Three years ago, I ran out of money

In mid-2009, my family and I were on vacation in Washington DC when I made a startling discovery about my main business. I realized that unless we had a very good sales day the next day, payroll checks were going to bounce.

I know that this particular situation is not uncommon, especially in today’s horrific business environment, but it was very uncommon for us.  For the first half of the decade, we had been very profitable.  We were so profitable that we built a custom warehouse.  We bought other businesses.  We staffed up to a lot of people.  We spent money like water.

Creditors threw credit at us like candy.  But at first, we didn’t need credit; we had cash in the bank.  But over time, things changed. We started to buy into the concept that debt was a necessary and good tool for growing a business.

I look back at that and think how ironic it was that I flipped my position on debt.  Our family has never been a slave to debt.  We don’t carry balances on credit cards and we pay cash for cars.  But somehow, I justified debt in business.

Over those few years in the middle of the decade, we went from having a lot of cash and no debt to no cash and lots of debt.  Here is a chart of what it looked like.  The red bars on the top of the horizontal line indicates assets while the green bars represent debt.  The green line represents the net worth of the business (assets – debt).

Notice I am not providing the dollar amounts.  They are unimportant.  But let me say this: they were significant.  If I had called in to Dave Ramsey at the end of this chart and told him the debt number, it would have been several times the largest debt level number I have ever heard anyone give on that show.

Time-wise, it was at the end of this chart that I found myself sitting in that hotel room realizing that we were out of money and options for more money.  And that was the day I made the decision to make the necessary changes to fix the situation.  Those changes primarily involved expense reduction.

The reason I bring this up is because I noticed yesterday that something very significant has happened.  It sneaked up on me, but as of this month, that debt is gone.  Here is what the chart looks like now.


Notice that I marked that night in the hotel with the red arrow.  I call that moment my ah-ha moment.

Let me tell you something: this chart is a reflection of an education in the school of hard knocks.  And I would not swap the education I got during this little adventure for 10 MBA degrees from Ivy League schools.

Here are some top lessons:

1) We are all susceptible to error over time and it happens slowly.  For me, my drift from safety took over three years.

2) A series of small bad decisions will get you into as much trouble as one big one.  Notice how the situation worsened gradually from 2005 to 2009.

3) It takes an ah-ha moment to reverse course.  I had my ah-ha moment in that hotel when I realized that things needed to change.  For us, it was either change or bankruptcy.

4) Don’t wait for a lifeboat to bail you out.  Part of the reason I justified spiraling into debt was that I was always expecting a big business win that would erase that debt in one fell swoop.  Notice that it never happened.  Things just got worse and worse.

5) It takes discipline after the ah-ha moment.  Notice the path that the debt reduction took after the ah-ha moment.  What you see is a slow and steady drop in debt over the course of three long years. There were no Hail Mary’s and no miracles.  It just took discipline and work.

I will not lie to you.  I am very proud of this chart.  I am thrilled that we decided to change rather than fail. And I am very thankful that we got a chance to finish the journey out of the abyss.  God has been good to us.  Many companies during that time never got to come back (many through no fault of their own).

And the reason I wrote this post is because some of you are somewhere on this chart too.  Maybe you are under staggering financial pressure on a personal rather than business level.  If you are, you need two things: an ah-ha moment and then the discipline to act out your decision to change.