Well folks, despite all your good advice and my best intentions, I'm getting out of the business. Been trying to make this go for 11 years now and I still can't see the light at the end of the tunnel. Did a lot of things right, and made a lot of mistakes. Better that I bail out now than lose more important things like my marriage.
As a sole proprietor I'm personally responsible for any debt from the business. I've got 5 digit debt in a line of credit plus credit card, plus a couple of leased machines that I appear to be slightly under water on. Once I find my next job, I'll spend at least the next few years paying off what I owe. Bankruptcy doesn't appear to offer much benefit.
Should I hang on to the machines and keep making payments, or sell quickly and suck up the loss?
Is there a better way to pay off the debt? Or just keep making the minimum payments over the next 5 years?
"I've got 5 digit debt in a line of credit plus credit card, plus a couple of leased machines that I appear to be slightly under water on. Once I find my next job, I'll spend at least the next few years paying off what I owe. Bankruptcy doesn't appear to offer much benefit"
With that much debt, it will take a very, very long time to dig out with a regular J-O-B. This will affect you and your family for years if you bail now. You'll always wonder what could have been if you fixed the issues with the business.
Have you studied any continuous improvement methodologies like Lean manufacturing (2 second lean is a start), or the theory of constraints?
There are plenty of people on here that are willing to help.
Whatever you do, good luck in your decision. I know personally it's a difficult one.
5 figure debt is a wide range. $10K is manageable, $99K, probably not.
Not knowing your personal situation, I can't offer advice, but I can tell you that the reaction of most people who have gone bankrupt is relief. That's why it exists. Sometimes no matter how hard you try or how hard you work, it doesn't work out. If that's you, there is no shame in pulling the plug and starting over.
If, on the other hand, you are upside down because of all the vacations in Hawaii and the new his and hers BMW SUV's in the driveway, don't expect a lot of sympathy.
You need to understand how bankruptcy negotiations would go, so see a lawyer, then when you negotiate reduced or extended payments and they refuse to budge you can use words that imply bankruptcy but you never say it.
1) Pay all Federal and state and local taxes first
2) See #1
3) now start thinking about vendors, if you went to a chapter 11 you would try and cure the default and you would carve out the large creditors (bank) and the court would term out that loan over 7 or 10 years, so go to the bank and ask for interest only for a year and then roll it over to a long term debt with smaller payments.
2) the small vendors would get put on a pay schedule so now that the bank has agreed you have cash flow to pay some of the small vendors
3) try and sell the machines and pay off the differences
4) See rule #1
5) Don't forget rule #1
6) in case you forgot rule #1 the feds can make you pay for ever so satisfy them first, taxes don't go away.
See a BR lawyer or your accountant for advice on how to proceed and don't use the BR word with anybody else. Even if you intend to never file, understanding what will happen if you do will give the correct tools to use to negotiate.
I grew the business 40% in 2014, took out loans and leases to support that. Finding the people to do the work was much more difficult than making the sales. A lot of other things happened, some due to my poor management but also an injury that kept me from working for 6 weeks.
Let's face it, nobody who owns a small custom cabinet shop is getting paid what they are worth. I don't care if they are Lean-ed, E-Myth-ed and well oiled, they still carry the weight of every employee screw-up, nosy gov't regulator, unpaid invoice, and tax audit. How many more years does my family have to suffer the feast-or-famine cycles before I get there? What else do I have to sacrifice? Looking around at colleagues who have been at it 20+ years, they are still living modestly. Throw in another slow economy and they're back to raiding their personal savings to float the business again.
OK, sorry for the rant. Uncle Sam and I are cool, as far as I know. I owe relatively little to vendors and should be able to settle up with them soon.
I may get in touch with a B-word lawyer. At the very least it would be helpful to negotiate some better terms on the debt.
Being straight with the government is a big hurdle to have cleared. Call you creditors and tell them you are closing. They will settle for a fraction of the money now vs slow payments over a long period. Don't run up large credit card balances at high interest rates to satisfy small creditors.
Having helped close up a small business 5 years ago, I can tell you that you can greatly reduce your liabilities with a few honest calls. You will run into some uncooperative creditors , most likely the leases. Those are the ones to string out.
Paying minimum payments on a credit card will take in excess of 20 years to pay off at the high interest rates.
