Happy New Year #teamdebtfree.
Failing businesses isn’t the sunniest topic to resume writing for the New Year. Not at first glance. However, sit tight. You’re about to delve intimately into my entrepreneurial experience – 10 years in the making – and emerge better off; without all the bumps and bruises.
2015 was a year of wait and see. While we were actually forced to close our laundromat after almost 10 years in May of 2014 due to a gas leak, we didn’t actually resolve our relationship with our debt Master (the bank) until December of 2015; a year and a half of financial limbo later.
The lag time was due to 1) our unwillingness to face the matter head on for stretches of time and 2) personnel changes at the bank, a bank merger or two, and paperwork restarts. So there were a number of factors involved. Nothings puts the gears in motion, though, quite like being sued.
Yep. We were sued and started receiving mounds of paperwork via the postal system, via sheriffs pounding on our door like a drug bust on Law and Order, and via improper county posting on our rental units. We had been sued.
I’m not gonna lie, being sued is a scary proposition. All the paperwork and mumbo-jargon adds to the stress and invokes a fair amount of worst case scenario meditation. Spoiler alert. Everything worked out well and we didn’t have to sign away our first born.
I’ve written about the details of our declining business before.
While I can’t discussed the details of our settlement, we reached a mutually acceptable agreement with our debt Master (the bank) and have been able to sever that relationship. Through this process, I learned the following key lessons that will hopefully help us be smarter with money, investments and business decisions moving forward.
Avoiding the Hard Stuff Doesn’t Help
This is an important lesson for life. Ignoring the problem doesn’t make it go away. It will likely inflame the situation. While the bank mergers, reassigned bank reps and other internal upheavals did slow down the process, we also have to take responsibility for our dragging feet. I delayed connecting with brokers to have the building listed for sale. I also didn’t follow up with bank reps when months passed with no updates. Before I knew it, a year had passed and new reps were a little less willing to discuss options.
Seek Help From Qualified Professionals
I’ve been luke warm in the past about the need to hire certain professionals like lawyers or real estate agents. Being cheap can end up costing more in time, frustration, and error dollars when dealing in an area out of your expertise. We were trying to negotiate with the bank on our own. That ended up in a lawsuit partially because we didn’t understand some of the mumbo-jargon and missed key deadlines.
We also tried to sell the building ourselves and that just involved a stream of less than seriously buyers who wasted time and energy. Working with a lawyer and professional business broker – finally – were two of the smartest decisions we ultimately made. We paid the attorney a few thousand dollars, but within a month of contacting the attorney our case was settled out of court.
Know Your Business
Ray Kroc, McDonald’s founder, said this and I never understood it until now. He said McDonald’s wasn’t in the burger business, but in the real estate business. We took on a huge mortgage ($180,000) on a building with a laundromat with the rosy intention of paying that off and owning the building free and clear.
However, buildings need maintenance. Things break down. Gas pipes leak and need tens of thousands of dollars in repairs.
It seems like a no brainer today. We should have rented a space in a well traveled, well maintained shopping center with great parking and foot traffic. Our business focus should have been the coin operated laundry operation. Instead we spent a fair amount time and treasure on an aging structure that took away from our efforts to turn a profit in the laundry business.
Hindsight is generally 20/20. There were so many smaller options that we passed on because we were focused on purchasing to own. Looking back, we could have purchased a smaller business with the cash we had and made equipment upgrades as the business allowed. At least then if profits alluded us, we’d only be out the cash invested and not on the hook for hundreds of thousands we didn’t have.
Real Estate Isn’t Always Safe Collateral
We ultimately decided to purchase a business with real estate thinking that if things went south, the bank would just foreclose on the property and we’d walk away. That works well for residential property. In our case, the bank didn’t want to property. They called the loan. We owed the entire outstanding loan balance plus late fees in 30 days.
Talk about a gut punch.
In our case bankruptcy was a less than attractive option. Because of our income and assets, a chapter 7 was out of reach (we also sought counsel from a bankruptcy attorney). We were staring down the barrel of a chapter 13 because we’d signed personally for the loan. This meant all of our rental properties were in danger of being liquidated to pay off the debt. We could have done it, but I’m glad we didn’t have to start over after 13 years of building assets.
Try To Anticipate The Unexpected
As an entrepreneur and a generally optimistic person, I see the possibilities. While I hope to maintain that sunny disposition, we need to spend more time with those “What If” discussions. What if the business doesn’t live up to expectation? What if gun violence picks up and residents move away?
Honestly, no one can anticipate every horrible scenario. However, spending more time anticipating the worst case scenario early may help you avoid overreaching and getting in over your head.
Turn-Key Is A Myth
We were looking for a business that my husband and I could run while keeping our full time jobs (at the time). Turn-key operations – opening the doors and making money – is a pipe dream. Businesses take hard work. No one is going to look after, appreciate, or run your business like you do. Especially if you are paying them a minimum wage salary.
We actually had very dependable employees. However, you must be ready to inspect what you expect. We learned very quickly that our constant presences was not optional.
Working With People Can Suck
Working with the public is hard. Working with the public in underserved communities is even harder. We intentionally selected this community for personal and faith reasons. Doing good in the hood is not a walk in the park. While we didn’t expect life on easy street, serving a community plagued with so many social and economic challenges is taxing. By the end, I was actually relieved to encounter the gas leak. I needed a break.
Debt Doesn’t Grow Your Business
A few years into the experience, we decided to finance $112,000 in new equipment. Not only did we over pay for an aging building, we bought a store with very old equipment that was propped up by owners with a mechanical know-how we did not possess.
We thought buying new equipment would produce happier and thus more customers. Wrong. The purchase unfortunately coincided with the Great Recession. However, we’d added a hefty $1800 payment to our expenses. When the business dropped, we ended up paying that $1800 out of our pockets.
Know When To Say Uncle
Call it pride, stubbornness, lunacy, etc. We held on well beyond the point of viability. I shudder to think how much longer we’d still be propping up this laundromat if the gas inspectors had not shown up. This business should not have worked on paper from the beginning. If something isn’t working, shut it down, regroup, and start again.
I likely didn’t want to face the idea of a foreclosure, or bankruptcy etc. Now that we’ve been down that road and lived to blog about it, I wished I hadn’t wasted so many years struggling through it.
Failure Doesn’t Mean Final
Now that we’re out from under a failed business and we still have our health, strength, and sense of humor; I’m really looking forward to the next venture and adventure. I heard Joel Osteen say once that 50% of businesses fail in the first 5 years. However, 80% of those who try again succeed.
I’ve thrown my fair share of pity parties and been tempted to look back on the past 10 years as a waste. However, with some rest and renewed perspective I have actually been able to appreciate the blessing in my last 10 years of business experience. I have more confidence in my ability to build and run something. I’ll be smarter going forward with business decisions. While we had dip into savings to settle the debt and have a few more bills and taxes to address, we’re still moving forward.
I am going to use this experience to propel us forward in 2016. As always, I’ll keep you posted on the progress. Thanks for taking this journey with me.