If You don't Do the Loan Workout Now, You May be Throwing Out Valuable Revenue

Why pay your debt when you will end up doing the loan workout eventually? Consider the following... You all know how bad things really are for you and your business. Revenues are way down and overhead continues to creep upwards despite your attempts to reduce payroll. Realistically, things are quite grim. You may have already stopped taking a paycheck, as if that will save the day. Why not do the loan workout now and save your cash?

You may, however, be perfecting the age-old art of avoidance, not recognizing the clear reality that you are losing money and there will be a point in time that you will cease to be able to operate. Then what? You know when you are at that point. Why not consider a loan workout?

For most of you that point is now. Few will act, and those that do not stop and reconsider their plan are truly wasting valuable life-preserving money---money currently being spent on a note that will soon be in default. So, what's the point? In fact, maybe the debt service money you are about to spend this month and for the next few, if invested in your turnaround or loan workout, would yield a far greater return. It may, in fact, save your business life.

If it is true that at some point you will default and be forced to do some sort of loan workout---or leave the bank with its loss---why spend one more dollar on one more payment? If you're going to default, default now while you remain in control. Default now, while you still have the life force to reform, do a loan workout and redirect your business energies.

You may be throwing away valuable revenue if you are paying the bank when you know you will ultimately default. It makes no sense. Paying the bank one more payment to "keep things going" instead of doing the loan workout, is a waste of the money. Hoping things will change and that you will be able to continue to pay the notes? Another waste of the precious funds.

The only thing that can, and must, change is you and how you handle this long-term downturn. Stop making payments on debt you can no longer afford and that you will eventually default on. Stop wasting precious capital when you could use it on your own business loan workout or turnaround.

You are throwing away valuable revenue; use it on yourself, do the loan workout. This is called survival. Call us for help and direction and we'll help you do the loan workout. Norm will set up a no-obligation teleconference. Call 413-584-2581.

Overhead vs. Productivity: A Battle That Must Be Won

I have hired a professional contractor to convert a porch into a three-season sun-room. It is not a big project, but certainly a project that is expensive, time-consuming and deserving of close attention, as it is an example for the many contractors working on a fixed-price contract. What was projected to be a "three-week project" is now a nine-week project, and it is not over yet. The price is still the same, but the time allocated extends to three-times the time projected. My guess is that the contractor is still thinking he has made profit on the project, but the sad truth is, not only has he not made money, he has probably generated a loss and does not even know it yet... not a clue.

Here is the problem: Overhead.

It is not just payroll---although that is also a huge factor and likely filled with waste from the time extension---but I will assume his employees worked the prescribed number of hours he computed it would take, and that it just took a few extra weeks to organize and complete. Downtime results from subcontractors not showing up when they said they would, and taking longer than they thought they would waiting for materials to arrive, weather issues, sick days, personal days, whatever days... it simply took too many extra weeks.

Here is the point: Every single day costs money. All the fixed costs, insurance, note payments, utilities, staff, everything the small business owner must pay for---whether or not he is earning---equal a daily overhead burden. This job absorbed at least six extra weeks of overhead burden, probably not computed into the cost of the job as it was only scheduled for three weeks, not the nine it has taken thus far. Not to mention the lost opportunity and the cost of time unable to be used for generating additional profit (now lost irrevocably). But who is counting? Not most small business owners!

That extra one month and two weeks of overhead destroys the profit of this job. Time costs money. If the job completion time is lengthier than the time allocated, productivity goes down and profits go out the window.

Pay attention. Follow your plan---the one you bid---and make it happen, on time, on budget and to spec. This is where your cash and profit disappear: low productivity and not delivering on time. Profits sucked up by overhead and, yes, by payroll.