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The Business of Photography

104 Pulling The Plug - Banks and Creditors (Part 4)

Recession Strategies: Part 4 of 4

Okay, so you've been working hard, marketing vigorously and still nothing has happened. The recession in your part of the world has hit hard and there's simply no work. The phone doesn't ring. You can't pay your bills. The stress is mounting.

What do you do?

Life is like a piece of string and ‘now' is just a very short part of it. Your view of the world might not be particularly positive today, but it could be absolutely sensational in the future. There are several highly successful people in our photographic industry who have lost businesses in the past only to come back smarter and better than before. So can you.

If you have some hard decisions to make, it will make you a better person in the long run. Look at life as a long term venture and the process of closing down one business and starting again at some stage in the future can be a positive thing. Of course it's really easy for a magazine editor to write stuff like this, much harder to go through it, but people have been through it and have come out the other side, wiser and stronger. So can you.

Second Job?

A blunt question. If your business really is dead and the phone isn't ringing, what have you been doing during the day? Working on Photoshop and lurking on forums isn't going to generate any income.

Have you actually been out actively marketing yourself?

If you're a commercial photographer, how many prospective clients have you visited in the last month? And if you're a domestic photographer, how many people have you talked to at the shopping mall?

If there really isn't any work in your local area, have you looked further afield? Do you need to work in the city for a few months, or another city? Statistically, there's still work out there, it's just that you're not getting it.

And there can be worse things than getting a second job for a few months or a year, perhaps working in the evenings or shifts so you still have time to work in your business.

Maybe clients aren't the problem, it's getting them to pay? Or being able to charge enough? Have you talked to your accountant or business adviser? What about a friend or relative who is also in small business with experience that can help? Don't stress these times on your own, reach out for help. If you're worried about what people will think about you, you're doing most people a great disservice. Few people will turn away someone genuinely asking for assistance.

Borrowing To Get By?

When your income dries up, creditors don't get paid, credit cards max out and you're late paying leases, CHPs and bank loans. Should you borrow more money to solve the problem?

This isn't a question that can be answered without professional advice. Obviously there are two answers: yes and no, but no answer can be given without re-analysing your business and , if you think there's a future, producing a business plan.

The main question to be answered is, if you borrow money to solve the current shortage, how will you generate enough income to pay it back? If you've been unsuccessful to date, what makes you think you will be more successful in the future? What will you do differently that will generate enough income to have a healthy business and repay the debt?

Some business people make the mistake of borrowing to solve a cashflow problem, and then because the pressure is off, they continue to run the business exactly as before. Six months later they're in an even worse position because not only is the business dead, they owe even more money to the bank. Sometimes you're better off closing the business early, taking a job and saving up the money to give it a go in a few years time (after doing a small business course).

I have seen businesses borrow to solve cashflow problems and then when they eventually folded, lose the owner's home and savings as well. Closing a business rather than borrowing can sometimes be a sensible option, but of course it is more common for a business to borrow than to close. It's good to be optimistic.

Dealing With The Banks

Many readers will have bank loans, either for their business or a mortgage for their home. Both loans are vulnerable if your business suffers and can't generate sufficient income to make the monthly repayments.

If you find yourself in a bind, how should you deal with the banks? If you tell them that you're having problems, will they simply sell your house from under you?

Generally banks don't want to kick you out of your home. This generates bad press and they certainly lose a customer. However, in particularly serious situations, banks may require a person to sell their house because they can't see how the business can possibly recover and, as hard as it might seem at the time, the best thing the bank could possibly do is call in the loan and stop the business from running.

Approaching your bank or finance company is in most situations a good idea, but only after discussing the matter with your accountant or financial adviser, and then only when you're armed with the right information as follows:

1. A clear summary of your current financial situation - how much you owe and to whom (including the bank, credit cards, other financiers and creditors).

2. A detailed business plan on how you can solve the problem, if not immediately, in the near future when the economy builds back some confidence.

3. What you would like the bank to do. This might mean switching to an interest only repayment schedule (so your monthly repayments are reduced), or not repaying the loan at all for six months or a year (but the interest is added to the loan and you will pay it back in the future).
The good news just at the moment is that interest rates are very low, so capitalising the interest on a loan is not so onerous on either you or the bank.

4. Monitoring your progress. If the bank agrees to help you, chances are your account will be moved to a different section of the bank and you will be looked at more closely on a regular basis. You may be asked to provide accounts each month or quarter, but this is a good thing and something you should be doing anyway. And larger businesses (or people with larger loans) may have an expert accountant appointed to them to keep an eye on the business for the bank. This in itself can be a great advantage because these accountants can help you get your business back online.

Remember, this will be your last chance to ensure your business survives. Take all the advice and help you can get.

[A similar approach can be taken with trade creditors if you owe them a significant amount of money.]

Experts stress the need to act sooner rather than later. The sooner you get advice from your accountant, the sooner you talk to the bank and your creditors, the better the outcome. This is probably counter-intuitive for some people who think admitting to problems would only cause their creditors to hound them more. This may be the case, but they are probably hounding you already and my experience is that by being honest about your situation you are much more likely to be fairly treated. In fact, it is surprising how lenient some creditors and banks can be when someone isn't trying to hide from them.

As mentioned before in this newsletter, I can only give you a brief overview of how to deal with tough economic times. If you're having problems, then please consult with your accountant. He or she will have experience dealing with situations like the one you're in and, even better, experience with people who have managed to solve their problems. That experience can be passed on to you.




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