Copyright 2011 The Streetwise Guide
Smashwords Edition
mailto:thestreetwiseguide@gmail.com
This ebook is licensed for your personal enjoyment only. This ebook may not be re-sold or given away to other people. If you would like to share this book with another person, please purchase an additional copy for each recipient. If you’re reading this book and did not purchase it, or it was not purchased for your use only, then please return to Smashwords.com and purchase your own copy. Thank you for respecting the hard work of this author.
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About Streetwise Guides
Streetwise, adj. Having the shrewd resourcefulness needed to survive in an urban environment
You can have all the business qualifications in the world, but without knowing your way around the rough and tumble of business you will have little chance of success. There are myriad stories of MBA graduates, global marketing managers, ex heads of multi nationals, highly qualified academics, experienced accountants and lawyers who have tried to run their own business and failed miserably. Conversely, there are far more stories of individuals who have left school in their teens and built up very successful businesses. Some of these have become household names - Richard Branson, Charles E. Culpepper, George Eastman, Henry Ford, Soichiro Honda, Ray Kroc, John D. Rockefeller, Vidal Sassoon.
A survey of 500 UK business owners and managers (of businesses with more than 50 employees) by The Institute of Leadership and Management found that only 32% had a university degree, 12% left school under the age of 16 and 7% did not even leave school with a basic school certificate.
What these individuals lacked in formal education they made up for with their streetwise skills. However many of those would have learnt those skills the hard way, struggling for the first few years as they learnt the street fighting rules that you often need in business to survive and prosper.
The Streetwise Guides will give you those skills. They will teach you how to work the system to your advantage. They will reveal the secrets and expose much of the hypocrisy in the business world, especially when dealing with bankers, accountants, lawyers and other business professionals. They will also teach you how to do business with the big end of town. They will show you the strengths and weaknesses of the Corporate World and teach you how they think so that you understand how best to deal with them, whether as a customer, supplier, creditor or debtor.
The Streetwise Guide authors always welcome feedback and can be contacted on
mailto:thestreetwiseguide@gmail.com
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Chapter 1 – Introduction…
Hmmmmmmm. Tricky one this. We are going to tell you all of the tricks, tips, cons and cheats to avoid bankruptcy. ‘Irresponsible?’ we hear someone say. Probably a rather pompous fellow in the corner of the room who has never taken a financial risk in their life. But he does have a point.
We do not want people running around the world, chalking up debts and then running off leaving little old ladies without their life savings. People who do that are complete arseholes and deserve everything that society can throw at them – starting with rotten tomatoes in the stocks and finishing with some time at ‘her majesty’s pleasure’.
But for every genuine arsehole there are thousands of well meaning souls who get into financial difficulty without meaning to. It can be bad luck, bad advice, bad judgment or a combination of all three. In virtually all cases their biggest creditor will be a bank and it is banks that trigger most bankruptcies in the world.
Now banks losing money are somewhat different to little old ladies. Banks are in the business of taking risks. To them, bad debts are just a part of business. No one is going to lose their life savings. No one is even likely to lose their jobs. Banks budget for bad debts every year and every year they write off billions of dollars of debts world wide.
Some of those debts are owed by little old ladies, who they have little concern over bankrupting. Some of those debts are owed by struggling businesses, the closure of which will cause hundreds or thousands of people to lose their jobs. They do not care. Some of those debts are owed by struggling third world countries which they cannot do anything about, which really annoys them.
For banks generally can do many, many things to recover their money. They have whole departments whose job it is just to squeeze you for every dollar. They have very expensive lawyers. They have unbelievable power over your finances. Their documentation gives them the ability to demand the return of their money almost on their whim. They can kick you out of your house, steal your car from your driveway at midnight, move into your business and use the police to escort you from your own premises. They are ruthless in using every weapon in their formidable armory to milk you dry – and then bankrupt you anyway.
So this book is aimed at leveling the playing field a little bit.
