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Posted by Anastasia Ledwon on 2014-08-09 15:29:00
Title: Hello! As an entrepreneur, when do you decide to throw in the towel? I have a mineral exploration ...
Category: Money

Hello! As an entrepreneur, when do you decide to throw in the towel? I have a mineral exploration company, supported mainly by the global investor market which has tanked over the past two years. We've been in business for almost five years, in the industry for 20 years. I have 7 full-time employee and up to 40 seasonal (125 in a good year, like 2011). We have had 3 major publicly traded clients not pay us, amounting to over $400,000. This has hurt us badly with our suppliers as we owe about $350,000. We've also been audited by the gov't as we are far behind on payroll taxes and GST ~$250,000). Our reputation with clients is excellent (3rd party client satisfaction surveys every year). Our team is excellent. We have streamlined and digitized everything and are applying for our Certificate of Recognition which will open us up to more opportunities. And we are a turn-key company, offering geological services as well as camp building, project management, labour and equipment rental. All this, and I can't make payroll next Friday. We've been going payroll to payroll for 18 months now and have finally been caught completely short. Cash flow has been a major issue for two years, but we've still managed to get through. Our lawyers are filing civil suits this week against the three companies, but we may not exist in two weeks. When do you declare bankruptcy? We (my husband is my partner) will also have to declare bankruptcy as we are personal guarantors on a lot of the debt. We've had interviews with Angel Investors but our revenues are currently too low (~$2.2million) and they want around $5million (which we hit in 2011). We bought our our original two partners in Jan 2013 and June 2012: they couldn't handle the stress. We are still seeking investors as I write, but thus far no luck. We have been trying to diversify as well, but it take money to do that and, well, here we are. This isn't very concise but I wanted to show how amazing our company really is, and how I really am at the end of my rope in trying to keep it going. We are in a small town in northern BC. So yes, my main question is: when do you just accept defeat and give up? It makes me sick to even think of it, after all this, and I hate the thought of letting down our employees, clients, and suppliers, especially not being able to pay our suppliers. Thank you in advance for the input. Kind regards, Anastasia

Answer:

Fabio Campanella
2014-08-11 14:03:00

I have had several clients fold operations over the years.

I generally make the recommendation to stop operations when the following has taken place:

1.       The company has amassed a significant accounting deficit

2.       The company has been in operations for several years and has neither turned an accounting profit nor a positive cash flow

3.       The major shareholders are amassing large amounts of personal debt to keep the company alive

With the limited knowledge I have in this case it is a pretty clear case of entrepreneurs keeping a dead business alive for too long. If you are at the point where you can’t pay your payroll installments you are in serious trouble. Payroll and HST are trust accounts and the CRA can come after the company directors for these amounts.

If “angel investors” are not willing to put money into this project, then really no one is going to put money in as these investors are willing to take a much higher level of risk than normal investors.

I think you need to stop the bleeding and fold this business as it seems like you will continue to dig a deeper hole for yourself personally.

Fabio Campanella 
Partner, Campanella McDonald LLP