Any business has five key constituents that must be paid:
- suppliers and vendors
- tax and licensing agencies
- creditors and banks
- the business owners
So when cash is tight, the business owner starts to juggle these competing demands for payment. Who should they pay first and why?
Lets start with the easy ones…employees. If you don’t pay them, generally they don’t show up…and it’s tough to run a business without any help. So that’s a given – pay the employees.
How about suppliers? I do occasionally encounter a business owner who is in so deep that their vendors are starting to cut them off. However, most business owners try to keep paying the suppliers since without materials, it’s tough to ship product. So do everything you can to continue to pay suppliers.
So if we take it for granted that if we don’t pay our employees or suppliers, we are pretty quickly shut down. So let’s pay them and look at the other demands on our cash.
Tax and licensing agencies. Now we are talking. These folks don’t call you every month, they don’t even harass you unless you are seriously late. However, if you get too far behind, they can get pretty nasty, and the taxing authorities are pretty quick to slap a lien on the business. And once that happens, there is no escaping it. You must pay. Licensing agencies (for example liquor licensing) can be delayed for a while, but eventually failure to pay can shut you down. Nope, these folks must be paid.
So that only leaves two options…the creditors or the business owners.
If you are like most business owners, the choice is clear. You stop paying yourself first. It’s your business, after all, and sometimes sacrifice is necessary. And most business owners bite their lip, hope that things turn around, and grimly drain their personal savings hoping for a better day.
But what if you could restructure your bank debt? What if you could even ELIMINATE your bank debt? How would the cash flow of the business look then?
So how do you get your bank and creditors to restructure your loans? You’ve already asked them, and they have shot you down. But that’s because you continue to pay them…
[quote author=””]Here’s the secret – your creditors will not work to restructure your loan as long as you continue to pay them. The ONLY way to get them to the table is to STOP PAYING THEM. [/quote]
Now before you run off and put a hold on your last payment to the bank, be warned that it is not so simple as that. You must have a comprehensive communication plan in place that is part of your overall strategy to workout the debt.
Give us a call at (401) 390-3801. We can help you understand if a workout is possible for your situation.