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Discussion in 'Lawn Mowing' started by PROCUT1, Feb 18, 2011.
I'll agree with that! Good info like that is hard to come by these days.
The information and lessons can be learned everywhere. Maybe it is the drama related to it that draws and holds interest. Hey, if it gets the point across...
PROCUT - Continuing to read your posts and other users, I do see where you were using your line of credit to purchase your costs of materials, and either you pay for the project with a hold on the payment for 45-60 days or the job goes to your competition. However, I still just can't see any logic going into entering those agreements/decisions if you could not afford to pay that debt from your own liquid assets.
Another scenario... Bank lends you the money as you said, you buy the materials, and as the payment comes in, you pay that loan off, make your profit, and for the next job take that profit and apply to the principle to save on interest with the next job (just as you said you were doing). But what would have happened if one of those 'big jobs' turned into a bad debt, especially with the economy going sour, your line of credit was now maxed with your bank, and the future work orders you were relying off that line of credit to purchase materials is no longer available...now again the wheel of your business gets put to a stop. This easy scenario would put you just into the same situation as the bank throwing a curve ball at you by taking smaller job deposits to pay loan for the big job. All especially at the time of the economy going sour anything could happen to your customers in a 2 month period and now your out, just as your vendors were out when you got put to a stop, you through a curve ball to them and hopefully you did not cause any major strains to them. I'm sure we both can agree your vendors as you said trusted you, who let your employees sign on behalf of you and let them walk out with a $9,000.00 new mower on good faith, but in an instant something that could have been prevented with better decision making changed, and now your vendor is out. Business is just like a chain, you have your: customers, contractors, vendors, employees, and finance resources - one link breaks it effects everyone. Fortunately I understand that concept, I pledge to my customers, employees, partners, and most importantly community that we will always "Walk the high road."--always strive to make the most ethical business decisions because anything like that affects everyone, and sometimes something out of your control can go wrong and now can have a detrimental impact on one of your vendors. But better decision making I believe could have prevented that and taking the strategy to grow a little slower. I was wanted to take advantage of growth, and fast. But I have learned this quote, it is pertinent to both life and business..."LIFE/BUSINESS IS A MARATHON, NOT A SPRINT."
Again, I do not and will never know 100% of the story, but I do think that was poor decision making. With the economy, it is a customer market, they hold the power in many markets..because contractors have allowed them to. But stick with your work on your terms, you said you had plenty of it. Let your competition take a HUGE risk with those sticky customers with crappy payment terms.
I do disagree with you saying you can grow fast as long as you do it smart. When you "leap" up the ladder and "fast", only means when you fall off the ladder, instead of falling one rung down, you as well fall "long, hard, and fast." If I had other work and was doing well, I would turn down a big project like that-because that is a smart decision. I just surely would never go 80% into the negative for 60 days on a project.
For me, I just never enter into an agreement where for any length of time I am putting my own companies money into purchasing materials or would use line of credit to purchase those materials, even if there is a pot of gold profit waiting at the end. My thought process is, what would happen if this big job I finance something happens on their end and payment does not come through, now I AM RESPONSIBLE for that debt, I'm now out of my own money, business time, and the severe impact it will have on your business of a bad debt that you truly do not have an emergency savings fund allocated for.
I do agree keep banking accounts and loan accounts separated with different institutions. But, if they make some changes because of some fine print and now they are after your cash deposits, they will go after it. It likely will not take place instantly with a click like your situation, but all it will take is a warrant of debt on you from that bank and they now own your other bank accounts within a weeks time.
All companies need money especially the larger they get. This is exactly why companies offer stocks. They need more money to float growth. When they grow enough then they try to buy back stock. Then they repeat the process over again as needed. All companies need money and present day earning, and past savings are not always enough to float future earnings.
As a small business you do not have the luxury of offering stock so you have to turn to a bank to get a loan. Same business practices just on different scales.
I say baloney! There was a time when business 101 was keeping 6 months to 1 yrs business expense in the business bank account.....it's called "RETAINED EARNINGS". This would have kept procut from going under BOTH times.
If you need to more money than this to grow.....your growing too fast.
Arthur Blank CEO of Home Depot and his partners went looking for money and ended up in Ross Perots office pitching for more money. Home Depot offered Perot 70% ownership for floating their business. Ross Perot and Arthur Blank could not come to an agreement because the Home Depot owners were driving Cadillacs and Perot did not accept that because his people only drive Chevys. To this day Ross Perot says that Home Depot was one of his biggest business mistakes. This is just 1 example of a business needing money.
Every book I ever read about any business talks about needing some kind of financing or stock offering. There is even a tv show called the Shark Tank where business owners pitch investors for money.
I am sure your company had to invest money to buy equipment. You may have been able to boot strap your entire operation, but if you ever want to grow from a 100,000 to a 3 million company, or even a billion dollar company somewhere along the line you will need a little money to float something.
Procut thank you for putting both of your threads out there to help some of us from making your mistakes.
I hate to go on a bunch of threads and preach Dave Ramsey, but even if you don't take his advice on not borrowing money people should at least look into have 3-6months of expenses in savings for down periods just like this.
My business will grow at a very slow rate from not borrowing, but I will never have to worry about anything but a house payment.
Your latest story sounds very much like the story of how Dave Ramsey went broke in the 80's. He had borrowed millions of dollars in real estate and then the bank changed hands and they decided to call all his 30 day notes due causing him to lose everything over a few years. If you get a chance read just the first chapter of Finance peace revisited and it will amaze you how much the start of your story sounds just like his.
Honestly procut.... I don't know how you put up with this...