When my life changed on June 30, 2009, I didn’t know it had. It was a minor milestone, just another line of credit expiration date. It was a little different, since the bank we had been using for 40 years was in trouble.
Knowing the FDIC was about to step in, our bankers didn’t renew the line, and on July 3, 2009, the FDIC shut the bank down. It reopened on Monday, July 5 as a new bank from downtown Chicago.
Fast forward to September, when the new bank finally got around to Sid’s Greenhouses’ file. It was a frustrating wait, but I was glad an appointment had finally been made.My old bank officer, the new person taking over our account and I met in my cluttered office at Sid’s.The new officer is someone I actually knew from a different branch of the old bank. He was promoted to the downtown office. Because I was comfortable with everyone, I wasn’t expecting any major changes.
I was wrong.
The new officer told me that the bank did not like businesses that had lost money these last two years and were losing money this year (hey, we’re in a recession). And it did not like seasonal businesses because of the uncertainties.
The new officer and I had always gotten along fine, but those opening lines did not sit well with me. It took at least 20 minutes before we all settled down.
The conversation did not improve much. Not only was my line of credit going away, but the bank was calling in our loan.
The mortgages and the credit line both used the property as collateral, and with the decline in property values and new banking regulations, we no longer had enough collateral to cover our loans. It should not have been a surprise for me, but it was.
How We First Got Into Trouble
Since our start in the early 1960s, we grew to two retail locations and a landscaping company. The second location was purchased in 2001, completely torn down and rebuilt. It re-opened in 2004.
For many years we always were increasing in sales and expanding our store and property until in 2006 we were doing more than $9 million in gross revenues. Sales declined quickly as the recession hit – the housing starts in the suburban Chicago area dropped quickly, along with so many young families losing jobs. Sid’s, like many others, borrowed a lot of money to expand in those good years, and when the sales declined it was a struggle to meet our debt service.
It Looked Like We Would Pull Through
Two weeks after that September 2009 meeting, the bank officer and I met again and laid out a plan.
Sid’s was required to hire an approved firm with accountants and loan workout people to work with us and the bank. We have spent well over $100,000 with that firm. They are very good. And very expensive.
We told the bank right from the beginning we would do whatever it took to stay in business, that closing down was not an option. We have worked hard for 40 years and planned on continuing. I am second generation and the third was chomping at the bit to take over.
We paid back several hundred thousand dollars, but we couldn’t pay off the credit line. Because the line and mortgages were cross collateralized, it put us in default for all our loans.
We worked out an agreement with them on payback that worked for two years. Yet we had to sign a forbearance agreement – the bank would not shut us down as long as we satisfied the covenants there-in. It was rough; we had to give the bank weekly reports and regular payments.
The agreement that allowed us to stay in business expired on June 30, 2011 and we met with officers in early July and received the news that the bank was shutting us down.
How did we survive as long as we did? Because of great employees and vendors. To reduce payroll, unfortunately we had to let go several key employees. We cut out all overtime, staffed a little lighter, froze all pay, cut salaried employees’ pay and reduced store hours during the slow season.
Our vendors were awesome and we thank them. We called or wrote letters to everyone we owed money, explaining the situation and most of them worked with us. It became pay for spring all summer and fall, pay for summer and fall with Christmas, pay for Christmas and whatever we missed with spring money. It has been a very trying situation.
We operated on cash flow with no bank line of credit or cash reserve for almost two years. It was the most nerve-wracking time of my 40 years in business. Without support of the family, employees and vendors we would not have been able to stay in business as long as we did.
There were several lesson learned that I urge you to follow:
• Number one is what everyone tells you: when you expand, make sure you have enough money. We were way over budget in 2004 and the bank said, “Look at all those new houses going up – you’ll soon be printing money! We’ll give you whatever you need!”
• Watch your total cost of payroll. Ours was way too high. It is hard to back down on benefits once it is there.
• Keep in good terms with all your vendors. We had good relationship – I made promises I knew I could make and then followed through. Vendors want to be informed of what is happening. Do not keep them in the dark if you are having problems.
• Have some cash reserves for the rough times.
• Do not be afraid to seek outside help from consultants. “Consultants” can be a bad word for many independent owners, but we joined The Garden Center Group last year and I wished we had joined five years ago. I have learned so much; obviously, I joined too late.
It has been a very humbling experience.
Looking To The Future
I do not know exactly where we will go from here. Whatever we do will need to be very transparent legally. I’d like to see various divisions of the company continue on, such as the flower shop and the landscaping division. Maybe you’ll be hearing about Sid’s Floral Shop and Sid’s Landscaping in the coming months.