“The line of least resistance makes crooked rivers and crooked men.” Bob Murphey Dear Dr Adams, I started my business two years ago hoping I would be better off than I am, but in fact, I am troubled and disappointed with my business. Here is my problem; I can never seem to get ahead. I always have to choose between taking money home to live on and paying my suppliers. At times, it is a nightmare. I was talking about my problems with a friend who is in business and he told me to think about bankruptcy and start over debt free. He said the street-smart entrepreneurs do it all the time, close down one day, open up the next day under a new name. Dr Adams, the advice scared me, what do you think? A. A. (a pool supplies dealer) Dear A.A., As you struggle with your problems – remember you are not alone; millions of small business owners deal daily with similar problems. As to the advice of going bankrupt to avoid paying your debts only to start over again, it may be unethical, it will damage your reputation and can land you in trouble if your intent is to side step your creditors. It is not the strategy of a successful entrepreneur. If your business is in tough shape with your creditors pressing you to the wall, you may have no choice but to call your lawyer. As a way to put a few dollars in your pocket at someone else’s expense it is not a good idea, there are better alternatives. “With a business two years old, I expect you are losing money, Cash problems are usually (not always) the result of losses. My guess is that you are not generating enough gross margin (profit) to pay your suppliers, and your expenses. And as your operating expenses such as wages, rent, and taxes must be paid to keep the lights and phone on, your suppliers’ bills are pushed aside. Collection calls, anger, camouflaged threats and harsh attorney’s letters demanding immediate payment can be unnerving. Not a nice feeling. If your sales are meeting your initial business plan projections, don’t despair, I suspect your losses are temporary. But if your business is not growing, declining, and future prospects dismal, that is a different situation. Please understand, without details, I am speculating, but here are a few suggestions you may try to ease your situation. To curb your losses, start by focusing attention on boosting sales as quickly as possible—have a sense of urgency. At the same time, do not be tempted to give credit to customers that may not be able to pay. You don’t need to spend your time chasing deadbeat customers. You may be able to ease your cash pains with additional investment capital or loans –but if these solutions are not possible, (which is usually the case) then removing losses must come from a combination of efforts including, increasing sales, raising prices to boost your gross margin, and cutting expenses to bring your business into a breakeven position. Try this four-point program: 1. What ever you sell –products or services- increase your prices – even 5 percent can help. If you can swing a 10 percent increase, do so at once. Any boost in your prices boosts your bottom line. 2. Work to cut your expenses by 10 percent. Ask your employees to take a temporary cut so you can save the business and their jobs. Expenses can grow like a hidden tumor, not noticeable until you are in danger. 3. Don’t spend any money on anything –no matter how small – that your business can do without. Every unnecessary dollar you spend comes right off your bottom line. Ben Franklin was correct when he wrote, “a penny saved is a penny earned.” Old fashioned advice but still true. 4. Don’t hide your situation from your suppliers, if you are slow in paying your bills they already know. Explain your problem and ask them to work with you- after all, it is in their best interest to keep you in business and as a customer. You may be surprised, but honesty is still the best business practice for success. My suggestions to you are just common sense and basic business. Staying in business and earning a living means making a profit. Not easy, as you will always be under pressure to curb expenses, hoard cash, and fight for every dollar of profit. Regardless of all the business theories, strategies, tactics, and sophisticated management know how, only with profits, will your cash crunch disappear and paying your bills become a pleasure not a problem. Copyright 2004 Dr. Paul E Adams, Professor Emeritus Business Administration Ramapo College of New Jersey Author “ Fail Proof Your Business: Beat the Odds and be Successful.” Available Amazon.Com. If you have questions or comments- contact me: drfailproof@earthlink.net