basis. Those checks that you used to write to your lawyer and accountant are now getting paid at Net 45 or Net 60.
- You haven’t paid attention to your collections, and 50% of your AR balance is over 90 days.
- You looked at your inventory report and it seems that you have more inventory on the floor than you’ve ever had before, but sales are flat.
- It’s now the end of March, and you’re still waiting for your January financial statements. When you ask, you find out that they haven’t even done the bank reconciliation for January yet.
- You complete your Borrowing Base Certificate for the bank, and for the third month in a row, your availability has shrunk again.
- Your bank is not willing to increase your credit line, so you decide to accept a “short term loan” from those quick loan companies that call you weekly. They will send you $50,000 immediately on your signature. No problem, they’ll take the payments directly from your bank account on a daily basis.
In actuality, the biggest problem that business owners have is looking at their business through rose colored glasses, knowing that they’ve been there before. One client was short on cash, so they started running their payroll out of AP instead of through their payroll service. It was a very bad sign. I talked to the retired father who still owned the business. He said, “Yes, I’ve done that a few times myself over the years, when we ran short. He’ll (his son) be OK.” Three months later, the company filed for bankruptcy.
The common thread is, “We’ve been here before, and we were able to work our way out of it ourselves.” But each situation is different. Deciding to not seek help might save you some pride and some money in the short term, but it could be very costly in the long run. You’re much better off seeking help and advice early in the game. As I’ve said over and over again: You can usually find a solution to the problem, but the longer you wait, the harder it is, the more expensive it is, and the longer it takes. Why not take the shortcut and start finding a solution today?
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