Lendaddy I hate to hear of your struggles. I lost a business also, and it just about broke my family. I still pay 1k a month on it and it is closed. My pride cost me tens of thousand of $$.

Keep your chin up, and never be ashamed. You can work things out.

GOOD LUCK!!

I'm sorry for your situation, but you have a lot of good advice so far. Based on the limited information, I agree that it's too early for a BK or workout attorney. But you might want to have the number of a good attorney at hand so if bad goes to worse, 30 days before lights out you can be proactive with your creditors to minimize your personal exposure.

You sound like a small job-shop contract manufacturer. So there are two basis of competitive advantage you can choose: Specialty or Volume. I'd guess that the volume race is lost to off-shore so your choice is high-precision, specialty work. Can you do this without additional capital?

The hard question I would ask again is in regards to your cost structure and what you know you can sell your products for. If your cost structure (debts, OH, salaries, etc.) plus a reasonable Profit is not available in today's market, then all you are doing is prolonging the agony. For sake of discussion, let's assume you can.

For your existing business, are you confident of your total burdened cost per piece? After taking over a manufacturing company, I did a quick analysis of our cost per product line and found part numbers that were minimally profitable to losing money every time we took an order. That was changed within days - communicated to the customers personally (I flew out to see the big ones) and explained exactly what we had to do or I would discontinue making the product. That change dropped 4 to 6 points to GM, and of course falls right to the bottom line. It also improved morale at the factory because people intrinsically know that something was not right and were thrilled someone was willing to stand up to the customers.

As others have mentioned, you have to cut operating costs. I imagine your operation is very lean as it is, so probably not a lot of fat there. Do you have excess inventory to dump? How about old or obsolete equipment?

Finally, as you know it is an input problem - not enough orders. I concur that manufacturer's reps are not ideal for your circumstance. You need to pick up a bag and start seeing potential customers daily. You can't solve the order problem from behind a desk or computer. And not those cheesy networking events, go knock on doors. Make connections, ask for referrals, talk to anyone. You might be able to convince a semi-retired or retired sales guy to pick up your cause for expenses and a very generous commission plan. But remember that part above about costs? You need to charge a premium for your products and you must make enough money to support the enterprise.

Be as dispassionate about your analysis as possible. I know that's nearly impossible in a family business. But numbers are your friends here - and they will tell you what to do without emotion.

I'm also happy to chat with you about this - pm me anytime.

Don

Thanks Don,

Not much fat to cut or inventory to liquidate but maybe a little. I really see the truth in the "beat the pavement" approach and that has generally been handled by my father. I had him on the road for a month or two straight recently and he came back empty and depressed about bad things had gotten since he last had to do that. He did get a couple of jobs but we had to come in so cheap to get the work that it was actually counter productive.

But I should and will get out there myself. It's very easy to get caught up working in the business rather than on it. A wakeup call helps.

Len, even though you're a small shop, you need a financial professional to analyze your books and help you develop a business plan to keep your business open. If you can't generate large amounts of new income quickly, you need to cut costs brutally in a way that doesn't cut bottom line income. You also can't take on new business that costs you more money than it is worth. A financial professional can help you do these things. You need a real pro who has a track record of advising people in your situation. Do you have a business plan? You need a solid understanding of your financials, top line and bottom line before you can draft the business plan that will get you back on your feet. You don't have much time, but if you do the right things now you should be ok.

What Don said about analyzing the true costs of production is absolutely essential. Get a firm view of that and work from there.

Len,

That info gives me a lot of concern. How easy would it be to re-lease (or sublease) the building at $6500?

With that level of guaranteed obligations, you need to really think through what you are doing. It isn't as simple as waiting until the end, and then dumping the company into bky in 30 days. When substantially all the obligations are personally guaranteed, putting the company into bky is in many instances a basically useless exercise that won't do you much good.

With $40-60K per month in income, there definitely are pre-bky strategies you can employ, but with that level of debt, you'd need a good 6 months or more to really make them work.

What are the personal assets of you and your family like, generally? Is there real property with significant equity in any of the names of the personal guarantors?

Joel, you've already gotten great advice here. I can't add much more other than as someone who recently had a company fail, one in which I invested everything I ever had, save for the E, I can only suggest that you take 2 hours and do an Achieve-Preserve-Avoid analysis, WRITE IT ALL DOWN and the prioritize each bullet point within each column.

