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The Benefits of Bank Debt

August 21, 2009

This is a true story about three companies I’ve worked with; David’s, John’s and Jack’s.    David had bank debt while Jack and John each had investors.    Over the course of time each business stumbled and got into trouble. 

John and Jack continued on their merry way.   They spent the first 6 months hoping sales would pick up, the second six months were spent making what felt like deep cuts and the third six months losing control of their business through the court system.

David – he got called downtown for a “Come to Jesus” meeting with his banker.   He spent the next six months restructuring his way to profits.  The second six months were spent regaining his footing and investing in new products.   The third six months were spent with growing sales and a stabilizing balance sheet. 

Add it all up and Jack and John had more fun over those 18 months.    But maybe that’s not the goal.   And maybe bank debt is not such a bad thing in a weak economy. 

Have you heard of the Altman Z-Score?    It’s the only proven predictor of business bankruptcy.    It clearly predicted John’s and Jack’s demise months in advance.    Give us a call if you’d like to learn more.   www.DorsetPartners.com