debt

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The Relationship Between Your Debt and Your Happiness (P.S. It’s Obvious)

In my last post about happiness, I wrote about 4 ways you can be happier and less stressed in order to run your business more effectively:

1. Do Good Deeds

2. Get Exercise

3. Get Hugged

4. Get a Pet

I want to keep on with this idea of happiness and focus even more closely on the things you can do to increase your happiness as it relates to money and finances, both personally and for your business.

It may come as no secret to you that debt makes people unhappy, but you’d be surprised at how little debt it takes to sour relationships, create tension and stress and ruin a business. Therefore, whenever possible, make sure that you and your company are carrying as little debt as possible.

To tell you to spend money paying down debt that your business doesn’t have might seem foolish, but what’s foolish is spending money that your business doesn’t have in the first place!

TIme and again I am brought in to resolve the problems of businesses with inordinate debt and money owed to a wide variety of lenders and creditors. As I look back to see what debt is really in front of us, who’s owed what and at what interest rate, when loans are coming due, etc., I often uncover a similar pattern.

Those who are in debt need not be in debt – or at least not the kind of debt they’re in.

They are in debt because they didn’t take the opportunity to pay down some of their initial debt when they had the chance. Instead, they sought to use their capital for further investment (or unsavory things), thereby driving themselves further and further into debt when paying that debt off in the beginning would have done wonders for the future of their business. That is to say, they would have been able to keep their businesses.

It is true that sometimes the answer to a cash flow problem is a loan, but I have been in numerous situations where any loan would have been throwing more money at a sinking ship.

That is why it’s important not to take loans to supplement loans. This may seem like obvious advice, but you’d be amazed at how often these are the problems I’m dealing with. When given the opportunity to pay the principal down on a loan or to pay off a credit card you’ve been using to finance your business, do it. Don’t think that buying a new piece of fancy equipment for your factory is the perfect way to grow your business faster or that hiring a new employee will solve all of your problems. Pay your debt down and continue to own your business. It will keep you focused by ultimately keeping you less stressed and helping you avoid crises and debt in the future.

Want to be happy at your job? Then keep your business debt free.

Is your business buried under debt or has it been? What did you do about it?

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What the Boogeyman and the Economy Have in Common

Our economy has had its ups and downs in recent months and years. The experts say that we can’t technically have a double-dip recession because of the time that has passed since the official end of the first recession, but in my opinion, we’re not going to enter a double-dip recession because we never got out of the first one.

Definitions are important and valid, but at the end of the day the economy is an idea, and a recession is one shade of our attitude towards this idea, not simply a result of unemployment, debt, an unbalanced budget, and impotent spending.

What’s In Our Heads

If the economy is an idea, then we must believe in the idea for it to be and work. That is not to say that the idea, in this case the economy, does not exist without our belief in it, but that our belief in and about it colors the way the economy affects us and causes us to behave. Just consider the erraticism of the stock market recently and why I contended it’s behaving this way (click here).

For instance, when people believe that the economy is good, they are more inclined to spend. Why not? many figure. Things are looking up; the job market and salaries are rising; others around me are spending; deals are good.

However, when we’re told that we’re in a recession, that unemployment is at record highs, that the stock market is all over the place, that this or that company is not even giving cost-of-living wage increases, we’re inclined to use the phrase “tighten our belts” more often, spend less on credit cards, hedge our bets at work by doing more for the same pay, and generally become more fiscally conservative with our personal budgets.

All of this is fine and natural, but it’s important to remember the power the economy has as an idea on a very personal level. After all, plenty of people don’t have jobs in good economies, too, and opt to spend less for various reasons and feel like things aren’t great from a monetary perspective. When the economy is bad, though, this is just happening to more individuals, and on the aggregate level the perception becomes greater that the economy is bad.

A Booga Booga Booga

Consider the Boogeyman.

Kids are afraid of the Boogeyman not because they’ve seen him and he’s affected their lives in a physical fashion. He doesn’t really come out of their closets or from underneath their beds when parents leave the room. He’s terrifying as an idea because the environment is scary – e.g. it’s dark, noises sound stranger at night, parents aren’t around to protect kids, etc. – and because kids can’t even imagine all of the terrible things he will do to them if he finds them. Thus, kids cry and get upset and run to mommy and daddy. They are reacting to an idea that affects them because they believe that it has power.