Is there still such a thing as chapter 7 bankruptcy? I know they changed the laws recently. If there is a chapter 7 you should look into that. I believe a sole proprieter's debt is seen as personal income/debt. Under the old rules anyway chapter 7 completely erases all debt up to a specified limit.
Don't know what your particular situation is but the best thing I ever did was get rid of all my hired hands. I did have some good ones over the years but anybody that really gets this kind of work and the satisfaction that comes from it will always want to be in business for themselves. I get that. It's what I did 40 years ago.
15 years ago I was doing commercial work and fighting GC's for deposits and then again for retainage.
Somehow I happened to become acquainted with a designer who introduced me to an up and coming contemporary architect who need some laminate cabinetry for a house he was doing. I did the best job I could for him at a reasonable cost and he loved it. While I don't get to do a lot of his larger projects, he always calls me to bid on anything under 100k. All residential and high end contemporary. He knows I'm a 1 man shop who can always get some help to deliver cabinets and set the large pieces.
He also knows that I care as much about the finished product as he and the homeowners do. Also residential tends to move at a slower pace than commercial work.
My point is if your not having to make a living for several employees it doesn't take as much to make a living for you.
Hopefully those machines you already have will enable you to do quality work. That and a little luck finding the right clients could keep you from losing all you've invested in the last 11 years.
Best of luck to you with whatever decision you make.
12/28 #11: How to close a business and deal wi ...
Sorry to hear your ending things... but it sounds like you've made that decision...
As it relates to your leased-machines, depending on your terms, you may not be able to sell them... contact the company, explain your situation and see if they will take them back as payment... if you can sell it for less than what you owe, and pay it off, you may still need permission to do this... If not, spell it out for them what you can afford to pay, and come to terms on it in writing... Unless it goes to a debt collector, your personal credit rating won't suffer...
As to the rest, part of going out of business is liquidating your assets to settle debt. They don't let you keep the stuff and still owe... not even as a sole-proprietor...
So being that you are moving on, your focus should change from "I'm going out of business" to "how can I minimize the realities of it"... If you don't have one, get and sit down with an accountant to find out how you can maximize this decision to your favor...
Keep in mind, this is a phase of life... you make work for someone else for a while or that may be what you're suited for, but it does NOT mean you can never going back in business again...
I'm with the Jim that posted above. It may be easier to work your way out of your situation solo than to take a job. I made it through the worst of the eighties on my own with a couple of good clients. Most us enter woodworking without knowing anything about business and that knowledge is hard won. Learning how to say "no" is often more important to success than trying to please everyone and getting over extended. Good luck.
FORUM GUIDELINES: Please review the guidelines below before posting at WOODWEB's Interactive Message Boards(return to top)
WOODWEB is a professional industrial woodworking site. Hobbyist and homeowner woodworking questions are inappropriate.
Messages should be kept reasonably short and on topic, relating to the focus of the forum. Responses should relate to the original question.
A valid email return address must be included with each message.
Advertising is inappropriate. The only exceptions are the Classified Ads Exchange, Machinery Exchange, Lumber Exchange, and Job Opportunities and Services Exchange. When posting listings in these areas, review the posting instructions carefully.
Subject lines may be edited for length and clarity.
"Cross posting" is not permitted. Choose the best forum for your question, and post your question at one forum only.
Messages requesting private responses will be removed - Forums are designed to provide information and assistance for all of our visitors. Private response requests are appropriate at WOODWEB's Exchanges and Job Opportunities and Services.
Messages that accuse businesses or individuals of alleged negative actions or behavior are inappropriate since WOODWEB is unable to verify or substantiate the claims.
Posts with the intent of soliciting answers to surveys are not appropriate. Contact WOODWEB for more information on initiating a survey.
Excessive forum participation by an individual upsets the balance of a healthy forum atmosphere. Individuals who excessively post responses containing marginal content will be considered repeat forum abusers.
Responses that initiate or support inappropriate and off-topic discussion of general politics detract from the professional woodworking focus of WOODWEB, and will be removed.
Participants are encouraged to use their real name when posting. Intentionally using another persons name is prohibited, and posts of this nature will be removed at WOODWEB's discretion.
Carefully review your message before clicking on the "Send Message" button - you will not be able to revise the message once it has been sent.
You will be notified of responses to the message(s) you posted via email. Be sure to enter your email address correctly.
