How to fail part 2

Discussion in 'Lawn Mowing' started by PROCUT1, Feb 18, 2011.

  1. Georgia Lawn Works LLC

    Georgia Lawn Works LLC LawnSite Senior Member
    Messages: 365

    You'd be suprised when a busisness gets as big as his how much money is going out before customers money start comming in. I mean you know how it is in the lawn busisness. What about 60 percent of your total sales is always out there waiting to come in. Now add all the other expenses in and your in the hole untill that other money gets in every month.
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  2. Az Gardener

    Az Gardener LawnSite Gold Member
    Messages: 3,899

    Ditto, You should write a book, seriously I would buy it. But I would prefer to read it here sooner so get us caught up and just let us know where to send the checks.
  3. PROCUT1

    PROCUT1 LawnSite Platinum Member
    from TN
    Messages: 4,891

    Ive never been on of those "redneck, the revolution is coming" types....But I now believe its going to happen.

    Millions out of work......Millions losing their homes......Very few jobs out there......And a government that wants to cut all assistance and help to people that need it......All the while throwing money and tax cuts at people with billions in the bank...The very ones that are the reason this country crashed....

    Eventually its going to boil over...

    A quick explanation to why you dont understand why banks would rather foreclose on people and sell at a loss, than work with them to start making their payments again.........

    Banks dont operate the way we think they do. Take deposits and loan money.....Thats the old way before deregulation.

    They now make most of their money in "fees" and have experts working figuring out how to best screw their customers.

    In the computer age. Banking transactions are instant.

    When I get a customer check and deposit it, INSTANTLY the money comes out of their account. 3-5 days later it goes into my account.

    Why the hold? Years ago a hold was necessary. My bank would have had to physically present the check to my customers bank, they would then do a physical transfer of money, then they would give me the money. That took time.

    Now that its computerized and instant....Why the hold?

    Because most of us dont have piles of money in the bank. We get a big check from a customer and we need to use that money to pay bills.

    They realize this.

    So what they do is, hang on to the money. You write checks on it. Those checks get paid......Along with charging you a $39 overdraft "COURTESY FEE"

    Even though there is no risk on their part. They know the second you deposit the check if its good, and they already have the money before you walk out the door.

    But they make billions on this scheme. And our government allows it because the banks have a lot more to offer a congressman than we do.

    So heres the scenario. Lets say......

    You have a great payment history......You lose your job, exhaust your savings and finally run out of money.....You miss a few mortgage payments
    Your house is now in foreclosure....

    Even though its worth far less than you owe on it......You want to keep it and keep your end of the commitment.

    You get a new job and can start making your payments again.

    You figure the bank will work with you now right? Great history, got into a little trouble, but you want to start paying them again.

    You think that makes the most sense for the bank too......To get paid on the loan instead of getting stuck with a house that is worth less than you owe them....

    Youre wrong.

    Heres why.
    Its a complicated process but Ill give the general idea.
    When you took out the mortgage for 200,000. The bank would get paid back lets say 400,000 over the 30 year term.

    The bank has to wait 30 years for the full profit.

    The bankers get bonuses on THIS YEARS profits. So how do they maximize that? Credit default swaps.

    They give you the mortgage.....And anybody else that wants one whether or not they are qualified. They take pieces of each mortgage, cut them up, and sell them as investments.

    They also buy insurance on those investments.

    Heres what happens in a nutshell.

    Having insured your house not for the 200k you owe them, but for the 400k you are paying back over 30 years.

    So.....You default.....The bank can do one of two things.

    Work with you to get your payments back on track. And wait 30 years to get their profit and bonuses.


    Force the foreclosure. They make an "insurance claim" which pays them the FULL 400K THIS YEAR. Huge profit on the banks books, translating to multi million dollar bonuses to the bankers.

    Whatever they get for your house is just extra profit.

    It now is a much better deal for the bank to throw you out of your house even if youre ready willing and able to pay.

    If all else fails. The government will step in. Pay the banks for your house, give them some extra money to throw you out. Kick in some tax breaks so they dont have to contribute back to the government that allowed this....

    And we have our current lifestyle
  4. PROCUT1

    PROCUT1 LawnSite Platinum Member
    from TN
    Messages: 4,891

    As to the question why I was doing big money work and using credit.
    The biggest, most profitable, companies out there use credit.
    There is good use of credit and bad use of credit.

    Going out and buying equipment and toys before you have the work for it...Bad
    Trying to finance a big overhead and payroll that exceeds income.....Bad

    In my case....As much as I preach about "YOU" setting the payment terms that doesnt always work.

    So you have a condo complex that wants to spend $30,000 for you to seal it.

