OK, I did an updated spreadsheet, included all business and personal unsecured debt. I did not include the car loan (which is under the business). Most of the business debt is all in collections. I have not heard from WAMU in over 9 months. Same on Wells until this week.
[TABLE=3]
As far as me staying “current” on all of this….it’s still not possible. Yes, I had a good month last month, but that was one month, and with Wells taking out the $3,300 they did this week, I’m back to no extra budget on the business side of things. I also plan on beginning payments with the IRS this month @ $600/month.
That being said, my business income has stabilized, and I don’t see any reason why I can’t continue to pay myself a $35K/year salary (which is what I’ve been doing all this year).
The total owed to my mother is now accurate. I finally got access to her old account records and calculated all losses. It was pretty shocking to see how much money I used to play around with.
I was talking with my Dad this week about how it felt when I suddenly had $3,300 less overnite in my account. It totally felt like I used to feel when I had a HUGE loss day trading (ie, 20K or more). It’s amazing how my perception of money has changed. It’s a good change for sure.
Back in the day I wouldn’t have thought twice about a 3K loss at all.
Now every penny is gold.
{ 17 comments… read them below or add one }
Making a list and checking it twice is how I got out of debt 7ish years ago. It’s not fun to face the music, but figuring out where the money went and where it needs to go is a surefire way to get outta debt. How did your perception of money change so drastically? Amazing.
You had a reply to an earlier post from Skip DeMann urging you to get a regular job. I think he missed the section about your having a FTL coming your way, with your consent. The lien has to attach to something–do you have inventory, expensive computers, other things in addition to your bank balance? I don’t think the IRS is going to be amused that your bank account is zeroed out, or closed or whatever. You better get this straight before the hammer falls. On the business debt table above, do you have what I would call “suppliers,” and are their bills current? If you don’t, could I get into whatever you’re into? (Joke)
DebtKid,
Thanks for posting the updated spreadsheet. No question that your debt is a heavy burden for any young entrepreneur. But you got heart, and have come a long way since the early days of this blog. I’d love to see you make it all the way.
I have some thoughts about managing the debt, but first some questions about your business. Back in April 5, 2008, you posted that your business had a net loss of $2.5K for 1Q08, with the bulk of the loss occurring in January, but that February and March were basically break-even. In later posts you mention how profitability was improving, and that May 2008 was shaping up to be your best month ever. (I couldn’t find any mention of your April 2008 results.) Finally, on June 2, 2008, you posted that net profit for May 2008 would come in between $3K and $4K. This trend makes me think that your chances of making it, of getting out of this mess and well beyond, are pretty good.
But to calibrate what this trend really means, we need to know what it is that goes into your calculations of profit and loss. Are you counting your monthly salary as a business expense (as you should), or does that come out of the net profit? Are you taking into account all current taxes (as opposed to your IRS debt for back taxes)? If you are really coming out $3K to $4K ahead after paying yourself and the government, then it looks like soon (maybe this year) you should be able bring your debt current while continuing to grow your business.
On April 10, 2008, you posted that “a few years back” you traded equity in your business for start-up cash from investors. Have you been communicating with them? Can you give us an idea of what percentage of the business you still own, and how much investor money you took in? This will have more relevance in the medium-to-long term, but since I’m peppering you with questions…
Now on to your debt. I’ve been comparing the updated spreadsheet with the one you posted on January 24, 2007, which also shows interest rates. Some of them are staggering (32% on Citi Business–must be a default rate). If we take your estimated total on the business debt ($125K) and use a worst-case scenario of 32% default rates across the board, the interest alone comes out to $3,333 per month. Maybe your business is not too far away from being able to service current interest.
Insolvency is a word that describes a situation where the debts of a business exceed its assets. The assets of your business are largely intangible (know-how, relationships with customers and vendors, reputation), but they are certainly worth something–and they are probably worth more now than back in January 2008. Unless they are worth more than $125K today (which is possible, but unlikely) your business is insolvent. But insolvency has another meaning: the inability to pay debts as they come due. You can think of it as cash-flow insolvency vs. balance sheet insolvency. This is relevant to you because being cash-flow solvent means your business lives to fight another day (and as long as your positive growth trend continues, time is on your side), and it means peace of mind.
An example: A friend of mine graduated from a top law school in 2005, with almost $200K in student loans (including some from college). He has been practicing corporate law at a large firm in New York for almost three years, and still his debt exceeds his financial assets. However, his salary is so much greater than his living expenses that he has not only been able to cover his scheduled school loan payments without making sacrifices, but has also been maxing out his 401(k) contributions as well as making large additional payments on the loans–including his entire 2007 bonus. But more importantly, he has peace of mind. The debt does not feel like a burden to him because only a small fraction of it comes due every month.
(As an aside, when I mentioned your situation to him, he said that, while he would not want to trade places with you, he wishes he had the freedom that you have as the owner of your business.)
