Help for a company that is seriously in debt?

Discussion in 'Business Operations' started by grassmasterdawn, Jun 20, 2006.

  1. grassmasterdawn

    grassmasterdawn LawnSite Member
    Posts: 49

    Well, forutnately I'm not the business owner, but I am trying to help a friend get his business out of massive debt. He had an ongoing illness during which none of his employees knew how to run the company and they basically were robbing Peter to pay Paul by the end of the whole ordeal. They knew how to do the physical labor and they really did an amazing job keeping the company doors open when they knew nothing about business management.

    Don still has payments on all of his vehicles and equipment, so the debt load is high. He doesn't have a surplus of equipment or anything they can sell off. Making the situation worse is the fact that his credit is a complete mess, so a loan is out of the question.

    His father has given him enough cash to get things stablized to the point where every check written didn't bounce, but daily we go through a process where we scrutinize every single invoice and see if there are any jobs where I can go to the customer and pick up a check. It's very nervewracking because we can usually get enough to break even, but not to start making a dent in the debts.

    At this point I'm scratching my head wondering if there's anything that can be done for the company. I've starting by just organizing everything, because the filing, bookkeeping and the quoting/invoice system was completely out of control. Now that I've got a handle on that, I can clearly see that he is about two payments behind on the vehicles and all the equipment, not to mention what is owed to vendors, unemployment and state sales tax. All of which would easily add up to about 50K.

    He has 7 employees total, some FT others PT. So his payroll with taxes alone is generally $2500 weekly and that is when he does not allow himself to get a check.

    Has anyone out there gone through a similar situation and if so what resources are available to a small business owner who has no credit and is trying to dig their way out of a mountain of debt?

    I've only dealt with my own business - no employees, no payments, minimal hassle. I'm probably in over my head with his problems, but I've been diligently seeking a way out that doesn't involve bankruptcy, so if anyone has any suggestions, please feel free to post, send a PM or e-mail me. Thank you.
     
  2. Fantasy Lawns

    Fantasy Lawns LawnSite Bronze Member
    Posts: 1,913

    Best advice is too seek an attorney whom specializes in Chapter 13 .... there is very little he can do besides downsize ....but still owe ....win the lotto or get a wind-fall ..... one must seriously look into filing fore protection ..... this is not a deadbeat way out .... it allows the business to keep running .... gives them time to reorganize and move in a positive direction

    Chapter 13 Bankruptcy or Reorganization Bankruptcy ... is a form of protection from those whom one owes debt too .... BUT wish to pay the debt over the coarse of 3-5 years without all the high penalties or interest rates or threat of repo of truck & equip

    This is a last resort tool ...but should be seriously thought of before too much damage is done

    I wish him the best of luck
     
  3. dvmcmrhp52

    dvmcmrhp52 LawnSite Platinum Member
    from Pa.
    Posts: 4,205

    $50,000 behind in payments?
    Don't mean to be rude, but good luck.
    If a means for better cash flow or debt reduction isn't found immediately, it won't be very long before the inevitable occurs.
    The first mistake was having payments on all equipment AND vehicles.Using credit can be a great business builder......misusing credit can destroy a business quite quickly.
    Sorry to be so blunt..........
     
  4. Tim Wright

    Tim Wright LawnSite Bronze Member
    Posts: 1,034

    WEll,

    I would ight bankruptcy at all cost.

    It is easier to die (if you are heading to the right destination) than it is to go through years of bankruptcy mess.

    He needs to talk to everybody that he knows and tell them of his illness and that he is fortunate to still have a business. They have two choices

    1) Work with him and eventually get their money, or
    2) Loose it all when they pressure him beyond his ability to move fast enough to fix the issue.

    Those that will not work with him, write them off immediately and let them set.

    Those that will work with him, pay them what he can, and at the same time put as much money asside as possible so that when one of the morons calls in their ticket for the whole thing, he can pay them off at the last draw, and never hear from them again (and never do business with them again.)

    Another thing, is he wanting to keep the entire business intact, or can he sell of "departments" or "markets" and keep the ones that will give income and longevitey to his business?

    What about turning his business into an "employee owned business" where he keeps enough shares to maintain predominant control of the business, but collect enough money from interested employees for them to become partners?

    Where is Denton MD?

    Tim
     
  5. Green Grass and More

    Green Grass and More LawnSite Member
    Posts: 26

    Is there any way to compile routes and sell off other equipment and vehicles to lower costs? That would be the first thing to come to mind.



