Your business is like a living organism

Cashflow is the lifeblood of the business. It’s the blood running through the business’s veins that helps deliver supplies to all parts of its body. Debt can be like a cancer – eating into the health of your cashflow. In keeping with this analogy, you’ll be completely oblivious to what is going on under the hood.

Depending on how your business is set up, cashflow can be incredibly tight – and the minute you add debt to the mix, things can quickly become unpredictable. Cashflow is king, yes, but debt can be a nasty cancer on your business. And, unfortunately, we know how that can sometimes end.

A lack of understanding

I’ve been guilty in the past of not fully understanding the numbers. When you’re managing tens and hundreds and thousands of pounds in business transactions and the smoke and mirrors that can be cashflow, things can go unnoticed.

Back to what I was saying a little earlier, there will be times when there are big numbers in your account and it feels like the business is in a healthy state so you can spend. This. Is. An. Illusion! Positive cashflow can be temporary and can give you a false sense of security. I’ve been blinkered by this in the past. Confidence is good, as long as it’s balanced with some reality-based sensibilities.

HMRC

This has probably been our biggest Achilles heel. I’m going back a few years now, but in the past we’ve had several difficult conversations with HMRC. I’m not going to lie, it was a butt-clenching time on a few occasions. However, I’ve lived with the stress and worked extremely hard to make sure we pay every single penny we owe and become debt-free as soon as humanly possible.

It’s a horrible place to be – I don’t like owing people money. However, pride is at play on this one. You could easily shut up shop, walk away from the debt and start again, and many people do that. I’m not a huge fan of that at all – I’d rather dig in, pay back what is owed and move on, grow and prosper from that. None of us like taxes, but it’s the harsh reality of what we have to do for the economy.

Your bank and the unforeseeable

We were banking with RBS (Royal Bank of Scotland). They were our business bank for several years until one day, I received a 60-day closure notice. I was in utter shock.

The account was in good shape and they’d only just agreed to extend our overdraft facility for another 12 months. Two weeks later, I received the notice. This was a disaster! Not only were we going to lose the credit facilities that we have, but we were having to pay it all back sooner than expected. What was I supposed to do?

Expect the unexpected

I spent ages trying to get details from someone at the bank about why they wanted to close our account down. What had we done? But there was no answer. The awful thing is, they can close you down with no explanation at all. And that’s exactly what happened here. You can have an account that’s in the best possible shape, and they can pull the plug on you at any time.

So, after scrambling around for a while (and believe me, it was a real panic), heading towards Christmas time, I found a new bank account with Lloyds and they’ve been amazing. However, at first, it was a logistical nightmare to switch over. We had clients paying into the old account for a while, which we then had to chase. It took an age to get the money back, because the client then had to send letters to RBS will all the information on them. Thankfully, we eventually got it back.

Top tip: Get two business accounts

We now have a plan to repay the debt to RBS. They’ve been understanding about what we owe them, and I think COVID has probably helped with that.

My advice would be to have two business accounts with two different banks running parallel, just in case one pulls the plug on you – and believe me, it can happen to any business.

That money is not yours!

It doesn’t matter how you look at it: at the end of the day, you owe that money. It’s not yours. Debt is a subject that’s often frowned upon, but sometimes you’ve got to do what you’ve got to do to survive – as long as your intentions are good. I don’t condone dishonesty or sneaking around one bit, but for the honest ones in business, a little bit of debt to keep the business ticking over is fine.

COVID bounceback loan

More recently – and I don’t mind sharing this – we took a bounceback loan as part of the government’s COVID scheme. Luckily, it’s cheap debt, but it’ll still have to be paid back. The loan has come in very handy, certainly during the very early stages of COVID. Luckily, we’ve grown more than we’ve ever grown before during COVID and we plan to be paying that loan back quicker than planned.

Like most businesses, we’ve had our fair share of dealing with debt – of spending beyond our means and creating the creep-up of debt for ourselves. We’ve paid the price for growing too quickly at times, and lots of lessons have been learned along the way.

New processes and the current balance sheet

Right now, we’re adding new processes and systems for dealing with cashflow, profit and loss and improving the balance sheet – which, being open and honest, doesn’t look fantastic at the minute!

However, when you actually look at what’s happening in the business, the signs of growth are really good. We’re earning more revenue than we’ve ever earned before, which means we’ve got some wiggle room in our cashflow to be able to really make a dent on the things we need to make a dent on. Then, we can take the business to that next level.

Responsibility and accountability

There is a responsibility and accountability when it comes to dealing with debt. Debt is not necessarily a bad thing, alright? We all look at it as an evil necessity to keep the business going, but it’s just about respecting it, keeping it under control and not burying your head in the sand. Your arse will still be in the air if you bury your head in the sand, and it will come along with its massive boot and it will – well, I’ll let you finish that scenario off in your own heads.

