The first five years that I owned a small business, I was living the American Dream. The core convenience store business I bought for $225,000 with SBA financing and $60,000 of my IRA savings, was successful and I invested profits from the store by acquiring additional commercial real estate rental properties. At the peak of my success, my net worth was just under $1 million. My long-term business strategy was to pay off all of the real estate holdings by retirement age and live on the income from the investments.
My bank and the SBA were satisfied with the viability of the investments based on a strong five-year business plan, significant feasibility research, an in-depth financial analysis of the existing business I purchased, my MBA and my prior business development experience in my professional career. I addressed two major what-ifs in the business plan: What if another large convenience store chain is built within a mile from us, and what if we lost our 10-year gasoline lease with our major distributor. I spent $3,000 during the business plan stage on Phase II environmental studies and financial reports for the gasoline distributor to prove that neither of these catastrophic events would happen.
Therein begins my biggest financial mistake that turned my American Dream into an American Disaster. Six years into building my small-business empire, our gasoline distributor filed for bankruptcy and I was drastically undercapitalized to survive as an independent gasoline retailer. I had no liquid assets, only $20,000 of emergency capital in the bank and insufficient cash flow to sustain the legal fees, regulatory fees and loss of in-store sales during the four months it took to find another gasoline distributor. I began using credit cards to pay bills and fell behind on mortgages, including my home. I tried unsuccessfully to restructure our debt with creditors and refinance with mortgage companies. Within a year, I was bust and facing foreclosures. I managed to sell all of the properties for what I owed, but ended up having to file personal bankruptcy. I lost everything including my home and furnishings.
If I had it to do over again:
1. I would keep a couple years’ worth of profits in liquid investments to be better prepared for a catastrophic business event.
2. I would be less aggressive in growing the business by investing in too many properties too soon.
3. I would not convince myself that catastrophic what-ifs in my business plan would never actually happen.
4. I would never buy a business that depends on the success of another business unless I was independently wealthy and could sustain an investment loss that could be just a tax write-off.
5. I would not use credit cards to try to save a business.
6. I would file bankruptcy a lot sooner than I did to avoid incurring more debt and possible foreclosure.
It’s been five years since my American Dream turned into an American Disaster. I have a good job, live in a nice apartment and just finished paying off 60 months of Chapter 13 bankruptcy payments at $1,150 per month. It was not an easy recovery from my biggest financial mistake, but the best advice of all is that life does not have to end with a business failure or any other financial mistake.
Financial stability can happen when in survival mode or dream mode. There are valuable lessons to learn no matter which mode life takes you. Money is good, but so is the simple life.
More Personal Finance Content from This Yahoo! Contributor
First Person: Thriving After Our Bankruptcy Filing
First Person: Business Start-up Advice From a Small Business CEO
Small Business Loans – What You Should Know About SBA and USDA