WOODWEB's forums are a highly regarded resource for professional woodworkers. Messages and responses that are crafted in a professional and civil manner strengthen this resource. Messages that do not reflect a professional tone reduce the value of our forums.
Messages are inappropriate when their content: is deemed libelous in nature or is based on rumor, fails to meet basic standards of decorum, contains blatant advertising or inappropriate emphasis on self promotion (return to top).
Libel: Posts which defame an individual or organization, or employ a tone which can be viewed as malicious in nature. Words, pictures, or cartoons which expose a person or organization to public hatred, shame, disgrace, or ridicule, or induce an ill opinion of a person or organization, are libelous.
Improper Decorum: Posts which are profane, inciting, disrespectful or uncivil in tone, or maliciously worded. This also includes the venting of unsubstantiated opinions. Such messages do little to illuminate a given topic, and often have the opposite effect. Constructive criticism is acceptable (return to top).
Advertising: The purpose of WOODWEB Forums is to provide answers, not an advertising venue. Companies participating in a Forum discussion should provide specific answers to posted questions. WOODWEB suggests that businesses include an appropriately crafted signature in order to identify their company. A well meaning post that seems to be on-topic but contains a product reference may do your business more harm than good in the Forum environment. Forum users may perceive your references to specific products as unsolicited advertising (spam) and consciously avoid your web site or services. A well-crafted signature is an appropriate way to advertise your services that will not offend potential customers. Signatures should be limited to 4-6 lines, and may contain information that identifies the type of business you're in, your URL and email address (return to top).
Repeated Forum Abuse:
Forum participants who repeatedly fail to follow WOODWEB's Forum Guidelines may encounter difficulty when attempting to post messages.
There are often situations when the original message asks for opinions: "What is the best widget for my type of shop?". To a certain extent, the person posting the message is responsible for including specific questions within the message. An open ended question (like the one above) invites responses that may read as sales pitches. WOODWEB suggests that companies responding to such a question provide detailed and substantive replies rather than responses that read as a one-sided product promotion. It has been WOODWEB's experience that substantive responses are held in higher regard by our readers (return to top).
The staff of WOODWEB assume no responsibility for the accuracy, content, or outcome of any posting transmitted at WOODWEB's Message Boards. Participants should undertake the use of machinery, materials and methods discussed at WOODWEB's Message Boards after considerate evaluation, and at their own risk. WOODWEB reserves the right to delete any messages it deems inappropriate. (return to top)
Forum Posting Form Guidelines
The name you enter in this field will be the name that appears with your post or response (return to form).
Personal or business website links must point to the author's website. Inappropriate links will be removed without notice, and at WOODWEB's sole discretion. WOODWEB reserves the right to delete any messages with links it deems inappropriate. (return to form)
Your e-mail address will not be publicly viewable. Forum participants will be able to contact you using a contact link (included with your post) that is substituted for your actual address. You must include a valid email address in this field. (return to form)
Subject may be edited for length and clarity. Subject lines should provide an indication of the content of your post. (return to form)
Thread Related Link and Image Guidelines
Thread Related Links posted at WOODWEB's Forums and Exchanges should point to locations that provide supporting information for the topic being discussed in the current message thread. The purpose of WOODWEB Forums is to provide answers, not to serve as an advertising venue. A Thread Related Link that directs visitors to an area with inappropriate content will be removed. WOODWEB reserves the right to delete any messages with links or images it deems inappropriate. (return to form)
Thread Related File Uploads
Thread Related Files posted at WOODWEB's Forums and Exchanges should provide supporting information for the topic being discussed in the current message thread. Video Files: acceptable video formats are: .MOV .AVI .WMV .MPEG .MPG .FLV .MP4 (Image Upload Tips) If you encounter any difficulty when uploading video files, E-mail WOODWEB for assistance. The purpose of WOODWEB Forums is to provide answers, not to serve as an advertising venue. A Thread Related File that contains inappropriate content will be removed, and uploaded files that are not directly related to the message thread will be removed. WOODWEB reserves the right to delete any messages with links, files, or images it deems inappropriate. (return to form)
The editors, writers, and staff at WOODWEB try to promote safe practices.
What is safe for one woodworker under certain conditions may not be safe
for others in different circumstances. Readers should undertake the use
of materials and methods discussed at WOODWEB after considerate evaluation,
and at their own risk.