Last week, one of my clients was asking my advice about pulling cash out of his home - which he owns free and clear - to sink into the company.
NO NO NO NO NO NO. NEVER liquidate or tie up your primary residence to put money into your business. Sell the toys, the vacation homes, take all of the relatives off of the company gravy train, but NEVER put your home in a position that could end up leaving you without a safe place to live.
Let’s review –
- NEVER borrow against your primary home to support the business
- NEVER run up your personal, consumer credit cards to support the business
- NEVER go without paying yourself a reasonable wage - DO NOT pay your personal bills from company accounts
If money is tight in the business, take these steps FIRST –
- Cut off the support for family and friends who don’t make substantial work effort in support of the business
- Sell the toys. No, really. The boat? Sell it. The expensive motorcycle you don’t ride? Sell it. If the toys have PAYMENTS, sell them FAST and for whatever will get rid of the debt.
- Sell the vacation properties and time shares.
- Cut back the personal spending
Once you’ve tightened your belt, here are the next things to NEVER, EVER do –
- Slow paying employees is bad - think “Dante’s Inferno 11th circle of Hell” bad
- Slow paying utilities, insurance, property taxes, withholding taxes and sales taxes is bad - “12th circle of Hell” bad
- Ignore demands for payment, especially if they can attach a lien or if a lawyer is (or is about to) suing you. Communication keeps you out of the Inferno.
- Break your word when you’ve given it - once you’ve shot your credibility, creditors won’t work with you again.
- View yourself as a victim, and become emotionally angry with creditors. Put yourself into their shoes and ponder how you’d act.
NEVER NEVER NEVER NEVER pay an obligation from whatever company account has money in it. NEVER NEVER NEVER.
Here’s how you DO raise cash and reduce obligations –
- Sell every piece of equipment you’re not using anymore
- If you have excess product or inventory, drop the price and close it out
- Vacate or close any office or other space you’re not using. I see clients who have four employees occupying enough space to house 75 employees, and clinging to that space. GET OUT!
- Look at telecomm, data and other consumable services to see if you can switch providers or plans to reduce your monthly outlay.
- Get in touch with old clients to “check in” and see how they’re doing
- If you have too much house in your primary residence, sell it with an eye toward having a fully paid for replacement primary with lower expenses
Sometimes, when you’re in the thick of this, hiring in an outside contractor to help you with communication and identifying these steps can take you off of the hook for these decisions, and speed up the adjustment.