Friday, May 27, 2011

How debt crushes a business in Ottawa!!!

Borrowing money to acquire real assets or buy new equipment can lead to genuine improvements in a business’s opportunity to make better profits. Borrowing money in this situation is a reasonable bet, but it needs to be supported by a genuine plan and clear sightedness by management.

But borrowing money to solve business problems like cash flow shortfalls or finance receivables is a double-edged sword. Debt incurred for these purposes typically makes matters worse by crushing profits into the dirt. As debt increases, more and more of the daily, weekly and monthly revenues are assigned to service debt. Less and less goes to keeping the business healthy. Debt then forces businesses to borrow indirectly by slowing supplier payments, getting behind with payroll taxes, and cutting owner pay.

Then more borrowing takes place and the debt spiral takes a sickening lurch and the end is near.

Here is the mechanism.

People and businesses borrow money. Essentially this is a long term bet that the enterprise will generate the cash to repay the loan. But debt service charges are a fixed cost, like rent, payroll and lease payments, that do not rise and fall with revenues. You can cut purchases in response to a fall in revenues. You can cut hours; you can switch off power; you can lay off staff. But you cannot stop making debt payments without repercussions.

Moreover, the debt servicing amounts are taken directly from profits and if profits are not there or are slow to arrive, then the business can collapse.

This is why lenders want to see a concrete plan for recovery.

How to solve debt problems:

Borrowing more money to solve the immediate problem may be a great move, provided there is a credible strategy to return to manageable levels of debt. Quite often, however, there is no plan beyond wishful thinking.

So, having a written plan is step one. This plan must have good research and solid numbers backed up by that research. Quite often this will mean a better pricing strategy that builds in a pre-determined profitability on each transaction. Need a better pricing strategy? Then read my book Pricing Strategies for Small Business.

Step two, would be to devise written management targets to retire the new debt within a 2 to 4 year period. This should take the form of a cash management programme.

Step 3 would be to work that strategy to retire the debt and get into the habit of retiring debt.

But what happens if the problem is truly intractable?

When this position is reached, it is possible to park the debt while rebuilding the business. Sometimes the solutions are harsh and sometimes lengthy. If it took a few years to get to that unhappy position, then it will not be a five minute fix. But it can be done.

This typically involves convincing the creditors to stand by for a limited period. But assets pledged against the debt are in danger of being seized. That pledge could have been for the receivables, equipment, vehicles and even personal homes.

When the plan starts to work?

When the plan is underway and the cash comes in it is perfectly normal to think that all problems are solved. But you are wrong. Why?

Even the re-payment of debt has to be managed. Some debts are more dangerous than others even if they have lower costs attached. Debts for payroll taxes can lead to seizure of bank accounts. Debts to workman’s compensation can lead to the premises being locked down. Debts against assets can lead to the assets being seized.

What to do? Refer to the cash flow plan. It is unwise to pay “soft” debt before the dangerous ones. If your plan was accepted by the creditors, then work the plan. Pay early or at least on time. Rebuild your credibility and please stop whining.

Next, pay the high interest rate debt first. And when you can utilize some credit availability to move high interest to lower interest, then do so.

Finally, when the worry of debt is gone and cash is not totally dedicated to servicing that debt, you can Build Your Business.

Remember that the people who worry least about money or a temporary downturn in business are debt free and have low fixed costs. You want to be there.

To discuss your debt challenges call:

Floodlight Business Consultant:

Andrew D. Gregson B.A., M.A. M.Sc.(Econ)
Kelowna, BC, Canada V1Y 8A6
toll free: (888) 959-0752

Monday, May 23, 2011

"One hour per day of study will put you at the top of your field within three years. Within five years you'll be a national authority. In seven years, you can be one of the best people in the world at what you do."

Earl Nightingale

1921-1989, Author and Speaker

Tuesday, May 10, 2011

"Stand up to your obstacles and do something about them. You will find that they haven't half the strength you think they have."

Norman Vincent Peale

1898-1993, Author of The Power of Positive Thinking

Thursday, May 5, 2011

Digital Oil Change a new marketing vehicle!!!

As a marketing consultant and business coach I have been challenged by my clients in the last while to find new and innovative ways to market their products locally in Kelowna.

Many of my clients prefer not to use traditional mediums of radio, TV and newspaper. They tend to leverage the internet with websites, blogs and various social media sites including Twitter, Facebook, LinkedIn and marketing tools like Twongo.

I did not think I’d find the next marketing opportunity when I was changing the oil in my car.

Last week I visited Mobil 1 Lube Express on Enterprise Way to do an oil change on my 1976 Pontiac Lemans classic car. I was in for a simple oil and filter. I like Mobil 1 Lube Express for their great service and pleasant staff.

Sitting in my car I noticed a large LCD screen and I thought this was pretty interesting as I could watch my sport updates.

Within a few minutes of starting the oil change Pat Chassie, the owner of Mobil 1 Lube Express, came over and explained that they had just added some new technology the ‘Pit Cam’ to enhance the service levels at his location.

Pat said “We wanted to have the ability to show clients the problems they have with their cars or just review what we have completed with the customer. Our insurance does not allow clients in the basement of the shop, so live video feed was a great option”.

The solution was a new product from Northern Computer; Digital Signage Solutions as it serves a dual purpose.

Number one: It allows Pat’s crew to visually show the issues under the car immediately through the camera to the clients.... Example.... In my case they were able to show me on the screen the oil pan for my car and that it had an oil film on the exterior, which means I needed to have the gasket changed before it became a bigger problem.

Number two: It allows Mobil 1 Lube Express to feature products and services on the screen to a captive audience.

That’s when the light bulb went on!!!!

I asked Pat if he was going to do some additional advertising.

At this point he smiled and said....”Yes, we have a few advertisers lined up, but we’d love your help.”

Not only do I have a few ideas ......I have a few clients looking for new avenues to market their business to a targeted audience.

In discussions with Pat I came to realize that this will be a great opportunity at a fraction of the cost of traditional advertising.

He also mentioned that Northern Computer will be doing some presentations in the next while to explain the technology and its many uses.

All in all the Pontiac Lemans is running great and I have found another way to help my clients.

Technology is moving so fast and allows you to Build Your Business with new and innovative ways.

To learn more contact Pat directly at Mobil 1 Lube Express or John Gibson at Northern Computer.

Donald Robichaud
FloodLight – Build Your Business
Kelowna / Ottawa / Toronto


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