You will learn how to bamboozle their bureaucracy, subvert their powers, protect your assets, counter attack and negotiate to get the best deal you can.
A word of caution.
This ebook will show you how to manipulate your figures and manipulate the banking system to protect you from their power. Done correctly, the bank will not even know that they have been manipulated. They may even buy you lunch afterwards – though don’t count on it! To do so you may end up deluding your banker. It is fundamentally important that you do not delude yourself. By all means encourage your banker to live in cloud cuckoo land but keep your own feet firmly on the ground.
Insolvency can be an intensely stressful pastime so we have written this book with a degree of levity, but bankruptcy is a very serious undertaking. As such, it must be undertaken with caution and care. While this book will encourage you to 'do it yourself' as much as possible, neither we nor the publishers accept any responsibility if you stuff it up, so if you are in any doubt you should consult your accountant or lawyer.
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Chapter 2 – Get your life right…
...don’t panic!
Most people will have financial problems of some sort or other during their life:
For wage and salary earners, it may be exceeding the credit limit on your credit cards, losing your job and not being able to make the mortgage repayments, or just spending too much on that holiday.
For investors, it may be losing a tenant in one of your buildings, interest rates increasing above your capacity to pay them or a collapse in share prices.
For business people, it may be an unexpected bad debt, a price war or a complete collapse of your business.
In most cases your first point of concern will be the bank - and rightly so. Banks are usually the people in the box seat when you hit problems. They nearly always have security that they can sell if they want to, they will almost certainly have your (and possibly your spouse’s) personal guarantee and they may also have a mortgage on the family home.
The documentation that you will have signed will give them immense powers to move against you and your assets at the slightest sign of trouble.
Because of the power that they wield, you have to treat them as your number 1 enemy.
Now, this does not mean that they will take out a contract on your life! Nor will they hate you, despise you or ridicule you. They will rarely care about what happens to your business, your family or yourself except as it relates to recovering their money.
This does not mean that they are callous or in any way vindictive - although to many borrowers it does appear that way. They are simply doing their job, which is to protect their depositors’ interests - and cover their backside at the same time.
Bankers are human beings (honest, they really are). Most of them are male. Like all human beings and especially the male ones, self preservation usually comes before the preservation of others.
If you can understand this then you are a long way to resolving your financial problems with the minimum of fuss.
So what do you do when you realise that your cash flow has just ebbed away?
There are three things that you must do before you do anything else. In the words of Douglas Adams:
1. Don’t panic!
2. Don’t panic!
3. Don’t panic!
You are not going to die - not unless you commit suicide and committing suicide over money owed to a bank is one of the dumbest things you can do! You are not going to spend the rest of your life in a wheel chair - unless you botch up the suicide attempt! You are not going to spend the rest of your life in abject poverty - unless you want to do so as a form of penance!
In fact you only have three risks from financial disaster:
1. Your living standards will drop
2. Your social circle will change and, most importantly of all
3. Your family relationships will suffer
Let’s take these one by one
Reduced living standards
If you are having problems repaying your bank loan, and you want the banks co-operation in solving the problem, you have to reduce your expenditure. No ifs. No buts.
No, ‘But if I can just borrow an extra $5,000, I can repay the arrears and I am sure I’ll get a rise next month that will help us pay it off’
No, “But its only temporary! Next year will be a great year for me”
No, “But, but, but, but, but...I’m sure I can think of something if you just give me some time!”
I’ve heard them all before and you are always wrong!
So get rid of that extra car. Close that loss making department. Cancel that overseas trip. In short - get yourself into survival mode.
Changed social circle
This is what seems to cause the greatest stress.
Driving a Daewoo instead of a BMW is not such a big thing - as long as your friends can’t see you doing it!
Eating at home rather than at a restaurant can be quite nice - until you are invited out to the Hilton for dinner!
Closing that department is something that you have probably wanted to do for a long time - but what will your customers and staff think?
