Need financial advice, business not doing well

[struggling]

Hi everyone,

I just discovered these forums and am hoping for some advice if you'd be so kind...
I started a new business (child care center) this year, it just opened in June, and it's not doing well. I am in a financial predicament---do I fold/close up shop, or do I stay open?? I am plummeting deeper and deeper into debt, but if I close then I will have all of the debt and no business, hence no hope of every becoming profitable. But if I stay open and the business still doesn't pick up soon, then I am just deeper into debt and still have to close! Staffing costs are so high, rent, taxes, etc., so just to stay open is costing me $14,000 a month!! So, each month is another devastating blow to my financial situation.

I have invested a lot of my own personal money/assets, that part I could stand to lose. But then I have a $50k loan in addition that I would have to pay off at a considerable monthly rate for the next 6 years. Right now, I am using my visa, so there is another $10k in debt, plus I borrowed $10k from a family member. So, basically, I already owe $70k if I close now. I don't want to get another loan but will have to...

I would hate to close up shop this early in the game but I clearly underestimated how long it would take to get business, and how much staffing costs would be.

Another big issue---My lease. I consulted with a bankruptcy attorney who said I make too much money to file (I kept my fulltime job), and if I close my LLC then I would be out of the lease responsibility...but the building owner could SUE me personally!!

I know, I am in a pathetic situation, and I just don't know what to do from here. Sorry so long but I would love some advice. Do I close now or stay open??

[Harold Mansfield]

Why are you doing poorly? I can't counsel you on whether or not you can afford to stay open, but we can help you figure out how to fix the problem of why you aren't making any money.
What's the issue? Not enough clients? Rates too low? Billing and payments? Bad location?
What is the reason that you've found yourself in this situation?

[Fulcrum]

Hi everyone,

I just discovered these forums and am hoping for some advice if you'd be so kind...
I started a new business (child care center) this year, it just opened in June, and it's not doing well. I am in a financial predicament---do I fold/close up shop, or do I stay open?? I am plummeting deeper and deeper into debt, but if I close then I will have all of the debt and no business, hence no hope of every becoming profitable. But if I stay open and the business still doesn't pick up soon, then I am just deeper into debt and still have to close! Staffing costs are so high, rent, taxes, etc., so just to stay open is costing me $14,000 a month!! So, each month is another devastating blow to my financial situation.

Sorry to hear that things are this rough for your first post. There are a few things that need to be addressed before we can offer any kind of advise. Harold's questions are close to spot on.

Where are you located - US, Canada, elsewhere, and what state/province?
Have you sat down and figured out exactly what your daily/weekly/monthly costs are?
Have you determined which costs are fixed and which are variable?
How is it that you have burned through $70,000 in four months?
What do you think needs to be done in order to stop the bleeding and start turning things around?
If you were to close the doors, how much would you still be on the hook for every month?
Why are you not working in your business full time (trade off your salary to help stay afloat)?
Where does your income derive from? (Who pays you - government, families or some of both?)
How are you marketing?
Who are you marketing to?
What are the local demographics of the area your business is located in?

At this exact moment in time, I would recommend you take on no more debt until you know how (and when) you will be able to pay it off (unless it's a consolidation loan to reduce interest/payments).

On a similar note, and please don't take this as an attack (it's not my intention) as I would like to see other forum members learn from this, this is a prime example of too many financial obligations without a clear method of paying them off.

[huggytree]

you need to figure out why your doing so poorly and fix it...that probably should have been done before this point....if you already have tried to correct problems and its still not working id suggest getting out now...your business model may not work where you are?

how many kids do you have there daily? how many do you need to be profitable?

cant you fire some employees and lower the operating costs to make profit with the kids you have?

[huggytree]

At this exact moment in time, I would recommend you take on no more debt until you know how (and when) you will be able to pay it off (unless it's a consolidation loan to reduce interest/payments).

On a similar note, and please don't take this as an attack (it's not my intention) as I would like to see other forum members learn from this, this is a prime example of too many financial obligations without a clear method of paying them off.

as soon as i started going into debt i would have made serious changes and if that didnt work i would have got out quick.....

[Fulcrum]

as soon as i started going into debt i would have made serious changes and if that didnt work i would have got out quick.....

Debt can be a good thing when prudently used - depending on the business type. High margin, low cost businesses don't really need lots of debt and could probably get by with credit cards and a simple line of credit (we all have those months when payments owed us come in later than expected).

[Paul]

The quick answer comes from a simple calculation. First, how much revenue do you get from each kid (client). How many new clients do you need to cover the $ 14,000?

I don’t know what your rates are but around here it is easily $ 1,000 a month. That would equate to 14 additional clients to cover the shortfall. The question becomes, is it possible to get those extra 14 clients?

