Debt Seeks A Holiday

Robyn Cummings is proud of the business she has built: R.C. Transcription Services, with 25 contract employees and revenues of $250,000. "This has gone far beyond what I ever anticipated," says Cummings. But her Benton (Tenn.) company has $115,000 in debt, including big balances on two credit cards. Cummings would be making a profit if not for interest payments. Instead, she lost $2,270 last year. "I can't remember who I paid when," says Cummings. "It would be a tremendous relief to pay down the debt."

GOAL: To get out of debt

GAME PLAN: To help Cummings get on track, BusinessWeek SmallBiz enlisted the help of Marlene C. Franke, a certified public accountant and founder of Franke & Freese in Chicago, and Diane M. Pearson, a certified financial planner and director of financial planning at Legend Financial Advisors in Pittsburgh.

Cummings needs to make progress quickly. Her interest payments, totaling about $14,000 a year, are killing her. The experts agree that Cummings must first retire the credit card debt, because it carries the highest interest rates. The cards had low rates when Cummings first applied for them, but by the time the introductory period ended, her credit rating had deteriorated, and the interest rates jumped dramatically. Now she has a balance of $26,224 on one card at 23.99% a year and $1,047 on a second card at 29.99%.

Then, the experts agree, Cummings ought to tackle her SBA loans, which have a combined balance of $37,364 and a 12% adjustable interest rate. Those loans don't have penalties for early payment.

Cummings' bank loans, which have smaller balances and lower rates, can wait. "She doesn't need to be in a hurry to pay down anything at [an interest rate] of 10% or below," says Pearson.

Cummings got into debt because some of her clients were slow in paying their bills. "I have several clinics that can take 60 days or longer to pay, but I make sure my transcription-ists get paid," says Cummings.

Franke and Pearson urge Cummings to become more aggressive about collecting from her clients. Franke notes that at the end of last year, R.C. Transcription had $15,000 in receivables, and $11,000 of that was more than 90 days past due. Waiting for payment is a luxury Cummings can't afford, says Franke. "That $11,000 is a lot of money to her now."

Both agree that Cummings should set up a monthly budget, writing down her fixed expenses and taking a hard look at spending she can trim. One area that might be slashed: marketing and advertising, where Cummings spent more than $10,000 last year. Pearson also urges Cummings to raise her prices, at least with new clients. "In a service business, we tend to be loyal to our clients, but if they're not profitable you'll end up closing your doors," says Pearson.


Cummings has taken the advice to heart. She intends to start billing clients twice a month rather than just once. "I have to be more proactive on that," she says. And she expects to save about $10,000 by cutting memberships in local business associations and limiting advertising. "We're established now," Cummings says. "We have word of mouth."

She isn't sure she can raise her prices. Her clients pay 12 cents for each line of transcription; some local competitors charge just 9 cents. Instead, Cummings will pitch to hospitals that typically spend more on transcribing than the smaller doctors' offices that are the bulk of her clients. "What they suggested is what I know I need to do," she says. "And I know it can be done."

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By Virginia Munger Kahn

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