In short, you worry about the stigma of ‘failure’
It is a very sad reflection of life in this consumer driven world, that success and failure is so often linked to your street address and model of car. Yet:
What about the success of having someone to cuddle every night in bed?
What about the success of reading a bed time story to your 6 year old every night?
What about the success of a family hug?
So often all of these are sacrificed because your, so called, friends may snub you if you have to sell the car.
“Get real. Get a life” as someone so succinctly put it
Family relationships
You can call us softies if you like, but we think this is the most important thing of all.
Unfortunately, it is the one thing that suffers so frequently whenever there is any sort of major financial problem. Sometimes it is inevitable. The relationship may already be stretched to breaking point and your inability to repay the bank loan may just be the final straw.
But at other times it can be the re-making of a family.
Either way it is very important that you involve your spouse or partner at an early stage. Even consider involving your kids - you may be surprised how their uncluttered view of life can sometimes keep the whole problem in perspective. (“Does that mean we may have to move house Mum?” “Great, can I have a purple room next time?”)
You might need some outside help to help you to adjust. Don’t hesitate. Go and see a friend. Go and see one of your parents - sometimes they can be an unrecognized and vastly untapped source of advice and wisdom. Go and see your doctor. Go and see a psychologist.
It is important that you do this at an early stage.
If your spouse or partner gives you support it will be invaluable help to you in your negotiations and planning with the bank. Even if your spouse or partner walks out, it can still work to your advantage as we will see later when we talk about minimising any payment under personal guarantees.
Once you have stopped panicking and have got your family, hopefully, on side you then have to do three other things:
1. Pull together a fighting fund of cash
2. Get some professional advice
3. Review your asset protection
Only once you have done these three things, are you ready to approach the bank.
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Chapter 3 - Get some cash…
...your fighting fund
Once you hit financial problems with a bank, you are entering unknown territory.
It is often very difficult to determine which way a bank will react once you tell them you have some problems. All the things that influence their judgment and decisions when you are asking them for money, are still there when you tell them you are having difficulty paying it back.
For this reason, you have to build up some cash reserves - in a completely separate bank of course. Sometimes, unused credit cards can serve a similar purpose. Ideally, you should have enough in reserve to bring the bank up to date with any arrears you may have with them if they react negatively to the news.
A couple both lost their job in the same month. They had no spare income with which to pay the mortgage but they had $2,000 cash in a post office account. They told the bank that they would have to stop payments on the mortgage until they both got jobs again.
The bank agreed, but after 3 months they were still out of work. They asked the bank for a further three months to enable them to sell the house themselves. The bank refused and issued them a demand to pay the arrears or they would apply for a forced sale of the house.
They immediately paid the arrears from their fighting fund and sold the house themselves two months later.
You also need a fighting fund to cover professional fees. Strangely enough, lawyers and accountants tend to work much better for you if they know that they are going to be paid!
You may also need a fighting fund to pay necessary expenses - wages, for example.
How big your fighting fund is, depends upon how big the financial problem is. But you should have enough to keep the bank quiet for at least 3 months and a similar amount to cover fees, etc.
In effect this may mean that you can keep the bank quiet anyway for 6 months so why bother telling them your problems? But if you have still not sorted out your problems at the end of that time then you have nothing in reserve to play with - “You pays your money. You takes your chance”
In order to build up this fighting fund, you may have to stop payments to the bank earlier than you normally would. You may even have to increase your borrowings from the bank before you tell them of your problem.
A furniture manufacturer had an unexpected bad debt of $100,000. He had no spare cash and was not on particularly good terms with the bank. He had a $50,000 overdraft of which only $15,000 was being used.
He immediately drew down his overdraft to the full $50,000 and put the spare $35,000 into a separate bank. Two weeks later he told the bank of the bad debt problem. He told them he had just issued wages cheques for $5,000 but the bank immediately stopped payment on them (even though he was within his $50,000 overdraft) and gave him no cash to pay his wages with on that day. He used his fighting fund.
Needless to say, it is important that the bank are not aware of this fighting fund.