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I started a business with a forty thousand dollar loan from a friend of mine. The business meteorically grew to over one million in sales per month within a year. I had nothing to complain about, right? Except… I was rotating my inventory 4-6 times a month. Cash flow issues were the order of the day. I went through three “bookkeepers” and as many accounting programs. Within a year and half I had over 50 employees and 4 locations. We tried to slow things down to only find that there is no “slow” with business. You’re either climbing or you’re declining. Within 4 years this same business failed due to bad accounting advice and practices, poorly designed loans, theft, and lack of a solid core business direction. We grew too fast. My business startup was a disaster. I should have planned to fail… let me explain.

Before I begin it is important to understand that the business startup I am referring to was viewed by many as a phenomenal success. Marketing was spot on. Product purchasing, managing and distribution was as good as it gets. Branding, training, customer service creative and award winning. By all accounts this should have been the “next big thing”. Most small businesses would have given anything for this kind of growth and success. But alas it failed. The reason I bring this up is that it can happen to anyone and any company. Don’t be lulled into the illusion that you’re making all the right moves thus all is well. It’s the core business decisions and a solid trustworthy business team that will ultimately make the biggest difference when the day is done. Here is some business startup advice.

Banking

Banking is a critical piece to the planning to fail approach. You should always have separate accounts for payroll, taxes collected, and any monies pre-collected for future services/product. Failure to do so can be construed as using monies inappropriately. Separate accounts that are clearly defined to what their purpose is (audit trail) leaves no discussion of fraud. A single account leaves you wide open to possible fraud and usage. It would have also made it easier for me to see where my monetary issues were.

Business loans

Collateral: This can be confusing. I eventually attained a couple of different type of loans: A business line of credit and company expansion SBA loan. The business line of credit was to help with our account receivables. We would present P.O.s against the line. The SBA loan was for cash infusion to solve store inventory issues. Even though we used these loans for entirely different purposes both had dual collateralized my business. A major screw up to say the least. The SBA loan contract was at least 100+ pages. We were walked through by the processor. We missed the collateral part. This became a “powder keg” later.

“There is a fine line between failure and success. If you’re not on the cusp of failure, then you’re not near the cusp of success” ― William R. Parsons

Personal guarantee consequences:
I had personally guaranteed all these loans as we were a fledgling business. My company was incorporated which did not protect me from this liability. I had to personally file for bankruptcy to protect myself and my family.

Business loans (SBA) and who you are “really” dealing with

We settled with the banks during our bankruptcy proceedings. My incompetent attorney did not settle with the SBA however. While I knew that there were two parties to the loan I didn’t realize I needed to settle with each individually.

Nine years later the FBI shows up and serves papers for my demanded appearance in superior court. They were attempting to collect their part of the loan. Scary times.

Factoring – Good or bad for business

This is actually one of the better moves I made. I was told to never use this type of financing. As it turns out if I had early on I would probably still be in business today. They would take my P.O.’s, pay me fifty percent up front, collect from customer, and then payout the rest upon delivery minus their fees. For a start-up that was being asked to stretch their cash flow past reason this would have been heaven sent.

Taxes

Pay your taxes: At the end of our demise we were behind on everything including our taxes. Understand that there is no tax redemption/protection for your business even if you’re incorporated, even in bankruptcy. I personally had to take on this serious burden.

Mentors

Your business posse: A strong business relationship with a CPA, Business Attorney, Banker, Property Consultant/Landlord, and a business mentor is crucial to success. I know a business, especially a business startup, is focused on designing, marketing, and selling their product/services. This group is just as important to your success. You should have a business posse day one. If I had been on top of this I would have known my accounting practices were flawed, my dual collateralized loans would not have been made, and I would have managed things differently. I did eventually bring in a mentor and a third party accountant later. Unfortunately it was already too late to save a very popular, growing business. What a waste.

Life-Business Lesson

This life-business lesson was learned years ago. I have had many successes since. I am now being asked to be part of the posse (mentor) ironically. Interestingly this advice still applies in today’s market maybe more so.

I see advertisements to go get incorporated now, get a quick loan, “don’t think about it, do it now” strategies – advice. There are so many repercussions to these actions that need to be carefully thought through.

In picking an attorney it can be helpful that they have a strong CPA background as well.

Not all CPA’s are a match to your type business. On-staff accountant-bookkeeper doesn’t have to be a CPA but should be hired carefully, preferably graduated from a good business-accounting college, and be able to work well with off staff CPA.

Accounting software, initial books setup are so critical as well. And the list goes on.

Take my advice, with your business startup, plan like you’re going to fail.