Guerilla Accounts Payable Management
- 1/2/2010
Guerilla Accounts Payable Management
For the business owner in survival mode
OK, so your business is in deep trouble. You’re facing tough decisions about its very survival. It seems like every day, all day long, the phone rings with people wanting money from you, but the Postman brings no checks. You’re hanging on by your fingernails and you simply don’t have enough cash to pay everybody. Your credit is ruined. Every hour brings a new crisis. The stress is unbelievable.
STOP. Take a deep breath and make a plan for getting through this painful time. If you have decided to keep your business going, to refuse to take bankruptcy, and to find a way out of your situation, then you need a plan. And you must follow that plan with the ruthlessness and focus of the guerilla warrior. You must make an unequivocal decision to do whatever it takes to keep your business alive. The decisions you will make will cause pain. The guerilla warrior expects both to suffer pain himself and to inflict pain on others. Sometimes, he must inflict pain on the innocent to achieve his objective. He does it because he must. Survival is not for the faint of heart or those who are too worried about what everybody else thinks of them. Your greatest duty as the owner of a business is to safeguard and grow the assets of the business. Your greatest enemy is debt.
RULE 1: When you’re in a hole, stop digging.
You are overwhelmed with debt because you have spent or obligated yourself for more than your revenues will bear. It does not matter why, or how good a reason you had for your decisions at the time. Right now you must stop all spending that is not necessary to keeping your business alive. Remember the guerilla warrior. He is able to be effective while existing on nearly nothing. He carries only his weapons; he lives off the land, buying nothing that does not relate to his mission; he keeps steady pressure on the enemy. Likewise, you must make your supplies last as long as possible before replenishing; make do with your equipment by repairing rather than replacing; buy the minimum necessary to stay afloat; and keep steady pressure on the enemy, which is debt.
COROLLARY TO RULE 1: Pay only what you must to survive
The corollary to Rule 1, “Stop all spending” is “Pay only what you must.” Sort your bills into those that can put you out of business and those that can’t. When in survival mode, you don’t worry about good will and you don’t worry about your credit score. Relationships can be rebuilt and credit scores can be repaired, if you are still in business. However, if you lose your business, then you have lost the means of generating the income that will enable you to eventually pay those bills off and restore that good credit rating. If you lose your business, your credit will be ruined and your relationships lost anyway. So, like a deer being chased by a mountain lion, you must totally focus on survival. The bills that can shut you down generally include: rent or mortgage payments, sales and employment taxes, utilities, telephone, essential supplies, essential equipment, salaries of necessary employees, postage/delivery/ or freight. Generally, we are speaking of those bills necessary to maintain a place of business (if you have one), take orders, produce the product or service, and deliver the product or service. Tally these bills and see if you have sufficient revenue to cover. If you do not, then you can not succeed, absent a very large increase in revenue which is extremely difficult when in survival mode. If, on the other hand, you have a surplus after payment of the essential bills, no matter how small, then go to RULE 2.
RULE 2: Pay off debt
You can only make use of your revenue to increase your wealth to the extent that your revenue is available to work for you. This means that you must pay off debt so that you can operate your business debt free and have the use of all your revenue. This will doubtless take some time, but most clients are able to be debt free within 18 months to 3 years. Sort your remaining bills from lowest to highest balance. Make a list. Pay the lowest balance off first without regard to interest rate or anything else. As soon as that bill is paid off, take the money you had been paying on that bill and apply it to the next highest balance you have. When that balance is zero, apply all those funds to the next one and so forth. You will be amazed at how fast this “snowballing” effect will result in the elimination of all your debt. When you are debt free, not only are you able to make full use of your revenues, but you will also have more energy and enthusiasm because you will feel less stressed. This energy can be directed toward improving your revenues, or further decreasing your costs, or paying more attention to your family. When you are debt free, you truly have options.
CORALLORY TO RULE 2: Communicate with your creditors
Let your creditors, especially your banker know what you are planning to do and do your best to reassure them that you will eventually get them paid off in full. Negotiate the best terms you can. Do not duck their calls, but do not allow any bill collector to get you off-course. Your money is your money, and you must be the boss of it. You must use it in the way that is best for you, your business and your family. The guerilla warrior would never allow anyone or anything to distract him from is mission. He will always keep constant pressure on the enemy. Debt is your enemy and you must keep constant pressure on your account balances.
RULE 3: Do not go into debt to get out of debt
You can not borrow your way out of debt! A loan does not create capital. It creates more debt. Because it carries interest, it will cost more than your current debts. A loan my make you feel better. It may take the pressure off you for a bit. But is does not solve your problem. Bankers are like a “chicken a day alligator.” As long as they are getting their “chicken a day,” you won’t ever hear from them. But when they start to go a few days without that chicken, you will find the hungry alligator is at your door, and he will eat up everything you have. Avoid leases. Lease financing, whether for cars or equipment, is the worst possible form of financing. If you are currently in a lease, begin to save cash to purchase a replacement car or piece of equipment for cash as soon as possible. You can do this when you are debt free and can apply all the money you had been paying to others to building up your own capital so that you can buy for cash and save. If you think that you can afford an item because you can afford the monthly payment, you are asking for trouble. Only through owning your own capital can you truly create and grow wealth. As long as you are in debt, then you are a slave to the creditor.
CORALLORY TO RULE 3: Pay off your mortgage, lease other long term debts as fast as you can
Your mortgage or other long term debt was probably included when you made your list under RULE 1. You have to pay these bills on a monthly basis because they are necessary to your continued business. They were probably the last bills on your list when you made your list under RULE 2, being the bills with the highest balances. Now that you have paid off every bill on your list except your mortgage or your long term lease, you may be thinking that you can relax. After all, you can honestly say that you have no short-term debt. This is more than most business owners can say for themselves. You’ve gotten your creditors off your back; you no longer dread the telephone; and you’re thinking you can live with this one bill. The guerilla warrior never relaxes! You must keep constant pressure on the enemy, and the enemy has not changed. Even long term debt at a low interest rate of 6% is still robbing you of 6%. Over the life of a 15 year note at 6%, you will pay $151,894 for the use of $100,000. If you apply all the money that you had previously been paying on bills to reduce your long term debt, you will be dazzled by how soon you can be debt free. Finally, when you have paid off this bill with the biggest balance, continue to put that same amount of money into savings. Then when you have slain the enemy and are free to make full use of your revenues to grow and expand your business, your business will truly start to bring you the kind of wealth that you dreamed of when you started it. The next time you need $100,000, you will have it in savings, and be able to buy what you need, not on the basis of whether or not you can afford the monthly payment, but on whether or not you have the money. What will you do with the $51,000 that you will save?
