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Monday, April 11, 2011

MONEY: Business, Banks and Bankruptcy, from my Perspective

     The first three words in the start of this blog are related in more ways than one.  This is sort of a continuation of my previous blog entry.  Once you decide to start your own business sometimes you do not have the proper equipment to get the job or to complete it.  As a self employed person you need to tap into all the resources you can, while also cutting your costs as much as you can.  One way to cut costs is to borrow the tools if you have to.  In my years of doing yard work to get through college several of my customers and friends allowed me to borrow their tools to do the jobs I was working on.  The rules for this are simple.  If you break it you bought it. When you take it back, it is as clean and serviceable as when you borrowed it, or cleaner.  That is just good business practice and something you need to do when you have your own tools.   Personally I do not lend tools anymore.  They are my means to make a living and having to go get a tool back when you need it is not fun.  Lending tools is a direct cause of amnesia I am sure.
     If all else fails find a local rental center and rent a tool if you do not have it.  You have to figure that cost into the job you are doing.  You need to include the time you spend going to get the tool and taking it back, plus any operational costs like fuel or blades that it is your obligation to replace.  The key to this is making sure your customer knows how much you are going to charge them.  If it is a job that requires special tools most people understand there is a cost.
    Sometimes the shortage is in funding(cash) to get the job done.  That is when banks come in handy.  Most banks have a system where they lend money on "90 day notes."  This is something that takes planning and can be done by most anybody and just takes the time to plan.   You need to have a clear plan of how you are going to do what you are going to do.  How much you are going to make on the job and what your profit from the job is.  Like the loan says, it is a 90 day note.  You have to pay it all back within ninety days.  When I started my mobile home repair business I found a supplier who would deal with me on a cash on delivery basis.  When they delivered the stuff I ordered I had to pay cash at that time. My business started with a $1000 loan and I offered to put up my van title for security.  The bank did not require it because they liked how clear and thought out my plan was.  You have to be able to immediately answer any questions they might have,  It should be no problem cause you should have considered all the possible problems and how soon you can pay the money back.  Every second or third time I asked for an increase of a $500 or so to my credit line. Eventually I built it up over a few years.  It felt good to be able to walk into a bank and get $15,000 on just my signature and know that I would be able to pay it back.  Sometimes I would borrow more than I needed and then leave it in my account till time to pay it back.  This was just to raise my credit line and make it easier for me to bid on bigger jobs.  The only time I actually had to submit a plan was on the first loan.  After that it became rather informal.  This all went well for several years and then I had a problem that had nothing to do with my business.  My wife left me.  At the time I had several other bills with the bank.  It was also clear to me that while I could pay them, I would have nothing left to live on once my wife left.  This is when I made the BIG MISTAKE.
     WHILE HONESTY IS THE BEST POLICY, NEVER, EVER, UNDER ANY CIRCUMSTANCES TELL A BANK ANY MORE THAN THEY NEED TO KNOW, AND NEVER, EVER VOLUNTEER INFORMATION.  The following story actually happened to me and over the years I met several people who had similar experiences.  Banks lend money based on facts and knowing that they can feel secure in  any transaction they become involved in.  This is good if you have money in that bank, but bad if you do not understand that friendship means nothing to a banker.  It is all about money, period, end of discussion.
     My business was seasonal and during the winter months I made virtually no money.  I would get some inside remodeling work occasionally or we would get a severe cold spell and I would make some good money fixing frozen pipes.  Generally though from the end of November till the first of April I had vitually no income.  However by budgeting and managing I could pay my bills based on my wifes and my income combined.  Her money was leaving though.  Thinking the bank was a friend I went in and tried to consolidate my bills and make a lower payment that would work with my budget, on my money.  It was a sound plan, but the word divorce is a panic word for banks and they move to protect themselves.  However sometimes they do not think it all out.  A few days  later I had an order inbound on the truck of the company I dealt with.  It was a big order of over $14,000.  I had no loans out and a $15,000 line and asked for a check for my order.  The teller told me I had no credit line.  It was closed.  I had never been late,  I had never missed a payment. I had money in the bank but the bank shut me off.   The reason was solely based on my conversation with the loan officer.   There  was no recourse on my part.  The truck with my stuff had already left Nashville and was on the way.  I called and had to cancel the order.  Well a third of the truck was my stuff and the driver would not be able to get to the other orders with my stuff in the way.  They had to make him return to Nashville which ticked them off and they also closed my account.  In a matter of hours I went from successfully self employed to unemployed and basically it was my own fault.  Looking back had I used my loan line to diversify and get into something that would get me through the winter the results might have been different.
     It wasn't that I was broke I had money.  In my garage was about $30,000 worth of materials, but most of it would not be any good till spring.  After considering the matter I went back to the bank and tried to plead a deal, but they would not budge.  I left the loan officers office, paid off the $300 balance on my wife's car.  Got the title and gave it to her.  The rest of what I had in the bank I removed to another bank and never looked back.  They put me into bankruptcy and they ate the bulk of my bankruptcy.  The companies that worked with me got any money I owed them.   The ones who refused to help, ate their loans.  It was a hard lesson and several years later when I was almost a quarter million in debt I thought about it.  The bankruptcy did hurt for a little while, but I learned from it and moved on.  It did not kill my motivation to succeed, but it did forever alter how I did business with banks.
     Most business's if properly managed can be successful.  If you are in business you will need banks.  Money makes the world go round as they say.  The thing you need to understand is the cash flow of your business and how to use it to succeed.  If you have hard times manage them yourself.  Do not depend on a bank, friend, or family member to solve your problems.  It is your problem, you solve it.  There was justice in it all.  Several years later in another down turn the loan officer lost his job at the bank.  He started his own business and by the next down turn in the economy he went belly up.  When I chance to meet him in public I just smile.  I doubt he even remembers who I am, it doesn't matter.  I am retired now and enjoying it.

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