Lessons learned

• Debt can be useful – it can save your business! However, it can also be a cancer and will kill your business in the end if it’s not managed properly. It’s a fact.
• You shouldn’t be ashamed of debt as long as your intentions are honest and you are able to pay it back.
• Debt can creep up on you from many different angles and you won’t always be prepared for it.
• Debt can be incredibly stressful and can get out of control.
• The main one for me: respect debt! Don’t play with it.

 Thank you for reading this chapter of the Diary of an Entrepreneur. I must stress, I’m not trying to teach you anything. I’m just sharing my journey, and if it motivates you, then great – job done!

If you want to hear more about my entrepreneurial journey, check out the Diary of an Entrepreneur podcast on all available platforms – I talk all things business in terms of my OWN journey and experience. It’s not one to miss! 

If you’d like to chat more business, feel free to get in touch with me here or you can email me directly at dannylacey@stadamedia.co.uk.

The post DEBT, CASHFLOW AND RESPONDING TO THE UNFORESEEABLE IN BUSINESS appeared first on Danny Lacey.

Most businesses accumulate debt at some stage. I absolutely have lots of experience in dealing with business debt – so I thought it would be a good idea to write a blog post on it.

This ‘experience’ includes ignoring it – burying my head in the sand and hoping it goes away. Not a smart move on my part – just plain stupid, to be frank. But, hey! I’m sure there’s people reading this right now who’ve been in similar positions – if you don’t look at it, it’s not there (or so we tell ourselves).

It’s true: business debt can creep up on you from all kinds of angles if you don’t keep on top of it. This is a lesson I’ve learned a lot over the years. There’s also the compounding effect of debt made even worse if you don’t reduce the debt in a timely manner, especially if you’re struggling with cashflow or going through difficult periods within the business.

Types of business debt

The minute you start employing people, and the minute you start registering for VAT, there’s a whole new type of debt that can create sleepless nights in the form of PAYE, National Insurance and VAT bills. This is the deadliest kind of debt: debt that is ruthless in its quest to be no longer a debt on your balance sheet.

You do not want to mess with HMRC – and, let’s be honest, most of us have had a run-in at some point with HMRC. Not because we want to, or we’ve set out to, but just because of circumstances. To be fair to HMRC, they can be incredibly sympathetic as long as you talk to them and don’t bury your head in the sand.

Then there’s other types of business debt, such as overdrafts, bank loans, credit cards, loans from family and friends (it’s debt all the same), purchase hires, cost of sales, supplier invoices and so on and so forth. It can come at you from so many different angles.

Spending beyond your means

Then, there’s spending beyond your means. Let’s be honest, we’ve all been here: we’ve set up a new business and we’ve got to that moment where the client’s paid a big, juicy amount. It’s sat in the account staring at you in the face crying out, ‘Spend me. Come on, spend me.’ Your forward-thinking entrepreneurial brain is getting a little bit carried away – there are so many cool things that I could spend this money on.

I’m not talking about boats and holidays, I’m talking about things to grow your business – and at that time, you’re oblivious to what’s actually happening in your rear view mirror. Debt is coming! And it’s gonna need some of that money. There are other, more important, high priority things you need to pay for with that cash, but you ignore that anyway and spend away. This leads to all sorts of difficulties.

Change in growth strategy

I’ve been guilty of this over the years myself – putting myself in a very vulnerable position with my growth strategy. Basically, I was focused on reinvesting back into the business and growing very close to – and often over – the profit line. It meant I was all in on growing the business and having disposable cash in the bank was the last thing on my mind.

It’s a very offensive and risky way of growing a business. One bad month, in which we may have lost a client or received a big bill, could have landed us in deep water. And, to be honest, it did bite us in the butt on a few occasions.

Now, in the early years, I was all about building infrastructure and setting the foundations for growth and future profitability. It meant that we hit a tough spot – we were quickly in trouble because of that strategy. Debt had caught up with us, and growth slowed down while we spent time and effort managing that debt. It was a massive learning curve and, being completely honest and transparent, we’re still coming out the end of it.

Gaping hole in the business

The main cause of our debt issues was a major client who owed us £70,000. Unfortunately they went under, still owing us that amount, and we had a massive hole to fill in the business. Again, because I was growing the business very close to the bone meant that we didn’t have significant cash in the bank to deal with these kinds of situations. Therefore, this led to some difficult times ahead from that moment.