DebtKid, get it touch with your inner CFO (your iCFO?) and set him loose on the problem. Your iCFO, who always keeps a cool head, looks at the spreadsheet but does not see debt, he sees financing. And financing is not an emotional issue like debt. iCFO does not worry about debt (or girls–that’s DebtKid’s job!). His first task is to manage cash flow, so that the business can pay its employees and vendors and continue to operate. After the recent Wells Fargo snafu, it looks like he’s got thinks more or less on track on that front.
iCFO next turns to financing. His job is not to pay off the debt–the vast majority of successful businesses operate with debt, and again, debt to iCFO is just financing, and carries absolutely no stigma. But iCFO wants to replace expensive financing (32%!) with cheaper financing. If the business was current on debt payments, iCFO would first, try to take advantage of any rate reductions available from the current lenders (perhaps they will knock off a quarter basis point of the interest rate if you set up automated monthly payments), second, negotiate with them or with other lenders to refinance at lower rates, and third, to the extent of excess cash, make additional principal payments starting with the loans that have the highest interest rates.
Since the business is not current on its debt payments, iCFO’s more immediate task is to get there. I don’t know how things work after a lender sends a loan to a collection agency–I leave that for you to figure out, perhaps with the help of other readers. But in cases where you are still dealing with the lender, here is my suggestion. Right now, in the eyes of lenders you have been ignoring, such as WaMu or Wells Fargo, you are a complete deadbeat. If you call them today, why should they work with you or believe what you tell them? You need to rebuild your credibility. (Have you ever thought of the origins of the word “credit”?) Send them a check for $50 or whatever amount you can manage this month (don’t forget Well Fargo, even if they just took a big bite), together with a letter telling them that you have restructured your business, that its financial situation is improving even in this challenging economy, and that you will begin to make regular monthly payments of at least [fill in the blank], increasing the amount as you are able. Then every month send them another check and another letter, telling them that you are making the payments as you promised in the initial letter. If you can pay them enough to cover the current interest, do so and make sure to tell them. If you can increase the amount of your payments, even by a little, do so and make sure to tell them. After a few months of making regular (and hopefully increasing) payments, as you promised you would in your first letter, they will begin to see you less as a deadbeat and more as a customer again. Then your iCFO can use that accumulated store of credibility to negotiate some kind of workout, because the lenders will have greater confidence in both your ability and your willingness to pay them back.
Don’t ask your lenders to to believe you now. Earn your credibility, just like you have earned it with me through months of consistent blog posts showing that you take responsibility and are making progress.
You da man, DebtKid. Now go get ‘em.
Cheers,
Alan
@ squawkfox – It took awhile. Even after I went cold turkey day trading, I was always still thinking in terms of thousands of dollars at a time. In other words, a purchase or business transaction wasn’t a big deal unless it was thousands of dollars. I thinking being so broke that I was living in my office, and cashing checks at payday loan places helped me appreciate the true value of even one dollar : )
@ the wolf – I do use contractors (similar to suppliers) often, and they are always paid on time.
@ Alan – I think you win the 2008 award for longest comment! : ) I really like your CFO analysis there, it does help me a bit to think about things from a CFO perspective. I’ll work on that.
As for being 3-4K a month ahead….this month it’s not going happen. After paying the IRS, I will maybe be 1K ahead this month. The trend is definitely up, you are right. That should continue, although some of my income each month is not always consistent (some is).
As for investors, there are two outside investors in my original business. I own approx 82% of the business, the rest is theirs. This is one of my main reasons for wanting to avoid BK, I don’t want to screw them for my mistakes (their total investment was around 75K).
OK, I think that answered most of your questions, comment again anytime!
So net income this month will be $1K after paying your salary, right?
DK- To help us understand if your business is doing better, the same, etc. can you shed some light on earnings after current month’s expenses rather than earnings after debt carry? In other words, if your business did not have any debt, and you only had to service the current expenses (including your current $35k salary), how much would your business have left over at the end of each month?
In the short term in reality your business will not have anything left over on a monthly basis since you will use all the excess to service and pay down your debt.
I agree with Alan – you need to get the business to a point where it can carry the debt service and then not just service it, but get ahead on it.
Obviously this discussion is directly related to the previous discussion regarding how much of the business profit should go towards debt payoff vs. reinvestment in the business…..
Only $17k more, and it will be official. Your business will be even more of a financial drain than the money that you misappropriated from your Mom. You might want to calculate your burn rate.
Other than that, not much progress towards a pay off. Sorry, but at this rate, you will be done in over 14 years, providing you never borrow another dollar in that period. This is not realistic.
Frankly, I have been away from this blog for a while, and I do not see much change. Just the bottom scraping the shoals in a long and ugly manner. You have owed over $300k for over a year, even after BK. You have paid $21,963 since 4/20/07. You gave yourself a chance. But the writing is on the wall, and all over the top of this page.
I think I quit reading your blog because you are not ready to move forward with your life. It is amazing to me, but it is quite obvious. You have all the right excuses.
You have a college degree. You could become a teacher and get the student loans discharged. You could work a couple of part time jobs besides a full time job. You won’t get rid of the new car (did I miss the repossession post?) Fold the business. Move in with the folks. You could be out of this in no time.
