In Lean Times and Good Times, Learn How to Deal With Creditors
Most floor covering retailers have
suffered through a lack of cash flow severe enough that it inhibits their
ability to successfully carry on their day-to-day business. Whether the cash
flow crisis is due to poor economic conditions, embezzlement (more common than
you think), an insatiable buying appetite, insufficient capital, loss of credit
lines or a dozen other situations, it’s no sin to be in debt.
I can name dozens of industry notable dealers that have been there more than once. Sometimes we (retailers) win and sometimes we lose. It’s a game called capitalism.
Forty years ago, Time magazine ran an article on around 20 businessmen who made themselves millionaires before turning 30 years old, in an effort to find commonalities that would indicate keys to success. The only common event that happened was they all experienced at least one disastrous business failure.
Even success can create disaster. Many successful businesspeople have had the bittersweet experience of outrunning our credit lines; simply selling so much that we don’t have sufficient capital to process all the orders. The silver lining in experiencing these difficult times is that I know of no one who has suffered these conditions who hasn’t expressed the belief that this experience has made them a more effective businessperson.
Our current economic crisis has forced many retailers into the position of not being able to pay their bills in a timely fashion. Brought on by the government induced housing bubble, one can trace this recession back to October 2006. Of course the builders got hit first and the flooring category promptly followed.
If you are finding it tough to process orders because cash and credit have disappeared, what can you do? The first step is to restructure your business so you are able to survive at the reduced sales volume. Get your latest P & L statement and look at your major expenditures. For most retailers your largest expenditures are payroll and occupancy expense.
If you own your building and happen to be the best salesperson, you are in luck. One of the worst failings retailers can have is keeping people on staff too long. Now is the time to analyze each segment of your business from sales, warehouse, office and installation. Better do it right now. If you don’t survive, you can’t hire them back.
You may need to readjust the compensation plans for each staff member. And also consider that some people may be willing to hang on as outside salespeople on commission only. If you rent, meet with the landlord to discuss a rent adjustment. You might be surprised at the concessions they are willing to make.
Next, look at all other expenditures you have that carry monthly payments. Give back or sell non-critical items, and restructure payments on the rest. Go line by line through everything on the expense line.
You can’t approach your suppliers without a plan. You must let them know exactly the changes made that will allow you to pay off your past dues and keep current with other day-to-day expenses. If you are able to live without drawing from the business for a while let them know. Most creditors will agree to a weekly payout as well as a small premium with each order-say 10%.
Credit managers today want to do everything possible to keep you going and everything possible to get paid. Meanwhile all monies you send them will be applied to the oldest balances steadily bringing you to a current position. It’s important for this to be part of the arrangement.
There are stringent rules to be followed in order for these arrangements to work:
1. Never lie to a creditor; 2. Never avoid their telephone calls; 3. Keep them up to date on your progress; and 4. Keep in contact with them even if they don’t call you.
As long as you are keeping to your agreements, you will be fine. The difficult part is the negotiations. In the event you are unable to make a payment, call them before they call you and explain why. Give them a reason why this is a one-time instance, or renegotiate. These are tough times and obviously there are many other actions you can take-- not only to survive, but prosper.
I can name dozens of industry notable dealers that have been there more than once. Sometimes we (retailers) win and sometimes we lose. It’s a game called capitalism.
Forty years ago, Time magazine ran an article on around 20 businessmen who made themselves millionaires before turning 30 years old, in an effort to find commonalities that would indicate keys to success. The only common event that happened was they all experienced at least one disastrous business failure.
Even success can create disaster. Many successful businesspeople have had the bittersweet experience of outrunning our credit lines; simply selling so much that we don’t have sufficient capital to process all the orders. The silver lining in experiencing these difficult times is that I know of no one who has suffered these conditions who hasn’t expressed the belief that this experience has made them a more effective businessperson.
Our current economic crisis has forced many retailers into the position of not being able to pay their bills in a timely fashion. Brought on by the government induced housing bubble, one can trace this recession back to October 2006. Of course the builders got hit first and the flooring category promptly followed.
If you are finding it tough to process orders because cash and credit have disappeared, what can you do? The first step is to restructure your business so you are able to survive at the reduced sales volume. Get your latest P & L statement and look at your major expenditures. For most retailers your largest expenditures are payroll and occupancy expense.
If you own your building and happen to be the best salesperson, you are in luck. One of the worst failings retailers can have is keeping people on staff too long. Now is the time to analyze each segment of your business from sales, warehouse, office and installation. Better do it right now. If you don’t survive, you can’t hire them back.
You may need to readjust the compensation plans for each staff member. And also consider that some people may be willing to hang on as outside salespeople on commission only. If you rent, meet with the landlord to discuss a rent adjustment. You might be surprised at the concessions they are willing to make.
Next, look at all other expenditures you have that carry monthly payments. Give back or sell non-critical items, and restructure payments on the rest. Go line by line through everything on the expense line.
You can’t approach your suppliers without a plan. You must let them know exactly the changes made that will allow you to pay off your past dues and keep current with other day-to-day expenses. If you are able to live without drawing from the business for a while let them know. Most creditors will agree to a weekly payout as well as a small premium with each order-say 10%.
Credit managers today want to do everything possible to keep you going and everything possible to get paid. Meanwhile all monies you send them will be applied to the oldest balances steadily bringing you to a current position. It’s important for this to be part of the arrangement.
There are stringent rules to be followed in order for these arrangements to work:
1. Never lie to a creditor; 2. Never avoid their telephone calls; 3. Keep them up to date on your progress; and 4. Keep in contact with them even if they don’t call you.
As long as you are keeping to your agreements, you will be fine. The difficult part is the negotiations. In the event you are unable to make a payment, call them before they call you and explain why. Give them a reason why this is a one-time instance, or renegotiate. These are tough times and obviously there are many other actions you can take-- not only to survive, but prosper.
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