In order for the idea of the Boogeyman to work, kids must have faith in it, and the same goes for our economy. In order for it to work, we must have faith in it.

When we allow the aggregate noise of those disappointed with the economy to make us all afraid of its power and badness, we all take the actions and attitude that further cripple the economy. It’s a spiral. We lose faith in the economy’s power to be strong and do right by us, and that’s part of what the economy is: our reaction to it. It has power as an idea.

Stand Up to the Idea

We are in a recession, but for most of us, it’s the idea of the economy rather than a lost job or failed business that keeps us in this recession mindset. Rather than dread the recession and lose faith in the economy, I contend that we need to change our attitude towards it. We need to prize austerity and appreciate the positive effects this environment can have on our fiscal responsibility and understanding of the things we do have.

Consider the Boogeyman again. It is the kid who braves the night alone instead of crying to his parents, believing that the Boogeyman is always on the brink of getting him, who gets more courageous every night, increasingly able to withstand the fears of lurking dread. Let’s stop whining about the horrors of this economy and getting wrapped up in the definitions of a recession.

Now it’s about how we react to this recession that matters.

How have you been reacting – both mentally and practically – to our economic climate?

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The Rotten Ratio: Sales = Debt

Every industry and business has interesting ratios and rates that are relevant to it. For e-commerce, returns are around 8%; the average conversion rate on a Google Adwords advertisement is 2%, and so forth. I’m sure you can think of some in your business.

In my business, we have a ratio, too: one I call the Rotten Ratio.

The Rotten Ratio is when sales equal debt.

Take a second to think about that: sales equal debt. Believe it or not, I have a number of companies in this situation.

But how does something like that happen? Why do I keep getting hired at this rotten sweet spot?

Well, when business is good and sales are going up, companies decide to buy a new factory, or purchase new equipment -or Ferraris – you know, whatever the necessities are. In order to do this, they borrow money, which at the time makes sense when they look at their sales and growth.

However, as they tend to do, especially when companies and their leaders get distracted, sales slow down, yet that debt is still there. In efforts to sustain their perceived growth, companies take ill-advised steps, which sometimes include more borrowing. At the very least, they don’t pay their debt down, and with sales continuing to slow, they don’t get any closer to doing so.

Numerous warning signs should likely have tipped off CEOs, owners and boards off to the impending crisis that’s coming their way, but as I often say, no one calls me and says, “Lee, I’m going to have a crisis three weeks from Thursday.”

By the time sales and debt meet, it’s become clear to many CEOs that they need to bring in a professional, so when I arrive and start looking over financials, I notice time and time again that sales do indeed equal debt: the Rotten Ratio.

Though you should know that things are turning sour before your sales and your debt numbers meet, by the time they do it’s a pretty good indicator that you’re going to need to change the way you’re doing something and take some drastic steps to resolve your company’s problems. When that happens, seek professional help. Oftentimes it takes a professional to make the truly huge and hard decisions that will save a company.

Remember, turnaround isn’t pretty. We often have to amputate a leg to save a company, and when you’ve just moved into a shiny new factory, selling it off seems like the biggest backwards step and the one thing you’re not willing to do. But that’s why, as a CEO, you have to check your ego at the door, admit you’ve made a mistake (or multiple mistakes) and do whatever needs doing to save your company and the jobs of those who depend on it.

When you’re moving towards the Rotten Ratio, get proactive.

Have you ever seen the Rotten Ratio? What other reasons do you think a company might find itself in this position?

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We Shouldn’t Bail Out Europe – We Should Turn It Around

I’ve been writing a lot lately about Greece, which is representative of the larger problems Europe is having right now. My interest lies in the fact that an organization (in this case a country or group of countries) is spinning out of control in crisis and has little or no idea how to fix things. I think that they need a turnaround guy’s help, or at least his attitude.

I know that there are differences between companies and countries, namely, the number of factors involved. What do I mean by that?

