We’ve been hearing a lot about the recession lately. This reminded me of a conversation I had a few years ago with a property developer. Sam’s company purchased land all over the country – usually close to college campuses. They built and managed apartment houses, selling them after a few years.
The recession in the mid-2000’s nearly bankrupted his business. He ticked off the things they had done wrong.
- Too highly leveraged – he simply had too much debt. In fact, he had mortgaged some of his properties two and three times to raise money for new buildings.
- Low cash reserves – he didn’t have (and couldn’t get) enough cash to make it through more than a few tough months.
- Ignored the warning signs – his instincts told him the good times couldn’t last, but he never slowed down and never stopped borrowing money.
- He loved the game of “find-buy-build” but hated the numbers – only his bookkeeper knew which properties were making money and which ones weren’t. When she tried to bring up the subject, Sam was always too busy.
I asked him what lessons he’d learned.
Now he is open with his family. When business was good, they’d taken some great vacations, bought new cars, and expensive toys, and purchased a gorgeous lake home. When times got bad, they sat together at the kitchen table and talked. Together they decided what needed to be sold, let go, and saved.
Cash is king. Sam’s goal is to save enough money to run his company for one full year if something should happen to him. And he has a plan in place to do that.
His faith gives him the surety that no matter what happens, he will be all right. He has spent many prayerful hours in difficult situations.
Going forward he will be a better steward of his money, paying attention to the details and heeding the advice from experts.
His company is a lot smaller today, he’s not driving a new car and his toys are getting old. He no longer owns a dream house on the lake. I asked him recently how the pandemic had affected him. “Worse than the real estate bubble, but I weathered it better. We socked away a lot of cash which saved the business.” Sam watches his financials like a hawk and makes minor, but necessary improvements to his buildings. “We’ll survive to fight another day,” he said.
“Are you having fun”, I asked? “More now than a year ago,” he replied, “But it’s starting to get better.” And isn’t that what running your own business is all about?
The road is easier together,