How to Lose $3 Million In a Year

How to Lose $3 Million In a Year

Sounds like an uplifting story doesn’t it?  We all know the economy sucks right now, but there are a lot of companies that haven’t been able to weather the storm, so consider yourself lucky if you are still in the game.  One fact that most people don’t know about ME is that, while the kitchen cabinet business has been successful, it is not my first business. 

About 6 years ago I had the bright idea that I was going to BUY a business, rather than starting my own.  I figured if I could find a successful business with positive cash flow, that I knew something about and could contribute to, I could really take it to the next level.  I spent 8 months researching various businesses and came across the perfect one.   Found investors, hired the lawyers, accountants, etc… all the experts that were going to make sure all the bases were covered.

What they couldn’t protect me from was the economy.  Shortly after buying it, the economy started going south, the cost of goods actually tripled, and I found out that the previous owner wasn’t exactly honest when it came to the books (everything matched up, they were just fudged a little).  So within the first year, I managed to burn through about $3 million and had a business that was failing.  While it wasn’t easy to do, all of the parties involved decided that it wasn’t worth dumping any more money into, so we closed the doors.

So why am I sharing this story?  I went into that business with the attitude that nothing could go wrong since I did my due dilegence, hired the right people, and had a plan.  Well, we all know nothing ever goes according to plan.  In business, you have to be flexible and try to forecast for unforeseen problems.   In the construction industry, too many people failed to plan (much like I did).  Rather than downsizing, cutting overhead costs, or looking for other revenue streams, they tried to ride out the initial slump.

The lessons I learned were to stay nimble and streamlined, avoid using credit until it is absolutely neccesary, and to pay attention to changes in the market and economy.  Outsource whenever I could so that if business slows or costs rise, I can easily cut back.  Diversify, so that I am not dependent on one revenue stream or source of business.   Don’t jump on an idea just because it is popular; make sure that you are knowledgable about it and understand all the challenges you will face.  While the idea of failing is never easy to accept, I learned some very valuable lessons that I have been able to apply to other businesses and help avoid making the same mistakes twice.

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