Surviving a Debt Euroclydon (Segment II)

Preface: And the rains came and winds blew and beat upon that business, yet it  stood firm, because it was built on the rock.

Surviving a Debt Euroclydon  (Segment II)

Credit: Donald J. Sauder, CPA | CVA

To double the financial impact of the business quicksands, the new project pipeline had nearly evaporated, while profitability from costs on the signature project was 25% above the bid. Instead of immediately decreasing overhead risks, Paul drew on his new line of credit to finance payroll and equipment loan amortizations. Paul was having an out of money experience. But he was a successful entrepreneur, and he had confidence he’d work it out.

The banker began to stop in at regular intervals to discuss the work-out possibilities on the loans. What steps could be taken to make sure Paul could make his monthly loan payments? The banker continually reassured Paul that calling the loan was only a last step, even if all the loan covenants designed to maintain prudent financial ratios created repayment risk. Paul had the hunting cabin listed for sale at a steep discount to raise cash fast. Selling that was painful enough, but the fact it turned into a capital loss, doubly pained him. Placing the proceeds from that sale as contributed capital into the business, the accumulated accounts payable made only a slight decline with the cash infusion. Paul’s wife began to become concerned too about the business predicament and liquidated her IRA account to help.

His team also began to become increasingly concerned about the financial woes and began to explore safer and more secure paychecks. Keeping optimism on the team, resulted in a plateau of lackluster operational performance in the field. The financial pressure was now stressing Paul to the point that Sundays were a day of stress, instead of a day of rest. Would he get that next bid? What if he had an unexpected business expense such as a truck engine overhaul? What is couldn’t make payroll next month? What if the economy turned south? What if the bank would not renew his line of credit in a few months?

As the weeks elapsed, the business work-out possibilities diminished. Paul began to reduce business overhead out of necessity, and with that, his opportunity for larger project bids because of the team experience required. The banker continued to hunt for optimism among the financial atrophy. Paul began to liquidate excess assets, the extra truck, the loader, etc. for working capital.

Then the week arrived to renew the line of credit with the bank. Paul talked with other financiers about an additional cash infusion. The banker had warned him that they were losing confidence in Paul’s ability to find a solution. The worries turned into fear when the bank denied the line of credit renewal. Paul began to have some serious doubts; doubts about his expert business acumen, and more precisely his ability to make effective business decisions.

But all was not lost. Paul’s Uncle George has just sold his investment real estate in town. He had an inkling Paul needed help. Paul’s phone rang. It was Uncle George “Your business is going to recover nephew, stop in for your check.”

A little wiser, and little more experienced, Paul had assembled a team of advisors, including a trusted business leader, accountant, and business consultant. As the team worked to help Paul out of his predicament, they noticed some unusual gaps in cash flow. Upon further accounting review, it became apparent that Paul’s bookkeeper had embezzled more than $85,000 in cash, in just the prior year, from his business.

And so, goes the story of how Entrepreneur Paul survived another day as an entrepreneur. The day the phone rang with Uncle George on the line, Paul understood for the first time, the definition of “experienced businessman.” That hypothetical story is just that, a typical distressed business story. How do entrepreneurs survive a Debt Euroclydon where the business problem is an economic snafu that pressures entire industries?


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