What to do when the money runs out
– Seth Kravitz is the co-founder and CEO of Columbus, Ohio-based InsuranceAgents.com, which has been named one of Inc.com’s 500 fastest growing companies in the U.S. The views expressed are his own. –
Maybe you saw it coming, maybe it blindsided you, but whatever the cause you may run into a huge challenge millions of business owners have faced: you’re out of money.
A couple times over the course of the last six years my company has hit some pretty significant money problems. Each time we made it through, but it was a struggle.
First off and most importantly, are you out of money because your business model is flawed and/or your management is terrible? Or are you out of money because of an unforeseen problem or something outside your control?
Think about that long and hard before you decide to keep going. Sometimes shutting down is the smarter choice.
If you decide to push onward and want to try to get your bank account back on track, there are a lot of ways to perform financial CPR on a dying company.
Do you actually need a loan or credit line, or do you just need to do some creative bill balancing?
- Is there a creditor you can negotiate a late payment with? If it’s an unsecured creditor, are you willing to default on the debt? Is there an accounts payable you know you can ask for a delayed payment from to buy yourself some more time?
- Try to negotiate seller financing with all the people you owe money. You would be surprised to discover that when faced with getting $0 or working out a payment plan with you, a lot of your accounts payable will work out a plan.
- If you have employees, are they willing to take a pay cut or go a month without salary? (This includes you by the way.) If they are unwilling, can you operate with a smaller staff?
If you decide you do need financing there are a lot of options for that route as well:
Traditional – this includes commercial loans, large personal loans, credit lines, etc…
- Advantage: Low interest and longer payback period (usually).
- Disadvantage: I’ll be 100 percent honest here and say the chances of securing this type of financing in this climate, and with your company failing, would be nearly impossible. You would most certainly have to put up considerable collateral (car, home, company assets).
- Advantage: Debt is unsecured so you won’t lose any assets if you default.
- Disadvantage: The debt tends to be high interest and most likely we are only talking about maybe $10,000-20,000 in credit at the most.
Family and Friends
- Advantage: Easier to secure. Family asks a lot of questions, but in the end, you have that bond of trust no bank could ever extend you.
- Disadvantage: Taking money from loved ones is going to increase your anxiety and it could turn into a huge debacle with not only the risk of losing their money (which could be their life savings), but also your relationship with them.
VC and Angel Investors
- Advantage: Venture capital companies love to pour money into growing and successful startups.
- Disadvantage: They don’t like to put money into failing ones. If your revenue has been going down for a while and your growth is non-existent, it’s highly unlikely that you will be able to secure VC funding in this economy.
When money is tight, you need to step up and be as creative as possible. It’s really one of those moments when you either rise to the occasion or get out.
This article originally appeared here.