Biz911

It can be catastrophic to lose equipment that is needed to generate business income.  Unfortunately, when sales are down and costs have already been cut to the bone, it still may be impossible to keep current with essential equipment lease payments.  That’s when the real trouble starts.

Once the leasing company, or lessor, starts to send threatening letters or enlists the help of a law firm, you have to act quickly and effectively.  

Assuming that you have realistic plans to get back on track with revenues, you must to be able to communicate to the lessor that you need its help and consideration.  It helps to provide information on:

1. what precisely caused this problem, together with
2. the current status, and
3. outline of your strategy for a turnaround. 

The lessor wants to keep you as a paying customer.  Its willingness to restructure payments or to give you a break in the total sum owed will be influenced by the percentage of monthly payments made to date and the equipment’s estimated garage-sale value.  It does not want to lose out, big time, if your firm goes under.  

A key to resolving lease issues is to recognize the lessor’s potential loss.  It is generally understood that businesses operate in an imperfect, risk-laden world.  A lease is not an annuity.  It is your job to bring out the necessary facts and propose a realistic, practical solution. 

Your proposal has to be aimed at the lessor’s best interests, emphasizing the upside of doing wihat you suggest and the downside if not.  Given that the lessor has lost a certain degree of faith in your ability to make monthly payments – restructured or not – you have to give it some confidence in your ability to follow through on a payment schedule that your firm can sustain.

Equipment lease disputes can appear to have no solution to troubled business owners and managers at the receiving end of hostile telephone calls and correspondence.  

These issues can be compounded by replevin law suits, the intent being to have the sheriff turn up with a court order to seize the equipment.  This could traumatize you and your employees and suck the life blood out of your business. 

The essential thing is to act quickly and decisively, before the problem gets worse.  Don’t make false promises that will prove impossible to meet.  Get professional help to deal with the issue. 

Your time is better spent in developing new ways to generate business income than in the uncharted territories of dealing with a lease dispute that may be critical to your business survival.

It happened again this week and it’s a familiar refrain.  “I want to pay everyone”, said the shaken business owner.  His import-export firm was in trouble.  He intended to catch up with delinquent payables and there was no way he was going to “stiff” anyone.

There’s nothing wrong with this admirable sentiment if dealing with reality, when acted upon early enough and if revenues really can be cranked up quickly.  But this particular business had waited too long to address its declining cash flow.  It faced a “perfect storm” of threats, accusations, law suits and default judgments.  Money had run out.  His landlord and banker were after him and he was trapped with nowhere to turn.

If you get into denial and wait too long, you lose control of your company.  It’s that simple.  Others get to call the shots.  They figure that it is in their best interests to do what it takes to try to get paid.  And when it happens all at once it becomes nasty and vindictive.

Our ideal clients realize early enough that:

• Wishful thinking gets you nowhere.
• You absolutely have to address declining cash flow before it’s too late.
• All costs have to be scrutinized and brought into line.
• Any unused asset must be sold to raise cash.
• You have to focus attention on effective marketing, knowing that the business cannot survive without adequate revenues.
• Creditors should not been misled or given unrealistic promises.
• You have to be prepared to communicate with creditors in order to restructure debt and to meet the vested best interests of each party.
• You need competent help to guide you through this unfamiliar minefield, so that your company gets through it, safe and sound.

If your business disappears, creditors get hurt, possibly left with nothing.  What’s the best, most honorable way to treat them?

• Stiffing them by going out of business, crying unrealistically all the way to the bankruptcy court that you want to “pay them everything that’s owed”, or by
• working productively with them before it’s too late to get revised payment terms, the intent also being to give them the long term value of your continued business relationship, once your company gets back on track.

As far as I’m concerned, it’s a no-brainer.

After getting into financial trouble, good business people can become consumed with guilt about not  paying suppliers as agreed.  Sometimes they become frozen with “debt denial” because it’s just too painful an issue to confront head on.  This feeling can be compounded if particular creditors are other small business people in similar circumstances, known to be tight for cash themselves.  The whole thing can result in procrastination and the perceived inability to do what it takes to save the business.

It can be hard to admit to ourselves that drastic steps have to be taken when the going gets tough.  It’s often easier to keep on the same course, hoping that circumstances will change, as did Dickens’ Wilkins Mikawber, who was always sure that “something will turn up.”  And this attitude didn’t help.  He ended up in the poor house.

The fact is, if tackled early enough, most businesses can cost-effectively do what it takes to ramp up revenues, even in today’s economic environment.  It may take help from outside, from someone who can take a more objective look at the situation.  But it makes no sense to let the business get to a point where cash flow dries up.

It really does help to identify the cause and remedies for decreasing cash flow at an early stage.  If it turns out that you need to delay payments and cut deals with creditors, do it as early as possible.

If you wait too long – incapacitated by debt denial – you may delay until it is too late. Eventually your business will reach a tipping point, where projected revenues have no chance of settling outstanding debt,  beyond which there can be no return.  And this would leave your unsecured creditors in the cold.  Not a good prospect, when you could have gotten something to them earlier and saved your business in the process.