Preface: “I’ve seen successful squirrels, and successful entrepreneurs can learn a lot from such continuous future planning, diligence and focus.” Quote from a Canadian entrepreneur.
Surviving a Debt Euroclydon
Credit: Donald J. Sauder, CPA | CVA
“The economy depends about as much on economists as the weather does on weather forecasters.” Jean-Paul Kauffmann. Experienced entrepreneurs know more about their marketplace than most economists or experts. Why? They have a vested interest in the market activities; they have chips in the game. Entrepreneurs communicate. They talk to customers, they talk to friends, or hear rumors, and read news and industry publications, and from all these information sources they develop and construct a narrative of data for an understanding that helps them form an accurate opinion on the best course of actions. Most importantly, they know more about their small business marketplace because of their year of actual in the field experience. Some economists do have more experience than entrepreneurs, and hence, sometimes we need to listen carefully and closely when they talk.
Let’s begin with an exploration of the hypothetical story of Entrepreneur Paul to learn and gain insight from hypothetical business history. Entrepreneur Paul was a capable craftsman when he started his new entrepreneurial business. Although it was a challenging economic environment in the early years, his ambition and diligence with his developing enterprise, mitigated the low-risk business landscape.
Navigating through the new enterprise’s terrain, Paul rapidly built confidence and credibility in his industry. Soon he had a team of six employees. As his business grew, he needed to acquire additional trucks, equipment, and tools. Of course, the bank was happy to lend him the necessary money for these new assets. Paul’s first business debt from the bank was a truck loan. The terms and ease of the loan, along with the marketplace opportunity for his craft, boosted Paul’s confidence that he was beginning to be an expert businessman.
Within less than a decade, Paul had a crew of fourteen employees, along with ample equipment, and trucks for nearly any opportunity inside his businesses service area of expertise. With $450,000 of approximate debt, Paul was earning a nice profit each year on his growing enterprise, and the economy continued to boom. There was always some extra money for the new cabin, the church building fund, and the hunting trip. Financial calibration was not on Paul’s mind, although he talked to his accountant about tax reduction strategies and effectively maximizing depreciation deductions when necessary.
Then one day, Paul received the big opportunity to bid his enterprises largest signature project in his business history. He won. Commencing the work required two more employees, and another truck, plus some additional equipment. The project required all of Paul’s key employees’ attention too with; it’s signature visibility. There was minimal time to bid on new projects to keep the work backlog fueled. As the signature project, neared completion, the customer began to express discontent with trivial features of the project craftsmanship and began to withhold payment. With thirty percent of the payout remaining, Paul had a challenging decision. The decision, for better or worse, completion was necessary with the projects community visibility. After many meetings and tense communication, Paul never received the remaining payments on the project.
To be continued.