Adventures with Lyrical: Buying a Business (REPOST)

So, since my Manager left, we've paid off three estimate vehicles, my flat screen TV, and bonused me another 15k (which I used to pay off some credit cards). It's amazing what actually getting industry average pricing does. The goal is that in three years, when my SBA loan expires, to be completely debtless except for my mortgage.

Cad_sl said:

You have personal credit card debt?

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Not any more. Awhile back, I went out and bought the nicest of everything. Bad idea. I've had to buy equipment since then. I admit it, I got out of hand. I dropped $20k on a home movie theatre (maybe 25k), bought a Mercedes for the wife and fully loaded Camaro for me. Hell, I even bought the kids a movie theatre set up for the kidcave.

I'm not proud of it, and it was a shortcoming. It's all paid off now, except for the credit card I used for the crews' purchases.

I got used to debt after I bought the business. Let's face it, this was a highly levered deal to begin with. I had no choice, I had to put every penny in, and we have high operating expenses. Over the years, we started being less profitable because I bought so much stuff, including equipment for expansion of operations.

Right now, there minimal balances on the cards, and I've gone from 14 business loans and am down to 4 left. Two of those loans go away in 20 months, have prepayment penalties.

When I added up the amount of loans I had, it was like $10,000 a month going out. 1,200 of that is equipment I've paid in the last 30 days (so it's gone). $5,200 on the primary loan goes away in 39 months.

I've set a goal to have this business totally de-levered by the time the time the primary loan goes off in 39 months.

Khane_sl said:

Alright but how could someone who's business seems to be doing so well have credit card debt at all for any length of time? That's bonkers.

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It's all about managing cash flow. When customers pay 60 days late, alot of times, we have to wait. Yesterday, we had 14k come in. Some days it's 0. We spend a lot of time chasing payment. I don't want to take payment upfront, even though my Lawyer tells me I should try to collect 25-100% of it.

My industry is notorious for taking peoples' money upfront, and then running. I don't want to be "that guy." I don't even want the temptation of it. Unless a customer says they'll be on vacation and to take the money, I don't take it upfront. I bill them later. I do demand payment in the worse part of town upfront. They have like a 50% default rate there.

Managing cash flow is a thing.

ToeMissile_sl said:

Do you know what your percentage of AR is over 60? And what your industry average is?

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Probably 25% of it is over 60 days. One reason is, I haven't written off uncollectible receivables at all. The other is that there are a few big tickets skewing it. I have a customer that is being sued for $5k, who we've recorded as saying everything with the job was fine. And I have a city where they owe me 8k and are taking their time. Usually, the commercial jobs drag their feet. Hell, one of our clients that is a Billionare holds back 10% of the jobs for three years.

If there is an area where we drop the ball, it's on receivables. In the last year I finally started processing credit cards (we only took checks or cash all these years), put all equipment on satellite (so no one could say we weren't at a job), tightened up contract language with my Lawyer, started sending out email confirmations of contracts, started recording all calls, etc. It's helped, but still on any given day, I'm owed $80-100k. Probably we'll add in a collections company here in a bit, and we are working with a Lawyer who specializes in collections.

We always do what is on the contract, and never cheat anyone. It's almost sad the people that will lie, even in the face of the sheer amount of evidence we keep. Every customer has a digital fingerprint now. Hell, I had two customers yesterday, that denied they ever made contracts with us, even in the face of signed contracts, recorded calls and emails from them. What happens is that we get the contract, and the smaller companies come out, bid the ticket, and say they'll do it for less. Of course, they have no licenses or insurance.

I'm not complaining, things are running relatively smooth, but it's frustrating when you are owed 100k and have to wait. I can't pay bills with receivables.

Cad_sl said:

No its fine its just surprising that with the numbers you're throwing around that you'd mess with credit cards at all. A home theater, a camaro, a mercedes.. these aren't the kind of huge expenses I'd expect to cause you debt (are you suggesting you bought the cars on credit cards?)

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It's more like, the money is on the way, so why not spend it now? I know that is not a good way to think, so I've paid off everything but the Camaro and the pieces of equipment with prepayment penalties.

I spend $20k a week on business expenses, so when people pay late, it can create a crunch. Some weeks, only 10k comes in. Lately, it's been 20-30k a week, because of process changes (and divine providence, if you will). In the past, I was still buying stuff while waiting on receivables to come in.

With the changes so far, cash flow has gotten better. We are still working on getting it down pat. We've been talking with a Lawyer about more process changes, and are going to partner with him. It will work out with, he send a letter for x amount, he files suit and negotiate for x amount, he goes to court for x amount.

Also, to be fair, since the inception of the business, we've paid down about $700k in debt.

Unrelated subject, but I had my wife call every customer that called in over a two week period to poll if they were using yellow pages.

The answer was 1/3 saw us somewhere else, and then went to the yellow pages to get our number.

There are a lot of issues here, but it's the weekend, and I'm going to go enjoy it. I'll respond later.