Your client’s business is going under.
What should I do? he asks of you.
Return the favor with a question of your own, the third in my trio of gating inquiries:
Would the business outlook be better if you weren’t servicing debt from the past?
Fight or flee
Before you can craft a plan, you need to assess the underlying problem in the business.
There is no bankruptcy remedy for a poor product, an overcrowded market, or a bad match between the owner’s skill set and that required to make a success of the business.
But if cash flow problems can be traced to paying for past mistakes or even for start up costs that are behind you, there may be a business to rescue here.
Make a budget
Ask the client to make a budget (or to project operating expenses, if “budget” comes with too many negative connotations) for operations next month. The budget should provide for no payments for purchases, loans, credit or credit cards in the past. Just, what does it cost to run the business going forward.
Look for leases for either equipment no longer appropriate or premises that are too expensive. If you can exclude those items, or reduce their cost, does the business seem viable?
The will to go on
The interview with the business owner who tells you he’s ready to throw in the towel has to assess whether that readiness to quit is the product of not knowing that there are options, or whether it is the response of a genuinely spent individual.
Business reorganization, whether through the bankruptcy of the entity or of the shareholder, takes energy. Still more energy is required to run the surviving enterprise.
Your recommendations to your client depend on the assemblage of the answers to the three questions I proposed when we started this discussion:
- does the business have its own legal identity?
- if the business is operated by an entity, is the entity really liable for the debt it’s servicing?
- would the business outlook be different if it didn’t pay debt from the past?
Are there fundamental questions you’d add to my list for a client with a struggling business?
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