Mike the Mover has been a household name here for more than 40 years, but that was no protection against the recession that hit hard, and fast, in mid-2008.
George Anastasakos, 61, and Monty Carodonna, 59, friends since Grade 2, have been business partners since they purchased the moving and storage company (affiliated with United Mayflower) in 1995. They work six days a week, proud of never having taken a sick day. Both have a hearty laugh and a knack for finishing each other's sentences.
The 2008 downturn, though, was no laughing matter.
"My secretary picked it up quite fast," recalls Mr. Anastasakos. "In June, 2008, she said 'George, we are not where we should be for this time of the year.' … That was the beginning of the major crunch."
The next 18 months turned into a financial freefall, broken only with a major restructuring worked out with their local credit union, with which they have a long-established relationship. That branch is part of Meridian Credit Union, the largest credit union in Ontario after a 2005 merger. In battling through their cash-flow crunch, the partners learned some hard lessons, including when to say no.
"You have to think of a strategy to keep your operation going," Mr. Anastasakos says. "Survival is a must."
The company's financial troubles flowed directly from Canada's worst recession in 60 years. Layoffs by local auto parts suppliers and other manufacturers in southwestern Ontario's industrial heartland, and a sharp drop in home sales, flattened the demand for movers."People were scared and not budging, even though interest rates were at their lowest in my lifetime," Mr. Anastasakos says.
The partners knew they had to take unprecedented action.
For the first time in its history, the company laid off employees – six out of 55 on staff in November, 2008. The partners cut the advertising budget in half and slashed discretionary expenses. Meanwhile, some customers delayed payments to 120 from 30 days, further tightening cash flow.
"From every which way we were getting belted," sighs Mr. Carodonna.
Company sales that peaked at $2.8-million in 2007 (up from $700,000 when the partners bought the firm) fell an alarming 20 per cent in 2008. That year, the company reported its first loss.
The financial picture worsened in 2009. To save money on insurance and fuel, the company took half of its fleet of 18 trucks out of operation. Last fall, after several rounds of painful layoffs, the company shrank to 18 employees - as many as when the two partners bought the company. Sales fell 35 per cent in 2009, forcing Mike the Mover to record a second year of losses.
"We did everything we could to cut back on everything possible during that period, but the pressure was still around your throat," Mr. Carodonna says. "You feel like you are drowning."
In December, 2009, anxious to borrow additional working capital, the partners turned to their local Meridian branch in Guelph with whom they had an existing commercial loan at 6.75 per cent (with their homes as security). Adding to the loan would have been expensive given the high interest rate and higher monthly payments. Instead, Meridian switched the two partners from its commercial to retail lending division at the same branch to map out a more flexible strategy.
The partners took out personal mortgages ($200,000 each) on their homes, for a total of $400,000, to lend money to the business. With the "blanket" residential mortgage, pegged at prime plus one per cent, they were able to retire the commercial loan, take on cheaper debt and inject badly-needed funds into the firm.
"The business itself was struggling and commercial lending was not possible," says Meridian's retail financial services adviser Michelle Avakian, who has known the partners for years and admires their work ethic. "Instead of declining them, we saw this as an opportunity to make a difference for these [credit union]members." She worked out the new credit terms in less than two weeks, a fast response appreciated by the company owners.
"She was our saviour," declares Mr. Carodonna, a view warmly shared by his partner.
The new arrangements came at a price. Mr. Anastasakos had to remortgage a home he had paid off years ago, while Mr. Carodonna had been five years away from paying off his house.
Putting up personal assets to keep a business afloat should be seen as a last resort for entrepreneurs, warns Queen's University school of business finance professor Louis Gagnon, because the financial risk falls on the owner, not the lender. "There is a tug of war constantly between business people and debt providers," he adds, with each trying to minimize exposure. In a downturn, Prof. Gagnon says, "financial institutions are in a position to exact much stricter terms for the finance they extend to companies, especially small businesses."
He urges the owners of Mike the Mover to make it "their primary goal from this point on" to retire the mortgage as fast as possible – praising their plan to do so in less than five years.
Mike the Mover faced other tough decisions, including when to say no to some work. "In a downturn, there are always people who will do the same for less," Mr. Carodonna says. He adds, "You have to think 'do I keep the guys and trucks going and pay the bills to lose money? Or make the decision to park them [the trucks]and not do that business and wait to get what we are supposed to get in a rate to survive.'''
Four months after the company restructured its finances, business is on the upswing for Mike the Mover. As of late April, sales are up 28 per cent over last year and the two partners hope to break even this year. In March, they put some trucks back in the fleet and started to rehire staff. They now have 31 employees and hope to add 20 more if several contracts, now pending, materialize later this year.
Cautious after their financial scare, the partners believe they've turned a corner.
"The phone has started ringing again, which is good," smiles Mr. Anastasakos.