Can this business be saved…?
Recently I was reviewing the spending habits of a business as the business was attempting to borrow more money. If you have borrowed (or tried to borrow money) in the last few years, you already know how challenging this has become.
To get to the point, this company’s spending seems to be out of control and the challenge is to figure out how to help them (or if they can be helped). I know several of our readers are familiar with issues like this so I’m going “open book” and asking for your opinions, suggestions, and recommendations.
A little background on the business…
It isn’t a startup company, so there is little probability the company will achieve exponential growth in the foreseeable future.
They started with a very focused product offering, but today they are very diversified in their product offerings and may be in too many markets.
What started out as a very lean operation (Taiichi Ono and Henry Ford would have been proud) has grown into a business with several layers of management and labor. Many would describe it as bureaucratic.
Their HR department is stretched to its limits.
Clear inability to control spending. The business claims they are getting control of their spending, but their track record says otherwise as they have increased their debt by over 60% in the last 5 years.
Their “projections” for revenue increases over the next 5 years are about 10% / year, but they still plan to spend more than they make each of those years.
Time is running out – their bank is pushing back on more borrowing as they are already carrying a substantial debt.
|Projected business income|
|Total business operating budget|
|Additional debt projected for this year|
|$1,605,100||Current outstanding debt the business has.|
|$11,000||Est. Avg. amt. they are projecting to reduce additional debt/year (next 10 yrs.) NOTE – Not reducing the outstanding debt, just reducing the amount they are adding to it each year.|
The struggle is getting the business to act on their spending problem. The entire management team is aware of the issue, but they just keep on spending! Currently they are tactically focusing on reducing the additional amount they are borrowing. Reducing the outstanding debt is rarely even talked about it.
Can this business be saved? As business owners, do any of you know a bank that would be willing to loan them additional money? Is it making you feel better about the financial condition of your business?
Now, the real world…
What if this company was bigger? What if we added “7” zeros to each of the numbers above. What do you get? The actual numbers of from the United States Federal Government (as reported on Wikipedia – note, these may or may not be completely correct, but it’s pretty close).
|$2,469,000,000,000||2012 US Tax Revenue|
|$3,796,000,000,000||2012 Federal Budget|
|$1,327,000,000,000||2012 Federal Deficit|
|$16,051,000,000,000||2012 National Debt (See National Debt Clock for up to date information)|
|$110,000,000,000||Est. Avg. amt. currently projected to Deficit/year (over next 10 yrs.)NOTE – Not reducing the outstanding debt, just reducing the amount of the deficit.|
The point of this isn’t to be on one side of the political fence or the other. It is about looking at the facts. It is what every business owner has to do. We have to look at the facts; this is where the business is at today, it doesn’t matter how we got there, but continuing to do what we are doing is not going to solve the problem. No business can survive when it continuously spends more than it makes.
The values can get easily blurred in any business, but sometimes I think it is easier as we jump between millions, billions, and trillions. By reducing the Federal Government numbers to an income amount many business owners are familiar with, it is easy to see the severity of the situation we have allowed our country to slip into. So regardless of who you plan to vote for this fall, fiscal responsibility is a key requirement going forward – regardless if the company has revenue of $246,900 or $2,469,000,000,000. You need to have a plan to spend within your means and hold yourself accountable.
We’d love to hear your thoughts – share them in the comments below.