    Josh
     
  6. Fantasy Lawns

    Fantasy Lawns LawnSite Bronze Member
    Posts: 1,913

    When one is 2 months behind in payments .... they will be comming late night to get it .....hard to sell what one doesn not own n if those mowers go into the dealer for repair .... he'll keep em if they are in repo

    I learned a lesson ....kinda related years ago ... I bought a "route" & equip ..... one of the mowers was a fairly new 54" hydro cub cadet ...maybe 2 years old

    Took it to the dealer to look it over ....in the process seems the previous owner still owed on the mower ....I was making payment too him at the same time fore the business

    The dealer was amost forced to repo the mower on the spot ....but being good friends with the dealer n having spent alot of $$ with him .... he check with the bank ....mower had $1700 left on it ..... they gave me title for $1000 ... I later contact the guy I bought it from told him about it n took the $1700 off what I still owed him
     
  7. LindblomRJ

    LindblomRJ LawnSite Silver Member
    Posts: 2,570

    Any way he can cut a couple of people? 2500 week taxes is quite a bill. Or look for a partner or investor(s) to help out. Try to find someone who is able handle the fiscal end.
     
  8. garth1967

    garth1967 LawnSite Senior Member
    Posts: 640

    start cutting cost thats for sure.i would get all that paper work in order present it to a bank of broker and try and get consolidation on all debt.your friend may have to look at getting some body to manage his funds.i really dont think this is a major problem.when you have seven employees im assuming there must be some good cash flow. good luck
     
  9. AZScooter

    AZScooter LawnSite Member
    Posts: 3

    First of all, in my opinion, $50k in debt is not that large an amount. So to get started these are the thigns that need to be looked at.
    1. Anywhere that there are inefficiencies. Look at the routing and wastes. Are they making multiple dump runs every day? Are garbage bags being used inefficiently? Is equipment sitting idle when it should not be? are there employees standing around waiting for somethig to do?
    2. Cut any jobs that you are paying to go to. Look at them, evaluate them, and figure out if they are actually making money in your profit guidelines for the time and effort that it takes to go there. A lot of profit can be eaten up in travel time.
    3. Find other expenses that are unneeded at this time. Do you really need those new line trimmers when the old ones are workign okay? Do you really need to take the mower into have the oil changed, when you or an employee can do it?
    4. Have an interested third party analyze any purchases over a set amount. If you can't justify it to them, it is not worth doing.
    5. Set aside money for paying employees, and then pay your bills at least weekly. Do not cash checks or use cash from customers until all the bills are paid. Prioritize them by how far past due they are, and who can affect the productivity of your business most if the equipment is taken back.
    6. Finally, contact the creditors. Let them know what is up. He was able to qualify for the loan. He should be able to pay it off if he has the profit that he should.
     
  10. topsites

    topsites LawnSite Fanatic
    Posts: 21,653

    I agree with AZScooter, it's time to kick some tail and take names and get the message out: We're here to do business and take it or leave it, if you don't like it that is no problem (and point to the door).

    In addition to what he said:
    - Immediately STOP doing anything that is a waste of money, I don't care who argues, if they argue to a point, they're fired and problem solved, the nonsense is over. No more meetings, no more talk, time to get to work.
    - Drum up business, give estimates, get the work done, collect checks. Do NOT waste time collecting checks to make that last payment, collect as usual and tough luck with the creditors they will get paid but you tell them PATIENCE NOW!
    - Do NOT operate on that last-minute omg I got to get this paid because it's just more robbing Peter to pay Paul. You need to operate efficiently, that is all.
    - Once you make a deposit, pay the smallest non-recurring bill first (By non-recurring I mean once paid, it is gone). Keep doing that, get those non-recurrs out of the way and don't rack up no more.
    - Do NOT withhold money from the owner, the owner ALWAYS gets paid. After the owner gets paid, the companies immediate obligations must be met (I dunno, fuel and stuff you have to have to stay operational). After that, employees get paid in the order of most to least appreciated or by seniority however you want to do it but if anyone don't get paid, so sad. If talk about walking out, do them a favor and fire them for insubordination. Once you fix your one or two weak links, good.
    - Creditors who hound you are told you are re-financing and they will get paid when they get paid. Again, get the non-recurrs out of the way first (then do NOT rack up any more of those). Creditors who keep calling and tieing up your phone line are informed they can stop hounding you or they will be first to be included in the bankruptcy proceedings, they will get paid and that is all.
    - After the non-recurrs are gone, next deposit see if there's a small recurring payment that can be taken care of once and for all by paying it off: If so, pay that off and get it out of the way. Next smallest, and so on, get that mickey mouse crap out of the way and by all means stop the mickey mouse crap now.
    Once that is all done, you should be halfway on track.
    Keep doing that.
     

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