Keep the faith

We’ve had most types of debt in the business: loans, overdrafts, hire purchase, credit cards and loans from family and loved ones. Desperate times call for desperate measures – we needed to get beyond the difficult bits, because I still 100% believed in the company. I just knew we would come out the other end a much, much stronger business.

Business debt can be… good?

Even though debt feels like an evil word and a taboo subject, debt can be good. Sometimes, that debt can get you over a certain line and you’ll come out the other end and prosper.

When I look at my business at the minute, there’s one side of the business in incredibly good shape – lots of sales coming in and momentum’s building. Then, there’s another part of the business where there’s money to be paid and there’s a little bit of debt that’s accumulated over previous years. It’s all very manageable now, by the way – we’ve done a really good job of getting on top of that.

Pay people what you owe

It is soul-destroying having to borrow money, especially from loved ones and family when you have to go with your begging bowl and cap in hand. However, I’m so grateful that they’ve trusted in me, my vision and my confidence in the business – and I always pay back. With interest. Eventually! You need people who are very understanding, but be honest and pay people back as soon as you can.

The plan is to become completely debt-free by 2022. This is unusual – most businesses have debt on the balance sheet. A lot of that is to do with HMRC, which is unfortunate, but it’s just the way it is.

Thank you for reading this chapter of the Diary of an Entrepreneur. I must stress, I’m not trying to teach you anything. I’m just sharing my journey, and if it motivates you, then great – job done!

If you want to hear more about my entrepreneurial journey, check out the Diary of an Entrepreneur podcast on all available platforms – I talk all things business in terms of my OWN journey and experience. It’s not one to miss!

If you’d like to chat more business, feel free to get in touch with me here or you can email me directly at dannylacey@stadamedia.co.uk.

The post HOW BUSINESS DEBT CAN CREEP UP ON YOU… IF YOU’RE NOT PAYING ATTENTION appeared first on Danny Lacey.

What’s more, I found myself in a deep hole of debt and was struggling to get back out. What happened next? Read on to find out in the next chapter of the Diary of an Entrepreneur.

Gaping hole in the business

One thing in particular was having a massive knock-on effect on cashflow, and I was completely guilty of letting it get out of control.

One of our biggest clients ended up owing us £70,000. Now, we had a really strong relationship with this client and they’d given us loads of work over the years. They were clearly hitting some trialling times themselves – but for a small business like mine, £70,000 was a MASSIVE hole in the business. We were probably a year behind as a result of that lack of cash.

I genuinely believed they would catch up. I thought that one month we’d get £30,000, the next we’d get £20,000, and so on – and we could deal with that! It would improve our cashflow enormously.

But it just didn’t happen.

Expect, and be prepared for, the unexpected

I spent most of my time waiting, chasing the client, knocking on the door, pestering… but the money never materialised. The client ended up going out of business, and we ended up losing a massive amount of money. Plus – we’ve only really JUST recovered from that huge hole in the cashflow.

Another lesson learned: no matter how close you are to the client, no matter what that relationship is like – you should always expect and PREPARE for the unexpected.

I’m guilty of being too optimistic and trusting, and that’s definitely a weakness in me as a businessperson.

The silent assassin of debt

Meanwhile, the silent assassin was starting to show its face: DEBT.

We would end up on payday – my least favourite time of the month at that time – with only half of the team paid and the rest of the money still pending from clients who hadn’t got back to us yet.

You’ve also got to be careful not to come across too desperate when chasing clients. You don’t want to give away the state of the business too much, because it can be easily misinterpreted. 

Probably the most stressful thing was having HMRC breathing down our necks. They don’t mess around, and you certainly don’t want to be messing around with HMRC.

At that time, we had to do what we had to do to survive and keep the wolves from the door. I never expected stress like it. When you experience debt and you go through the issues we were going through, the psychological strain is MASSIVE.

Plug the holes before your boat sinks

I literally locked myself away in my office back at home, and in hindsight, I think I was hiding. I could lose myself in my magical world where there were many solutions at my disposal and everything was going to be okay. If I sat in front of my computer, strategising, making lists and doing research, something would present itself. Right?

So, my heart was in the right place. However, I’d taken too long to act to plug the holes that were appearing in our little boat. It was time to act. I had to move and I had to move QUICKLY, because I was already months behind – and those months behind were going to have a HUGE knock-on effect for the business.

We had to go there: I had to start making redundancies.

Living in denial

The moment I realised we had to start making redundancies happened WAY before I actually made those people redundant. My heart jumped in and kept telling me, hang on – I can get through this.

I was trying so hard to hold on. ‘It’ll be fine, next month will work, it’ll be better, we can keep everybody in jobs’… But I had no other option.

