Managing a growing business comes with its fair share of challenges. In this excerpt from “Entrepreneurial Trinity,” Brian and Mary Jo Sullivan recount a critical lesson they learned about sustainable growth rates. Their story highlights the importance of balancing growth with profitability and the consequences of overlooking financial planning.
Sustainable Growth Rate
Our business had a solid footing. We were growing, connecting, and trying to do all the right things to continue to be successful. Then, in 2016, I learned about the term sustainable growth rate . . . the hard way. In early April of that year, my accountant informed me of a very large tax bill that I had due April 15th.
I had less than a week to come up with approximately $200,000 to pay the IRS. Because of the speed at which we were growing, I didn’t pay much attention to our profit on paper; I paid more attention to the cash flow in the door. I also didn’t proactively reach out to our accountant, and he didn’t proactively reach out to me—that’s a bad combination.
Finding out, roughly six days before tax day, that I owed the IRS approximately $200,000 and had nowhere near that in my personal and professional bank account was not a fun experience. Things got very real for me, and I laid awake every night, terrified that I was going to lose the house, the business, everything.
Well, as it turned out, the IRS was actually pretty reasonable to deal with as long as I proactively approached them, explained the situation, and worked out a payment plan. From what I understand, they’re relatively reasonable to work with once, but if I had done it again, they likely wouldn’t have been so understanding. Also, since I had a reasonable plan that showed them how I was going to pay it back within six months, they were fairly sympathetic. At least, that was my experience.
I made sure that every month, I had at least, if not more, than the payment we had agreed to. We paid off the debt to the IRS early and made sure we had our future payments lined up every single quarter from there moving forward to avoid any future April surprises.
I am not by any stretch encouraging anyone to delay paying their taxes on purpose. Learn from my mistake; trust me when I say the stress was not worth it. I share this story because things come up as an entrepreneur that you think will destroy your business and your family. But if you take some time to speak to some good advisors, take a few deep breaths, and set up a good plan to resolve it, you can and will get through it.
Brian and Mary Jo’s experience underscores the importance of understanding and managing sustainable growth rates. Balancing growth with profitability is crucial for long-term success and avoiding unexpected financial pitfalls. For more insights and stories about balancing business, family, and faith, be sure to preorder their book, “Entrepreneurial Trinity.“