“Hi Steve,
Here is my situation:
26 years old, educated, currently run my own renovation business in Canada which is profitable, but feels like we are constantly fighting large bills (suppliers, debt to start the business, etc.)
I would estimate my income to be around $50K / year out of the business right now
We have only been open for one year
I also own a rental property that is cash flow positive to to the tune of $700 / month, property value is approx $420K after realtor, lawyer and other fees with a mortgage of $275K on it.
I am currently about 50K in debt which is the following
12.5K on an LOC for the business (4% interest)
13K to suppliers (5% interest)
12K to the government huge in terest (25% +)
5K to my franchise company (0% interest)
The business is profitable and appears to be growing on a monthly basis (revenues are on track for 500K this year). So far this year I have paid off 15K in debt. My payments appear to be managable as I have no CC debt.
Right now I owe ($1000 / month to government, 750/ month to the franchise company) and $75 / month minimum on the LOC and pay the suppliers when our work is complete and we get paid.
Given my situation I was wondering what your interpretation of a possible bankruptcy for me. I am current on all payments, but I can not lose this feeling that I will be forced to declare bankruptcy at somepoint in the future even though my business is relatively profitable and I am current on all accounts.
From your experience is a bankruptcy for me probable?
Thanks,
John”
Dear John,
From what you describe, it sounds like the normal joys of running a business. Having your own business is a constant push and pull between suppliers, feeding the pipeline of new business, and waiting to get paid. It’s one of those things that I always chuckle about in the back of my head when people say they want to have their own business to escape from work stress.
While it might be normal and typical, that doesn’t mean that it isn’t stressful. But the more you accept the reality, prepare for the downside and get more experience under your belt you might find that these pressures become more tolerable and routine.
I recognize that feeling of panic. I had it when I started in business. But you know what eased it, money in the bank. The more money you can save in the business, the less the feeling of getting by will impact you.
The largest business I started was after my bankruptcy and I was really scared of debt. I wanted to make sure I had enough money in the bank to wind everything down if I had to. And when the time came to close that business down, I didn’t have to worry, everything was covered.
Bankruptcy does not sound like a reasonable approach for you in your situation. What I would do instead is add one more monthly obligation to your list, yourself. Open a business money market or savings account and set that account up to get automatic monthly deposits in it.
I wish I was near you to drop in and just put my arm around your shoulder and let you know it is going to be okay. Just analyze how you are feeling and why, don’t react to it on an emotional gut level.
There is one more possibility. Maybe you aren’t the right person to be running their own business. Maybe you prefer working for someone else instead. But remember, all those same pressures are being experienced by the person running the other business, when you are an employee you are just out of that loop but they can still impact you.
Sometimes, ignorance is bliss. There has been more than one time in my professional life when all I wanted to do was punch a clock and not have to be responsible for a business or a lot of employees. In fact, I used that realization to create a new reality for myself.
I discovered that I am much happier not having employees and I love to work for myself, so that is what I do.
Once consideration for you would be for you to organize your employees into their own business and contract them to deliver services to you. Doing that would push the supplier issues down to the other company. It’s just a thought.
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Hi Steve,
Thanks for the advice — greatly appreciated. Ironically, I suspect a lack of life experience is largely at play here with regards to my emotional state. One thing I am considering doing is liquidating the equity in my rental property and investing in relatively secure, cash flow positive investments that are highly liquid in order to ensure that I can deal with any potential financial hardships that arise.
Thanks for your time again,
John