Killer debt
Monday, 13 October 2008
By Gail Geronimos
Last week I thought that the bailout would prevent the tsunami and we’d just have a tidal wave to cope with. Well, I got that wrong.
The delay in deciding on the bailout and bureaucratic problems in taking action has meant that the bailout did not reduce the freefall in the markets.
If you’re still thinking that this is not really as bad as it seems, read Amanda Gome’s article last Friday about the rise of insolvencies. And now I’m reading about businessmen who are suiciding because they are in so much financial trouble.
The best advice right now….
GET OUT OF DEBT.
Do whatever you can to reduce your debt levels. It’s easier said than done, but this crisis will get worse before it gets better. If you are heavily geared now, you will be facing very tough times if you don’t take action.
Debt is going to cause a lot of businesses a lot of grief in the coming months. If you have not reviewed your debt levels in the last four weeks, then sit down tonight and do just that. Don’t delay. And don’t put your head in the sand. These issues are not going away.
This is what you need to look at:
- Who do you owe money to and how much?
- What are the interest rates on each loan/overdraft?
- What are the dollar amounts of interest?
- What are the monthly commitments to repay these debts?
I also suggest that you include your personal debts. When things tighten in business, owners’ salaries are the first to be reduced. Do you know how much of a reduction you can cope with if the revenue in your business drops?
If that scares you and you feel that it is just too tight, then start to look at how you can reduce your debt. Look at what assets you can sell. Don’t leave anything off the list.
If everything is in shares then it’s going to be difficult, because of the massive reductions in their value. Maybe you could sell off some of your better performing shares. You may realise better prices now than in a month’s time.
Yep, you might look at what you could have sold for just a few weeks ago, but that is “stinking thinking”. Those opportunities have passed. Make the most of what you have right now.
You’ve no doubt read about whole suburbs in the US where people have just walked away from their houses because they could not find a buyer. I’m not suggesting that it will get that bad here, but it may well get worse than it is right now.
Do you have any property that you can sell? If you even have just the smallest thought about selling then elevate your thinking and seriously consider it.
I have found that one of the biggest blocks to selling is what goes around in my head. I get attached to “things” – whether they be shares, a car, a house, etc. Somehow I feel that my life will be diminished in some way if I sell a particular asset. And this is just nonsense.
To help you over this emotional block, think about the idea of selling as often as you can. Get used to the idea. Write down comparisons of different assets and what is worth selling and what is not. Bring a high level of logic into selling your assets and you’ll find that you can make more sensible decisions.
So…
Assess your exposure to debt. If you are nervous about meeting your repayments, if your revenue slides, then look at selling some assets to reduce your debt burden. And take action on this immediately. The markets are in turmoil and situations are changing on an hourly basis.
Don’t leave yourself exposed any longer than you need to.
Till next week…
Gail Geronimos, is the founder of Achaeus, which helps entrepreneurs develop their businesses and she has just started a new site www.pitchingtoinvestors.com with tools and tips about how to develop killer presentations to raise capital.
To read more Gail Geronimos blogs, click here.
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