Ouch! Running a Business in Tough Times
Keeping your business alive in hard times is challenging enough; making it grow seems impossible. Tuition payments may be slow, requests for scholarships may increase, receivables may linger and bad debts may accumulate. How can you protect yourself from becoming collateral damage?
If you own and operate a business that provides non-essential services, you should expect to see and feel signs of the deteriorated economic climate. Job losses, devalued investments, very tight credit: all will impact your business as your customers prioritize their expenditures. Everyone is cutting back, or talking about cutting back. Thrift has become chic. Your customers may struggle to pay their mortgages and other debt that they accrued when times were better; only then will they decide which discretionary expenses they can’t live without. Be sensitive to signs that some of your customers are feeling the pinch.
Are you getting more and more bad checks?
From whom? If formerly reliable parents are bouncing checks, you know they’re in trouble. Be proactive. As a policy, stop accepting personal checks, but be aware that both cash and credit are scarce, and your options will be limited. Demanding certified or bank checks won’t make you popular; asking for cash makes you look shady. Charging market-rate interest on unpaid bills is self-defeating. Not only won’t you be paid, you’ll lose students as well. Debit cards are an easy alternative to personal checks or cash. They protect you because the charge won’t go through if the account is short. Make debit card payments attractive to your students (or their financially-responsible adults) by offering a premium of some sort, a free ticket to a school performance, perhaps, or a small credit against an outstanding bill. Offer the same (or better) incentives for full payment, in advance.
Reconsider your policy regarding credit card payments.
On the theory that it’s better to be paid something than nothing, accept all credit cards even though some cards charge the vendor more than others. Yes, there is the risk of increasing your fees and costs. Shop around among the variety of services that handle credit card payments to keep additional costs down, but don’t compromise on reliability. Do the research and avoid credit card service providers that take too long to pay or have a history of not paying at all, even if they offer more attractive fee arrangements.
Think creatively about preventing students from dropping out or seeking less expensive classes at gyms or community centers.
If parents have to choose between making mortgage, tax, or car payments and their children’s dance classes, you’re not even in the running. Develop realistic payment options for parents who are confronted by sudden financial pressures, and encourage them to keep their children in your classes. Give partial scholarships. Offer “student loans,” that is, extended payment plans at token rates of interest. “Hire” a parent or an older student to help in the office, assist teachers with younger students or clean up the dressing room. Offer “gifts,” such as a T-shirt or free class, to students who bring friends. Make it known, without embarrassing any individual student or family, that you are willing to work with parents to weather their personal financial crises.
What about bankruptcy?
Those whose debts become unmanageable may turn to bankruptcy. Which puts you in an adverse position. Your nice letters and friendly telephone reminders have been ignored, and now they want to “walk away” from their debt to you. How can you preserve your right to payment if they file a petition in bankruptcy?
Only debts listed in the petition’s many schedules are eligible for discharge. If you’re not listed, your debt will survive. But don’t count on their sloppiness! Protect your right to collect on your debt by getting a judgment, even in small claims court. And don’t wait too long to do it. File a “proof of claim” in any event, whether or not you obtain a judgment. Although the proof of claim form is fairly straightforward, you may want to speak to your lawyer about completing it correctly, providing the necessary supporting material and filing it in the right court. Don’t expect to be paid in full. You may have to accept only a fraction of your debt, or nothing at all, depending on whether the debtor has any assets that can be sold and divided among the creditors.
As a practical matter, despite the discharge in bankruptcy, you can offer to keep the student and forgive the debt, or negotiate with the parent (or responsible party) to “reaffirm” the debt, possibly with some discount.
Of course, you are subject to the same financial pressures.
If your students don’t pay, you can’t pay your own bills. If you haven’t already, you should run a cost-analysis of your business, and find out how many students you need to make a class viable. If classes aren’t paying for themselves, you may want to combine or cancel them. More positively, this may be a good time to explore ways to attract a new customer base. Consult a marketing or public relations person. Reach out to the non-dance public. Redesign your website. Produce an online bulletin or newsletter. Invite the community to a free open house, with a mini-performance or lecture-demonstration and homemade cookies. Offer classes in ballroom, social, folk and ethnic dancing, yoga, acting, dance history and appreciation. Rent out the studios when you’re not using them.
What you want to avoid is firing teachers, reducing your schedule of classes (you don’t want to look like a business in trouble), being late on your own payments and taking on additional debt, if it’s even available. Do everything you can to maintain good credit or rehabilitate a poor credit history. If you anticipate using cash reserves or personal savings to see you through, make sure the money is working for you until you need to draw on it. And don’t rule out filing for bankruptcy protection for yourself or for the business. It doesn’t mean that you’ll have to close altogether, but it will probably give you some relief from the demands of your creditors while you try to turn the business around.
Not all businesses will be damaged by the current financial crisis. Some businesses are recession-proof. If your services are perceived to be essential (and you know how important they are to your many devoted students and parents), these times could present an opportunity to thrive. Schedule meetings with your experts. Your financial adviser will look at your assets. Your accountant will help you analyze the impact of the current financial crisis. Your lawyer will help you renegotiate contracts and deal with your creditors, as well as your slow payers, so you can get through the bad times and stay in business.