That doesn’t seem, on its face, to be too difficult to do. I assume you have the capacity to handle more clients or you wouldn’t have gone into business.

I would suggest doing whatever is necessary to get those new clients. If you believe there are enough potential clients in your trading area take a loan and invest in the marketing you need to do it. On the other hand, if you don’t think you can generate those new clients then close as soon as possible and stop the bleeding.

DON'T JUST KEEP DROPPING MONEY TO COVER EXPENSES WITHOUT DOING SOMETHING PROACTIVE TO CHANGE THE SITUATION!

[huggytree]

Debt can be a good thing when prudently used - depending on the business type. High margin, low cost businesses don't really need lots of debt and could probably get by with credit cards and a simple line of credit (we all have those months when payments owed us come in later than expected).



i dont think debt is ever a good thing.....are you sure you dont work for the Government?

if you need $100,000 to run your business then keep $100,000 in the bank...you dont need a line of credit or credit cards.....just be conservative and be your own bank.....i have $15,000-$30,000 in monthly expenses....i dont take out a loan every month....i have $50,000 sitting in my company accounts that i go back and forth with......i do have a line of credit and have had to use it, but only when my personal spending had an issue for a month........i keep the line of credit for emergencies, but would never want to use it as a way of life

[Harold Mansfield]

i dont think debt is ever a good thing.....are you sure you dont work for the Government?

if you need $100,000 to run your business then keep $100,000 in the bank...you dont need a line of credit or credit cards.....just be conservative and be your own bank.....i have $15,000-$30,000 in monthly expenses....i dont take out a loan every month....i have $50,000 sitting in my company accounts that i go back and forth with......i do have a line of credit and have had to use it, but only when my personal spending had an issue for a month........i keep the line of credit for emergencies, but would never want to use it as a way of life

And then there are businesses who do $1 million in sales and carry a certain amount of debt purposely to offset taxes because it can be deducted as a bad debt business expense.

There are also businesses that take on debt to finance growth, construction, large orders and so on. There are all kinds of reasons why a business needs to carry debts. Rarely does any business grow without incurring some debt to finance that growth. The higher up the food chain you go, the less likely it is that people are using their own money.

I'm sure some of the large jobs on some of the expensive homes that you've worked on, were financed. That's debt.
AT&T didn't expand their network and purchase other companies using thier own money, they incurred a certain amount of debt to keep their cash on hand at a certain level, and reduce the hit to existing profits.

Most companies don't empty their savings to grow. Nor is it smart to do it that way.

Without business and persona credit and debt the entire system would collapse. You just look back at 2008 and 2009 when there when no one was giving credit and see how it totally brought the economy to a halt.

Debt is not synonymous with mismanagement or poor accounting. You can have $10 million in debt and still make millions in profit, and have a decent stock price. It's how the debt is managed that separates the men from the boys.

Every business is different.

[Fulcrum]

I don't believe in debt for the sake of debt (Harold's example). However, odds are that if I want to bring in new equipment (prices range from a low of $3,000 - $600,000+) I'll have to do some sort of financing.

As for saving and then paying cash for all day to day operating funds, that's effectively what I do with my credit cards. One of my primary vendors is based in Ohio and using the credit card for purchasing makes for simpler banking transactions for me (vendor is guaranteed payment when product ships). I also use the credit card for all my fuel purchases (around $200/week). I keep about 3x what I need monthly as liquid cash so I never carry a balance on the credit card for more than 2 weeks.


are you sure you dont work for the Government?

I try not to, but some days it feels like I do (tax/filing time).

[Freelancier]

Many many many businesses use debt for legitimate business purposes, including buying very expensive assets using cash flow instead of cash or using debt to smooth out bumps in an uneven cash flow (e.g., to make payroll when you do large projects).

In this case, I think the OP started this business with insufficient cash. And that'll kill the company in a hurry 8 out of 10 times. The other two times, you need to get the cash flow positive in a hurry and that didn't happen either. If she's really short $14K every month now, I'd shut it down, regroup and figure out how to get enough cash together to do this right.

[DarioEM]

Many businesses fail due to lack of sales and the biggest factor in lost sales is not enough advertising. If you aren't advertising then you cannot produce sales because people don't know about you and your services.

Take a good look where you are lacking in advertising campaigns. Use Craigslist if you aren't already to get free exposure, advertise what you offer and be sure your contact info is displayed along with an address and map of where you're located. In my experience newspaper ads do not convert well depending on the industry, so I would test an ad campaign to see if it pulls any clients that convert to sales. Get magnets or car wraps and out them on your car(s), you may be surprised how effective this can be especially if you're driving around locally.

Think outside the box and figure out ways to get more exposure of your brand and service. Lack of advertising is likely the reason your company is doing so poorly.