You need to be out of this in no time. You have to be willing to do whatever it takes.
@ Lost Cause – Willing to do whatever takes? You mean like living in my office? Or showering at the gym for 2 months? Or working 60+ hour weeks?
Oh wait….
Let’s see. Short sold house, 100K in debt gone. 21K paid back in a year. Bankruptcy got rid of another 40K. That’s 161K just off the top of my head in one year. My old spreadsheet didn’t include my student loans, so I think you’re missing a bit.
Actually, you’re missing alot. Become a teacher? Are you really just throwing out ideas out of your butt here, because you have no clue what you are talking about. That would mean another year of school here in WA (to get certified), then student teaching, then finding a job (most teachers have to sub for a year or two first).
Wow, that’s at least an 18 month process to make…..30 grand. How much do I pay myself now….35 grand. That sounds like a fabulous idea! (note the sarcasm). And gosh, how many GOOD teachers do you know that work a “couple of part time jobs”….yeah, my teacher friends are all exhausted and come home to grade papers. That sounds like a winning idea right there.
I don’t usually rant like this, but frankly, I’m sick of dumb comments like this one. Try thinking next time before you give me your fabulous pearls of wisdom, it helps.
I’m out.
DK let me try to be real with you. Your business is clearly insolvent because the debt load it is facing, aside from yourself. I know you’re doing the best you can do to get the thing really moving. As long as you keep on moving upward and can start to make progress on that side, keep the business going. If your profits are going to break even month on, maybe you should seriously consider your options. That doesn’t mean go out and run to be a teacher either, which is actually a hard job. You know what’s best for you, since it’s your choice anyway.
Love the spreadsheet though, but where is your car loan?
Pick up a calculator, DK. BK the biz, and you are left with only student loans. Really, you don’t say — in one year you can have a profession with the world’s greatest retirement? What have you been doing for the past year?
You can do whatever you want. You are the one who has to live through this. It is you choice. Personally if I were you, I would realize the need to start over. Wipe the slate clean. Or not. Here is a tune for you…
http://www.youtube.com/watch?v=zHzLWLFTPPI
I thought you filed personal bankruptcy when you had a debt of $300,000. So, what good did the personal bankruptcy do if you still have the same amount of debt or more? Didn’t you file personal bankruptcy and doesn’t that take care of a lot of debt? I’m not a regular reader, so I’m not sure if I missed something along the way.
@ Claire, the last time I did the total number I didn’t include my 45K in student loans. That’s about how much personal debt was discharged in the bankruptcy.
Hey DK – I understand why you would want to keep your business. At least it is a job with an income. If you BK then please make sure you have a job to go to.
I think you are progressing. Sometimes that might be slow but you didn’t get that way overnight and it won’t change over night.
Before even considering BK I would do up 2 budgets complete with everything. One with the business and one without. Since you still need to pay your mother, tax and the student loans you may be no different. And I would suspect that you would want to pay back your investors.
I know it is a lot of debt don’t get me wrong but you have still made progress.
DK,
I just came about your website today, searching about some short sale FAQ. Your story is very interesting. I have tried to follow along with comments, but am unsure about a lot of things.
What is your “business” exactly?
I read the “about me” section, but have not found other details. Just curious.
geez, talk about kicking someone when thier down!
dk, I would be listening to alan who always has lots of sensible advice and asks good questions, I’m learning a lot reading his posts.
the WF thing was a shocker! I can;t imagine waking up to find out my accounts had been emptied! hang in there.
I can’t believe people are being so shitty to you!
If you had a crummy minimum-wage job, they would be applauding you for “doing whatever it takes” but the second you have a business making you more than $15K a year, people pipe up and try to cut you down.
NEWSFLASH COMMENTERS! It takes at least TEN YEARS (!) for student loan debt to get discharged if you work as a teacher, and you can only work in some schools and there are tons of conditions above and beyond that. If you actually know any teachers that have tried it, it almost never works out. Statistically more people get their student loans discharged through BK (which is rare!) than get it discharged under the teacher programs.
DK:
Your business is going good, so I recommend not effing around with getting extra jobs right now. You can do a lot more good by just focusing on your business and improving your debt-to-income ratio (like you are doing).
I also just started reading this blog again after a long absence, and I see major improvement. Last time I read, you were basically homeless and living in your office. For those of you that don’t know, office space is sometimes much cheaper than rent. Example: the last office space I looked at a year ago was $400/month near Olympia, while the rent on this apartment just went up to $950. So if you can get away with it, it can be the way to go in a pinch — especially if you have to have the office no matter what.
I think it’s especially stupid that people say that you need to be out of debt “right now!” It takes time. Don’t get caught up and try to rush it, just do the best you can. Save as much on other things as you can and put it towards debt. If you can get a roommate, I would highly recommend it. Saving money on food seems like a good goal for you right now, you can reap big rewards with little time required.
@ Griffin – Thanks for the nice change of pace here. Some common sense!