At a company, you can quite often say, If I do x, y will occur. The reason is that there are a limited number of factors involved. I can look at the numbers on a Balance Sheet; I can comb over a P&L. I can say, if we stop spending in these places, the cash saved can pay for the following. With those payments made (generally debt and required expenses), the business can stay afloat, avoid further crisis, ultimately pay its debt down, and emerge to become profitable again. It’s not that easy and requires a lot of creativity and negotiation, but there’s rarely a case I can’t figure out.

Unlike in a country, in a private company you can sell off assets, which is a great way to generate cash you don’t have (in contrast, countries tend to just print money, which is creating an asset they don’t have and that devalues the other assets they do have). Greece, for instance, can’t sell off Thessaloniki. Well, maybe it could, but I don’t know that Romania would pay the asking price (Turkey might).

In addition, in a private company, you don’t have to worry (as much) about gauging people’s reactions. Of course you want buy-in and for the people to be on your side, but at the end of the day, whatever must be done to survive must be done. If it’s not, and the business collapses, the people are laid off and must go elsewhere. If the people in a country disagree with the decision makers, riots can ensue alongside, potentially, political mayhem and anarchy. After all, the people are assumed to comprise the country and therefore be responsible for the debt. If the government dissolves, the people are still there, the country is still there and the debt still, arguably, exists. In business, there’s bankruptcy. In governments, not so much.

As a turnaround professional, I look at all of these country-based crises, and I see the opportunity to turn them around. It would certainly be exceedingly complex and involve unpredictable elements at that level, the likes of which we don’t usually see in companies, but it’s the attitude that’s needed – an attitude that doesn’t seek to make more money out of no money, but one that embraces austerity and survival at all costs.

So without further ado, I’d like to show you a great animated video that does a delightful job summing up the European debt crisis and the proposed solutions. Watch it and tell me we don’t need a turnaround guy in there:

http://www.guardian.co.uk/business/blog/2011/oct/28/euro-debt-crisis-animated-explanation

What did you think?

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5 Warning Signs That It’s Time to Call the Turnaround Expert

As managing partner of GGG and the Turnaround Authority, I get the pleasure of providing guest posts by our other partners. The following post is by our newest Partner, Vic Taglia.
In business, it can be hard to see the forest through the trees, especially when it’s night time and you have no flashlight, the only supplies you have left are bubble-gum and a rubberband but your wife always tells you you’re no MacGyver, and the forest creatures are attacking you with cries of “blood!”
If you just said, “That sounds about right,” or “What the heck is this guy talking about” then you may want to read these 5 warning signs and see if it’s time to bring in some professional help.
  1. Fatigue – yours and your creditors. One late Friday afternoon, you’re beat, and you realize that you’ve spent the entire week talking to your vendors. You’re not placing orders or negotiating terms. You’re not swapping stories; you’re begging for extended credit terms. You’re pleading for deliveries without knowing how you’ll pay the over-90-day balances. You’re talking to the credit manager, not the sales manager.  And you have a new bank officer visiting Monday morning from some new department called “special assets.” This is creditor fatigue.
  2. You’re out of new ideas, and the old ones don’t work. You used to be able to cajole deliveries from vendors based on a promise, and you could make your promise reality. Not so anymore. Your product collateral looks old and tired. Your website’s most recent news refers to a 2008 press release about a new salesman (who you fired in 2009). And worst of all, you haven’t anything new to add that you want to share.
  3. A different look in your employees’ eyes. The old-timers wonder where your magic went. The newbies wonder how you ever got anywhere.
  4. Longer hours, less progress. You haven’t had a vacation in three years.  The lake/mountain/beach house is just a pile of cancelled checks and fond, but fading, memories. You’re missing ballgames and ballet recitals with your children. You haven’t had a nice dinner with your spouse since your anniversary; but maybe it was the anniversary two years ago. And the inventory in the warehouse seems to be growing in size and dust.
  5. Less cash, more debt, fewer receivables, more payables. You’re calling customers and finding they aren’t paying because your shipments are late/wrong/incomplete. Bankers’ reference letters refer to your account as “low five figure” as opposed to “high six figure.” You ask your CPA /attorney/friends for some advice on a new banker “who understands this terrible economy/insane competition/horrible cost pressures” better than the banker you’ve been with for ten years.

If any of these describe what you’re seeing, it’s time to call your friendly neighborhood turnaround professional.