The Maids Franchise Startup Failure
Let's Borrow Some Money
Watching the balance of the bank account shrink month after month is a nerve wracking experience. It gives rise to projecting things like "burn rate" in an attempt to established how much "life" remains. Finally all of the initial $250,000 and the borrowed $142,000 from the SBA is gone but the beast must be fed. The only alternative is moving more personal funds into the business. When this point is reached, you are at the beginning of the end. There is no escaping that the point is being approached where ALL funds will be gone. Still filled with optimism, alternatives must be explored.
First we went back to the SBA. After a lot of discussion, they decided that if we would plow another $25,000 of our money into the business then they would loan us an additional $25,000. We are burning cash at a rate of $5,000 per month so the question is can we get past break even in 10 months. The answered would seem to be an intuitive "yes" until our past is examined. Our revenue has been "flat" for 8 months and we can't identify anything we can afford to change that would cause us to expect different outcome.
If we were going to continue, we had to know that we wouldn't run out of money and an incremental $25,000 would not provide that guarantee. Although I had zero first hand experience, I had read about "Angels" and decided to investigate that alternative. Angles are groups of investors who pool funds or use their own money to buy a piece of a business. All kinds of alternatives exists but one arrangement involves their buying a portion of the business while providing a "buy back" opportunity for the owner. As I became more informed on the concept, I learned that they simply do not have interest in "small" amounts like $100,000. Finding an Angel for a transaction of less than $250,000 is virtually impossible.
We were introduced to two individuals who apparently bought a The Maids franchise because they had participated in training in Omaha. Having completed that activity, they were "qualified" as buyers of operating franchises without the typical minimum delay of 3 months. After providing them financial information, they extended an offer. They would consider "loaning" us $100,000 if we made some specified changes in the business but there was a "catch". After we paid back the $100,000 we would still owe $100,000. Yes, interest rate if you want to call it that was 100%. We were so desperate that the offer was considered seriously but after giving the situation additional thought the investors informed us they could not loan the money.
While searching for an Angel, I became aware of a financial company who provides "loans" in high risk situations using a very novel approach. If your credit rating is good, they provide instructions required for securing several credit cards providing cash advances to essentially the face value of the card credit line. The first "catch" was paying the company approximately 1/3 up front through cash withdrawals. Of course the interest charged by the credit card company still applied. Bottom line, we could get money but it would be very, very expensive and if we took that road and failed we would be financially in the hole so far there would be zero chance of recovering short of personal bankrupts.
At this point, we concluded that we must shutdown the company without incurring further debt and that we must do it quickly to ensure that we had enough money to satisfy the business' obligations. I have always strived to live an honest life and always have paid my debts. A quick study of our situation clearly demonstrated that anything short of an immediate exit would push us into an area where defaulting on obligations would be mandatory. As the country boy said "you can't get blood out of a turnip".
Revised 6_10_14Success Motivation