The red line

Do you know your business's red line point?

Today, I faced the red line -- the specific number where, I know if we go beyond, the business will encounter insurmountable debt, liquidity problems, and its survival will be threatened.

The red line crept up this time somewhat suddenly -- after an excellent fall, the business stumbled in December (for January's published issues), but rebounded wonderfully in February -- erasing the losses of December/January. So I thought all was well, and proceeded with our recruitment/growth plans. We hired one person in Ontario and had made our decision about our publisher for the Washington Construction News relaunch.

Last week, however, our accounting officer gave me a heads up about the cash situation not being satisfactory, and today, in the financial reports, I saw the number in black and white (or euphemistically, red and white). We had hit the red line, indeed. Push further and we fail. Unless we stop and do what we need to do, things will turn bad, fast.

I expect the problem here is a combination of the usual seasonal decline (February/March are traditionally our slowest month), some gaps in the invoicing/payment cycle, and some unregistered earnings (meaning thing look worse than they really are). Looking forward, I could see a break-even or small loss for March if we don't have more people on the payroll, but rather serious losses if we add two people. Since we had hit the red line this month, we didn't have room for risk in allowing the debt to grow to pay the additional salaries. So I brought out the hatchet.

This stuff is painful, indeed. No responsible business person likes to muck up other people's dreams and lives -- to tell someone that we are about to hire after a severe and thorough vetting and competition that the answer must be "not now", and to tell a newly hired employee (fortunately not recruited from a good job elsewhere), that we must prepare to implement a short-notice dismissal.

Here, however, I applied the recession-survival principals outlined in this earlier posting. I brought all of our employees into the decision. They can see the complete financial reports and the red line numbers. We know where we are and where we need to go to get through this crisis.

I expect we will grow again in the next two to three months and am hoping the people we planned to hire will still be interested in working with us then.