OK, so it sounds like some goofball management consulting thing, and it is. But it's really helps to clarify a very complicated situation, one in which the emotional often battles with the pragmatic in making a decision, showing a clear path to take. Getting it out of your head and onto paper also frees up your mind for more creative thinking. Hope it's not too touchy-feely.

it's also great to show to a completely uninterested outsider to get a reality check on how honest you are being about the present situation and future prospects.

This was the process that allowed me to finally dump G9Girl and get Little Traveler going.

Good luck, I know how it feels.

Thanks for the brutal honesty. The building is a tough call to re-lease. It is a fair price but there is a lot on the market. Lets say 60% chance within a year, but that's a guess.

Can you give a sysnopsys on the strategies assuming I can make it 6-9 months? I jsut want to have all the information.

My father has some assets. He has some property on a small airport with hangers that is currently for sale ~ 250k-300k

Beyond that he has his home on 13 acres ~300k-500k (market is all over the place in Michigan, so it's a tough call as the land is developable). $245k mort

One of the leases is a piece of equipment worth 200k+ (fair market) and $50k liquidation.

All other equipment here is worth maybe another 40k at auction, maybe 3 times that fair market.

what about finding someone else to come in with his company to share cost?

if your fix cost are x and his is x then yours would be 1/2 of x or however you can split it

It's worth looking into, but the building really doesn't lend itself to double occupancy. You never know though.

Good points Shaun, thanks.

I'm trying to get back to everyone that posts so please don't take the delay as anything more than your order in the posts. There is a ton of great information in there and I really appreciate you taking the time.

We are VERY small right now, 8-9 people total. There is maybe a small amount of fat to be trimmed but I've been pretty liberal with the carving knife.

Getting good advise on who, how and when to pay would be helpful as we don't know the "rules" and could easily be making mistakes. I will give this much consideration and am honestly torn a bit between the accountant route and the workout attorney route. I have a CPA now, but he's useless for advice.

The 40-60k income we have is pretty stable.

My buddy called an hour ago with the same advice, "road trip":) I may do it, who knows. Clear my head and get some perspective. I can think of a lot of words that describe me right now and "good" didn't make the first cut:D

You already have by recommending more sex on my stress thread. How can the wife deny the obvious expertise of an internet buddy:D

Thanks,

Believe it or not I'm not depressed. I know that I'll land on my feet one way or another. I have the most wonderful wife and my two boys are just amazing, in a broad look my life is absolutely charmed. Even if I lose everything material I'll be ok, my parents on the other hand I just don't know. I mean I know they'll be ok as well, I just wish they could retire in more/some comfort.

It sure was, but I'm very glad that I finally did it as I've gotten much good/great advice. This is truly an amazing assembly of people.

Thanks and I'm sorry you had to go through this. How did you and your father come out the other end if I may ask?

Thanks, The downsizing has been ongoing. We have gone from 35-40 guys on the manufacturing floor to 4-5! And you're right that typing this stuff out brings it home better. I am definitely going to be looking for professional advice, which route to take is the question.

I totally agree that the downturn will get worse and last a long time for automotive but it would be tough to get a lot smaller and more flexible than we are now:D

I appreciate the offer on the reference, are you talking a lawyer or an accountant? Again, very generous thank you.

OK, here's some things I've seen done and issues I've seen considered. I'm not recommending them, but I've seen it done.

1. With everything guaranteed, a bky isn't going to bail you out. They will ignore the bky carcass and come after each of you individually on the guaranteed debt.

2. Therefore, before a bky is filed, many people find it beneficial if the corporate assets are used in a way that pays down the guaranteed debt. In some order of priority where the largest and/or most aggressive creditors are paid first. (Usually "largest" = "most aggressive"). In a bky, unsecured/unguaranteed creditors have almost no rights and usually just go away. In the event that certain creditors (i.e. those holding guarantees) are paid down before others in a bky, it is best if those payments are made at least 91 days before the bky is filed, as they are outside of the "preference" period. All payments made in the 90 days before the filing will be very carefully analyzed, and if they are not in the "ordinary course" and are large enough, the creditor may be sued by the bky trustee and have to give those payments back (of course, they will then seek recovery of those lost payments from the guarantors).

3. In the event a bky is filed, and the case is administered in any way (in other words, it isn't a simple no asset case - yours probably would be an asset case with a trustee appointed) payments to any company insiders are going to be very carefully analyzed, ESP. payments within a year of the filing of the bky. Payments made to insiders outside a year are outside the "preferential payment" period.

