When your company gets into cash flow trouble, you have to do an initial ”Threat Analysis”.  In other words, you have to list the factors that could shut you down, if not handled properly. 

Obviously, you have to cover crucial fixed costs, such as payroll and payroll taxes, utilities and rent.  You also need to look after key suppliers of supplies and services, without which you would not be able to stay in business.

Some business people do a terrible job of communicating with the biggest potential threat to their well-being - their lender.  Generally, this is their bank.  I say this because I frequently have to patch up relationships - and loan agreements - after good business owners have delayed getting back to bankers with information that was requested by a specific date.

If your loan is behind schedule and you are asked for current financials or other information to help a banker understand where you are coming from, and going to, it makes perfect sense to provide it.   If your loans officer calls to set an appointment to discuss your financing and your business’s performance, put together the requested information, possibly with a written proposal to restructure the loan.

These are tough times.  Banks have generally become more cautious in their lending policies and procedures.  Think about their perspective and make it easier for them to deal with you.  It does no good to fume and become angry with bank staff.  They have to operate within a set of rules and regulations set by their organizations.  They’re not as free with their funds as many of us would like them to be.  But that’s not their fault.  It’s not their money and their jobs or careers could be jeapordized by “bad” lending decisions.

Requests for information are all part of being in business.  If your loan is past-due and you are alarmed about the dreaded meeting with your banker, or other lender, get help from your CPA or turnaround manager.  Have them sit in with you to provide the requested documents and put your situation in the best light.  The outcome could be much better than you expected.    

Of the list of problems I encounter in troubled companies, poor communication comes near the top. The owner may be running scared and hiding from creditors’ phone calls.  He or she may find it difficult to share their troubles with staff.  And they are not likely being open with their spouse, let alone the banker, landlord and other creditors and their agents.

It’s all too easy to fall into this trap.  It’s so common that perhaps it’s a basic human defense mechanism. It can boil down to pride.  Or fear.  It’s easy, of course, to become spooked when people seem to be baying for your blood.  But things are seldom as bad as they seem.  Knowledge is power and options are usually open to you to come out of this just fine. You just have to know where to start.  

The first step in getting out of a difficult financial bind is to communicate effectively with everyone who has a stake in your business.  Let them know what’s going on and ask them for their patience and understanding until you get your act together.

Business can be tough.  Most entrepreneurs go through very difficult times at some point.  Creditors know that, of which they may very well have direct personal experience.  But it’s much tougher if you don’t reveal your true situation to them. Otherwise, they may imagine the worst and act accordingly.

So often I have spoken with a creditor, or their collector or attorney, to be told, “Thank goodness we have someone to talk to at last.”  They hadn’t known why their correspondence had gone unanswered and they hadn’t been able to get past your voice mail.  They had no idea why they weren’t getting paid.  Was your firm crooked?  Were others getting paid before them?  Was your firm disputing the bill for their goods or services? 

You have to remain positive and use your savvy.  To some extent the information you convey may of necessity be the ”need to know” variety.  Collectors may at times be especially difficult to deal with, but we will discuss this in future posts.  But, other than distributing cold, hard cash, nothing resolves debt disputes more effectively that good honest communications.  

There you have it.  It’s our firm’s mantra and my own. Communicate clearly and effectively as a first step towards getting out of financial hot water. You won’t prevail and prosper by doing otherwise.