The other day, I received a phone call from an Entrepreneur (Mr.X), having a business of printing wanting to discuss his financial difficulties and to seek advice on the proposed solution. I gave him an appointment two days later in the evening so that we can discuss in one sitting the entire situation.
He came at the appointed day and time with his Accountant (Mr.Y). We got down to the business.
The situation can briefly be explained as under:
- The business was doing ok – till almost 6 months back
- Sometime earlier Mr.X attended an exhibition on Printing industry at Delhi
- At the exhibition he was quite impressed by an imported latest printing machine (Laser Printing - with number of new features) and on the spot decided to purchase and placed the order – the machine to be delivered in 4 moths time.
- On returning back – started working on arranging funds – Mr.X noticed that there was a substantial short-fall of funds to meet the payment requirements.
- Mr.X was given a reference and got in contact with a Finance Broker – and he organized a loan to the extent of 75% of the cost of the machine, from Bank @ 14% rate of interest. This was quite substantial. The loan was also secured by mortgage of Mr.X’s – New machine, other machineries and office.
- Before even Mr.X could feel relieved and settled – so as to concentrate on making best use of new machine for growth of business, the monthly pressure of making payment to Bank of EMI (Equated Monthly Installment) started.
- The business could not keep pace with increased funds requirements every month. The pressure started mounting with passing of every month. Now, the situation is Mr.X is exhausted with all his resources – including personal assets, still is unable to meet the monthly requirements.
This is the background of the case. After having carefully heard him and his Accountant Mr.Y – I asked for certain information to be collected by Mr.X and Mr.Y –
- Last 3 years Profit & Loss (P&L) and Balance Sheet (BS)
- Current year figures of P&L and BS till latest month – which happened to be December 2010.
- Increase in Sales with new machines – and expected increase in coming quarters.
- Monthly expected collections and other regular expenses for next six months
- The Banks terms of sanction and EMI’s details
So as to work on a solution and decided to meet next day evening itself – considering the urgency.
Based on above information and other explanations which both of them provided, we worked out a financial plan – which was workable and all assumptions were agreed by again both of them. Once it was finalized, we agreed on the following action plan:
(i) The financial plan agreed upon will be properly documented by Mr.Y and a copy be provided to both me as well as Mr.X.
(ii) I will take up the matter with Bank for some relaxation on EMIs as well as interest.
(iii) Every fortnight Mr.Y will collect and provide the information to me in prescribed format at least for next three (3) months.
(iv) Mr.X will also keep me informed on increase in sales – both regular as well as due to the new machine.
Now, by August 2011 – the business and finances have settled down. All EMIs have been paid in time and business is also making good profit.