4. The biggest issue is going to be the lease. $70K per year is substantial, and the landlord is going to come after the company for it if you close down, and look to the guarantors if the co. files bky. That's a very difficult issue.

5. While the biz is operational, try not to let on to your creditors that you are having difficulties. That may make them nervous and make them seek legal advice. If they sense there is going to be a run on you, they will want to be the first creditor to strike, while assets are there to pay them. I've seen lots of biz's make this mistake, and it has hastened their demise. Some of your contracts may have "insecurity" provisions, where if they feel insecure because of your condition, they can make demands on you. Or, even if they don't have that in the contract, they can choose to strike fast on any minor default, if they are feeling insecure. Always remember, your creditor are going to look after their interests first, esp. if they talk to a lawyer.

6. If the biz goes down, and creditors start coming after the guarantors, one of the first things they are going to do is a collection analysis. That will determine how hard they come. For instance, if a person has no assets and moved to mexico, a creditor a lot of time would just write the debt off, or get a default judgment and stick it in a drawer. If a person has a $1 million house owned outright, the creditor is going to be on them like glue.

In a collection analysis, the first thing they will do is a real property search. Real property is the easiest to collect on.

The other thing they will look at is the financials you submitted to them. But a lot of creditors find that when a business has been struggling for a couple of years, the owners have had to use up a lot of their assets, and the stuff that was on their financials is unfortunately gone.

If for some reason a guarantor were to transfer their real property to a relative, that is usually a mistake, esp. if it was done while a business was struggling. That is looked at as a fraudulent conveyance, and can be undone by the court. But, sometimes creditors are unlucky, and the guarantor sold the property to a legit third person (a bona fide purchaser) who has nothing to do with the guarantor. Nobody could ever take the property from that person. The only thing the creditor could do is try to track down and recover from the sale proceeds (i.e., the cash). Cash is very often difficult to track down. Most creditors usually find that the guarantor doesn't just have it sitting in a bank account waiting to be levied on. In fact, it is usually gone, used up in living expenses and the costs of running the business.

If the biz goes sideways, and creditors come after the guarantors, the matters are much easier to settle, and creditors pursue less, when there are no assets to come after. Keep in mind that a creditor, esp. one that gets a judgment or a provisional remedy, has a lot of rights, including the right to do debtor examination, which includes subpoening banks for account records, etc.

These are just some of the things I've seen in the past. There are a lot if issues involved, as I'm sure you can begin to see.

BTW, one of my best friends is a very experienced, and excellent, bankruptcy attorney in MN. He clerked there under a Federal Bankruptcy Court Judge years ago and has been on both the law side and the client side (Wells Fargo), with major firms in NY always trying to recruit him. he's more for the quiet life in MN.

Nicest guy ever (nothing like me :)) and loves to help guys like us, so if you even just want to discuss to get a qualified opinion on options and some ideas for moving forward, I can arrange a call. Let me know.

Does your state offer a "hpmestead Act" on your home

It might save you and your Fathers place.

Michigan advertises pretty heavily in Cali to relocate or grow your business in Michigan. Have you looked to the State? Here for example.

http://www.themedc.org/Products-Services/A-Z-Programs/Default.aspx

I don't know, what is that?

Yep, I've spoken and met with the MEDC and a couple of other state orgs. Not sure yet if anything will come of it but they seem oriented toward "new" businesses rather than saving old ones.

Lakeshore 504 is another.

We are working with the drill tooling mfg out of Texas and they are writing us a letter of intent which is the first step toward getting aid on that new project. To be honest I doubt it will go through as the equipment we need is about 400k. The project has massive potential but.....

That's very detailed info, thank you. I loathe the idea of any of it, but I imagine it happens all the time. I appreciate your taking the time to post it.

If he's a friend of yours just how nice could he possibly be? :D

Seriously though thanks again, it's an extremely generous offer.

You had any experience with the Michigan MEP center? http://www.mmtc.org/ NIST (the big government agency) funds these 'help centers' for small/midsized manufacturers.

The Illinois version is a client of mine. This program something relatively new and I've heard good things about it and Michigan offers it too.

http://www.mmtc.org/Eureka_Winning_Ways/Eureka_Winning_Ways.aspx

typo! that was to be homestead act

I haven't but my father may have. I'll look into it, thanks.

I haven't read the whole thread, but be sure you do a REAL GOOD job of knowing who is going to be on the job under any of these situtations. You'd be better working with a small one man specialist than messing with any of these big firms. My understanding is that your biz isn't that big. Many of the bigger firms will stick you with the kids right out of school and charge you zillions of hours on it.