    Your material is 10,000. your labor and overhead another 8,000. You'll show a nice profit of 12,000.

    Heres the catch. You have to spend $18,000 NOW to get that 12,000 profit in 60 days when they pay you.

    You have a choice. Dont do the job. Let a competitor do it. Or, do it. Wait the time. And end up with 12,000 more on the bottom line.

    So this week. I do the job. Pay out the 18,000
    Next week I have another one. Pay out the 18,000
    Next week I have another one. Pay out the 18,000

    3 jobs done in 3 weeks. 54,000 paid out and I have 6 weeks before Ill get my check for the first one.

    Now.....I was bragging I was doing well. But No. I didnt have 54,000 to lay out and wait 6 weeks.

    THAT was the purpose of the credit line. Lay out those expenses. Then when I got paid, pay off the credit line and the extra 36,000 would have a nice home in my bank account.

    Eventually there would be enough money to not even need the bank. I wasnt at that point yet.

    It worked out great. I used the credit for that purpose. The bank always got paid, and I was banking good money.

    Now. Take away that credit line. Bounce the 54,000 in payments. Take away all the cash on hand, and then wait almost 2 months to get paid from the customers.

    Now you have a problem.

    Bills wont wait 2 months to get paid.

    Be a day late on a credit card and now your interest rate is 39%
    Miss 2 truck payments, they want the truck back.

    Watch how quick a credit score can drop in 2 months.

    Now that you missed a couple payments, watch ALL of your interest rates triple.

    What do you do in the mean time.

    Cant even do small jobs......You need material.....Your check bounced to the supplier...Hes not going to give you more material....You dont have cash to buy from another supplier....The bank took that

    Employees dont want to wait 6 weeks to get paid

    Overnight you went from spending 10,000 like it was nothing to LITERALLY not having money to buy groceries.

    more to come
  5. PROCUT1

    PROCUT1 LawnSite Platinum Member
    from TN
    Messages: 4,891

    For the first time in my life I learned what it was like to have NO MONEY.

    Ive been short on money before. Ive struggled before. But always could pull off simple necessities.

    But I never experienced NO MONEY.

    Where my fuel oil runs out in the house and I dont have a couple hundred bucks to get some.

    Where I cant put gas in the truck
    Where I cant go to the grocery store.

    Go to work and listen to the phone ring constantly all day from people wanting to be paid. NON STOP

    The lawnmower shop that a couple months ago would let me leave with a 9000 machine on a signature, wont give me a spark plug without cash.

    You go from being on top of the world, to everyone talking about you like you are a piece of crap.

    Your reputation is now that you are "Screwing everyone"

    Now top it off......Word gets back to your customers

    You didnt pay for the material for the job......They dont want the supplier putting a lien on their property.


    They payment you were waiting on so that you could pay the supplier is now being held until you pay the supplier.

    You see the problem there right?
  6. grassman177

    grassman177 LawnSite Fanatic
    Messages: 9,795

    i thin it is great to have you around procut1, thanks for sharing
  7. torotorotoro

    torotorotoro LawnSite Senior Member
    Messages: 510

    how long ago was this .i hope things turn around for you. keep it coming.i learned alot from your first thread
  8. PROCUT1

    PROCUT1 LawnSite Platinum Member
    from TN
    Messages: 4,891

    Its been over the past couple years. Still struggling through it.
    The titles are a little misleading.
    I cant say I "failed" in the lawn business, but I was heading that way and got out in time before things got bad.

    In this situation, its much different from the "lawn thread"

    The lawn thread basically details what happens when you grow too big for the profit of an operation. That there is a point in which you are chasing pennies and that you need to be prepared for it.

    This thread however......In my business.....I WAS doing things right. I wasnt making mistakes. I wasnt doing things that were stupid and not well thought out.

    I had a bomb go off that I never planted, never saw coming, could not have prepared for, and it was out of my hands.

    Logic tells you. Pay your bills on time. Keep up your promises. And nothing bad will happen.

    Well. That logic was wrong
  9. PROCUT1

    PROCUT1 LawnSite Platinum Member
    from TN
    Messages: 4,891

    Logic also tells you when you sit down with the bank that just did this. Show them on paper and explain to them exactly what the effect of their arbitrary decision was going to have, which included you defaulting on the remaining money you owed them.......They would see pretty clear that they were doing the wrong thing.

    Most banks dont deal with individuals anymore. Someone in a cubicle you have never met 3000 miles away strikes a pen at an account number and thats it.

    Even the local bankers agreed with me. They understood. But when orders are given from the top to "cut credit lines across the board". Individual cases dont matter.
  10. punt66

    punt66 LawnSite Fanatic
    Messages: 8,536

    Did nothing wrong? He couldnt pay his mortgage!

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