If you took the payroll away and looked at all of the other costs, the business was actually running very efficiently. We didn’t have an overly expensive office or subscriptions – so I knew instantly that when we needed to make cutbacks, it was going to be payroll.

Ripping off the redundancy band-aid

Making redundancies was the toughest decision I’ve ever had to make, and it will always be the toughest decision in business. But it happens! It’s unfortunate, it’s not something we strive towards as business owners and it’s definitely not on my list of goals. My list of goals is to keep people in jobs, get them up to the biggest salary we possibly can, give them all the perks and give them the love of working in a business that gives back.

But the band-aid had to be ripped off. As a business owner, I have the responsibility of keeping the business alive and thriving, and sometimes you just have to swallow your pride and be cruel to be kind – including taking a couple of steps back.

Making redundancies was the best decision – and it worked! Within a few months, those redundancies we made freed up the payroll and we felt the effects of having a little bit more money to keep on top of our debt.

However, this action had a massive ripple effect across the business. It took an AGE to lift morale and turn the business around. If you start talking about redundancies, everybody’s going to be worried about their jobs. People start to look over their shoulder, and that was a difficult thing for me to deal with.

So, how did we turn things around?

After making redundancies, it was all about getting back into the business and taking control. During these moments, I’d stepped away from the business because it was too hard for me to deal with seeing the team and being reminded of the mess we were in.

So, to fix things, I became more present. I went into the office, had meetings, spoke to the team, strategised and developed. I dropped all non-essential tasks – those little jobs that I shouldn’t be focused on.

We were really on top of the debt, looking at options for reducing and controlling it and putting a plan in place.

Full focus on sales and marketing

Forget everything else – the thing that would fix everything was getting MORE SALES through the door. That was obvious!

The revenue that was coming into the business made a BIG difference. It was covering operational costs, and any surplus was going to pay off the debt. The pressure was easing.

We also increased marketing efforts – I was doing more personal brand and in-house marketing. We were increasing the visibility of the business and becoming more thought leaders in our industry, which was definitely opening doors.

Make decisions quickly

Ever since, the revenue has skyrocketed. We’ve gone up and up and up each year – even doubling in one year.

Although we’re not out of the woods just yet, we’re definitely in a MUCH better position. We’re hitting what I call another ‘spike moment’ of growth in the business (read all about the first one here!), and we’re getting closer to that milestone of £1 million in revenue.

Everything that’s happened over the last few years has definitely made me stronger, and it also helps me make better decisions – FASTER. Not only that, but tough decisions when they need to be made.

So, one of the big takeaways from this experience: there will be decisions to be made and you have to make them quickly.

Having a business mentor

I’ve also got a business mentor now – someone who has run a massive agency with millions and millions of pounds in revenue, 200+ staff, been here and wears the T-shirt. He’s definitely able to put me in my place. Now, unlike before, I’ve got someone who I’m accountable to and who I can talk to – and it’s lifted a great weight off my shoulders. And that is so very important.

As you’ll know, if you’re an entrepreneur, being in business is incredibly lonely and depressing at times. So, having someone you can talk to who’s not in your business, family or friends – an outsider, almost, who’s been in a similar position – can open your eyes to things you didn’t even consider. It’s literally like therapy, and I always look forward to my conversations I have with my mentor.

The takeaways…

1. Expect the unexpected and plan well in advance for it. Don’t bury your head in the sand and think everything’s going to be okay forever – you might have loads of clients right now, but trust me, bad times do come!
2. Have enough money in the bank to cover you for 3 months of operational costs. This is essential. I still wouldn’t say that we’re always in that position, but there or thereabouts – and it definitely reduces the stress month on month.
3. Get help BEFORE you need it! This might be a mentor, a bank manager, or someone else in business who’s been through something similar. Whoever it is, get help well in advance of you actually needing it. Be proactive!
4. Don’t ever let pride get in the way. Be strong, make the right decision and make it quickly! That is your responsibility as the head of the business. If things aren’t right – you’ve gotta move!
5. Don’t ever let the sales pipeline dry up. Ever. EVER. Keep that sales machine pumping, make sure there are prospects at the start of that sales conveyer belt, and keep it topped up. There is nothing worse than having blank holes suddenly appear.

  I hope you’ve found some value in reading about my experience of making redundancies and fighting debt. If you’re still growing your business, it’s important to be prepared for issues like this to rear their heads down the line. If you’ve already been through it, I hope that by sharing my experience I’ve brought you some comfort!

If you’d like to continue the conversation, you can contact me here or email me direct at dannylacey@stadamedia.co.uk.

The post MAKING REDUNDANCIES AND DEALING WITH DEBT appeared first on Danny Lacey.