What happens when you run out of money?

A couple of months ago I had some friends over for dinner and they were surprised at the very small size of the house I live in. With the business success, I talk about and how Coventry has raised the starting wages of our employees, created a bonus plan, and moved into a larger location, they really expected me to be living in a mansion. Honestly, at 30 years in business, I expected that too, but I know all too well what it is like when my business and I are overextended and we run out of money. 

When you are in a multi-year cycle of growth, it feels like you can do no wrong. Invest! Buy more! Pay more! It’s exciting. But we have also experienced a multi-year cycle of decline where the bottom kept getting lower and lower and we completely ran out of cash several times. Not just waiting for customer payment or for sales to come in, but out of cash, out of product, and out of materials. It’s hard to be a candle company without candles, wax, or wicks. That was a place of panic. That is a place where we made a hard decision, we were either going to give up or witch-up and make magic happen and get our business back on-line. 

Every brush with business death taught us how to plan, watch the signs, and be better entrepreneurs. We had to have plans for when we ran out of money because it could happen for a variety of reasons. Circumstances we created or circumstances beyond our control.

  1. There was a time in the early days when we over-hired, didn’t watch or understand how to watch expenses and overspent ourselves into no money. 
  2. There was a time when we didn’t read the fine print on a big client order and they not only didn’t pay us but returned $24,000 worth of products after having it for 6 months. 
  3. 9-11 nearly shut us down as the country froze and our sales went to 10% of normal for 4 months.
  4. Three economic crashes over 30 years. (With another on the horizon)
  5. Embezzlement from our bookkeeper left us with ZERO in all of our bank accounts. 
  6. Covid shutdown

It’s amazing what we did to keep the lights on over the years. Going through our product listings and cash flow statements over 30 years I remembered some of the more heroic actions we have taken when the money ran out. 

  • Patty and I traded on and off taking a paycheck
  • I didn’t take a paycheck for a few years while Patty took a smaller one
  • We looked through every leftover supply and created weird and interesting products to sell
  • Aligned with other companies to sell each other products to our customers. AKA - traded customers
  • Started making candles for other businesses
  • Designed products, catalogs, etc for other businesses
  • Rented out part of our facilities to another company
  • Moved to a smaller crappier location
  • Patty and I made and sold all the products ourselves for 6 months
  • We cut our product line down to just the best sellers
  • Made the smallest batches possible as the products were sold
  • Traded for supplies

What we learned over time is to have backup plans to the backup plans and right now we are reviewing them one more time. What will happen if our income is interrupted:

  1. Insurance - some income interruption is covered by insurance. 
  2. Cross-training - If we have to go to a skeleton crew, everyone who is cross-trained holds the greatest value. 
  3. Payroll is King - We took 3 years and stashed away savings for a month’s payroll so we can keep making and shipping products because nothing happens without staff. 
  4. Credit is Queen - After digging ourselves out of a credit hole for the 3rd time, we realized having good credit with our vendors is critical. As long as we keep those relationships healthy, we can get the materials we need. As long as the credit card gets paid on time and has a low balance, we can buy what we need. Running out of money happens before the credit line gets filled up. 
  5. Subscriptions are paid for a year in advance for the best price. If we have a cash crunch, we won’t have crucial services and software interrupted. I am not in love with all the subscription-based software, so we are really downsizing what we have and what we need. 

We watch our cash flow every week and if our cash flow is in the negative for several months in a row, it is time to look at other more drastic measures. With the current economic climate, we are changing plans for flashier products to more basic ones and cutting back on product offerings to stay with our roots as we reach out to a wider customer base. 

It is not unusual for any business to hit the bottom of the cash barrel. It’s what culls the entrepreneurs from the people who own their own job. Which are you?