Contact you state society of CPAs and get a recommendation tailored to the size of your business. PM me if you want additional insight.

Steve, CPA

Len,

A homestead exemption varies from state to state. In general, it is a law that "exempts" part (or all, in some states) of the value of your house from collection efforts from creditors. For example, if the exemption amount is $100,000, and your house is worth $100,000, creditors cannot touch it (at least until such time that the house rises in value and exceeds the exemption amount. They can usually then force a sale, keep the equity, and give you the exemption amount from the proceeds).

Some states historically have had an unlimited homestead exemption. TX and FL are the most popular examples. You could have a $10 million house, owned outright, and creditors can't touch it. That's why OJ lives in Florida now. (The rules in FL changed recently, though, for new people moving to the state).

You'd need to check MI law for the specifics. For example, the amount of the exemption. And in some states, it is automatic, in others you have to file a document with the state in order to claim it.

Homestead can be helpful, but from a creditor's perspective, it is much better to have a debtor with a house and homestead, then no house at all. And, from a creditor's perspective, if the debtor does own a house, what hurts the creditor's position is when the house has been mortgaged to the hilt (like by second and third loans and trust deeds), so there is no equity at all in the house.

So if you own real property and there is a homestead in your state, you should make sure you have it claimed (if a filing is necessary). But what creditors don't like to see, in order:

1. No real property owned by the debtor. That's the worst for the creditor.
2. Real property owned by the debtor, but it's mortgaged to the hilt, with no equity. Plus with a homestead on top.
3. Real property with equity, and homestead.
4. Real property with lots of equity and no homestead.

If Shaun's friend will talk to you, you should take him up on that. Just a couple of things to keep in mind, though (1) a lawyer who is talking to you for free is going to be very limited in what they say, (2) there are lots and lots of things that debtors do in the year (or more) before filing a bky that a bky lawyer could not advise them to do, but that make it difficult for creditors. A lawyer can explain the way the law works, or the effect that a certain action might have on creditors (particularly if you ask them the question directly), but not be permitted to suggest that course of action. My experience with lawyers in those kinds of situations is that you have to LISTEN very carefully to what they are saying, if you know what I mean.

I know some folks here have mentioned government contrcats. Have you looked into that? Sometimes, when doing a major project, the main "systems integrator" needs to find X% of small, 8A type companies. I saw one project where they had a piece of the project in nearly every state. They have a quota to maintain, no reason why you couldn't fill some of that.

Thanks, you've been extremely helpful. I'm learning quite a bit here.

BTW, Len, I don't mean to freak you out more than necessary, but you do have a very, very serious situation at hand.

Bottom line: You guys need to do everything you can to keep this business going as long as possible to at least get to the end of the real property lease and hopefully reduce as much of the personally guaranteed obligations as possible. Outside of that, and being realistic, be prepared for creditors coming after you and your personal assets.

I called my father earlier today and told him to bring it up with his government contacts. I should know more next week.

I get what you're saying and it makes sense. I have only PG'd maybe 30k and I have no assets to speak of so I'm not worried about myself. My dad is the one on the hot-seat so to speak but I'm starting to see the situation more clearly and hopefully we'll get something rolling that will keep the doors open. Just knowing that shutting the doors voluntarily(short term) isn't a real option helps, certainly with focus anyway.

oh and don't worry about sugar coating anything, I don't freak out.

Talking to government people isn't the answer. He probably needs to head to a trade show where the systems integrators are displaying their wares. I went to one of these once in Baltimore. The basically show off their wares, capabilities to drum up interest. While there gotta network with the big guys, guys that need stuff built.

Look at this site on how to get an 8A status.
http://www.sba.gov/aboutsba/sbaprograms/8abd/index.html

Read all this stuff, see if it applies. Or can apply. I work for a big CPA firm and we use 8a's all the time sometimes to fill the quota, sometimes to prime the contract. We do all the work and they "lead".

Here's a site where you can find out about government contracts and compete on them. It will take you a while to read through all this but you need to figure out what code pertains to your specialty and see if you can find opportunities that match your expertise.

http://www.fedbizopps.gov/


PM me if I can help walk you through any of this.

Thanks, I'll go over those sites tomorrow. I'm a little exhausted right now and it all looks like jibberish:D

Is the business incorporated? If so in what way? Corp.?, L.L.C.?