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?

De Nile – A River in Egypt or a CEO’s Final Resting Place?

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 my post a few weeks ago about how to treat your bankers, creditors and vendors, I advocated telling the truth. As important as it is to tell all of these people the truth, it is even more important to tell yourself the truth.

I recently came across a company whose bankers have expressed some discomfort in their situation (no names here obviously). The loan balance has declined, and the bank wants to continue to reduce its exposure. In recent memory, the company has not satisfied its debt service coverage covenants, but the loan document has been extended on a short term basis. Since the principal owner describes his industry as “declining” the only growth will be through consolidation. Moreover, the company has exhausted its balance sheet reserves, even to the extent of taking some tax positions that will improve its book equity, but cost it millions of dollars in CASH over the next several years.

See the warning signs?

  1. Declining industry
  2. Nervous bank
  3. Bad operating performance
  4. No focus on Cash, which we all know is king

The principal owner/CEO stated that he had made some significant spending cuts, and that this year will be better than last. His projections show a slight decline in revenue with increasing EBITDA, but still not enough to cover its interest expense.

When I looked through the financial statements I noticed that payroll in some operating areas had indeed fallen by about the amount revenues had fallen, but payroll in the sales and executive departments had increased. I also noticed a monthly payment for a luxury sports car’s financing company that matched the make in the CEO’s reserved parking spot. The CEO said he had a new, more expensive model on order for summer delivery. The CEO said everything was fine; he had his business under control, and he had a wonderful, long-term relationship with his lender, even though his new loan officer needed some more time to understand his business.

I contend that the CEO is in denial about the true state of his business. As my favorite coffee mug is fond of saying, “De Nile is Not Just a River in Egypt.”

Without significant changes in his mindset and the business’s operations, the bank will continue to ratchet down its exposure. There will be fewer operating accommodations, more reporting requirements, more onerous covenants and certainly no financing for acquisitions. He will be the acquiree, not the acquirer. It’s quite likely that he will find himself out of the business and out of a job within 18 months.

While it is important to maintain a positive attitude for your family, employees, vendors and creditors – after all, hope is extremely important – it is also important to face your reality, especially when the chips are down.

You can talk to your trusted advisors — lawyer, accountant, even a banker — to share your concerns and fears and more importantly to chart a course of action to rehabilitate your business. But when your advisors can’t help, call us, and face the harsh reality rather than board De Nial River Boat Cruise to self-destruction.