There’s No Reason to Fail

Feb 03, 1997

One of the principals of a firm I have been acquainted with for a couple of years called the other day to tell me he had just left a board of directors’ meeting where they decided to shut down the company. He and one of his three partners are going to immediately start looking for jobs, while the third partner will stick around to finish up existing projects and deal with everything related to going out of business. He said they decided it just wasn’t worth it. They gave it their best shot, and they couldn’t make it. This doesn’t happen too often with A/E/P and environmental consulting firms. But what’s really sad is that the firm could have been saved had they just done what they should have. For example: They didn’t make their payroll tax deposits for a while and owed a substantial sum to the IRS. This should simply never happen. The IRS is the least understanding creditor there is. It’s better to owe money to anyone, and I mean anyone, than it is to owe money to the IRS if it comes to not sending in your payroll taxes. You will get caught every time and they will demand payment. Be that as it may, once their obligation was discovered, they should have done whatever was necessary to pay up. That means going without a personal paycheck, if necessary; cutting unnecessary staff, particularly anyone in an overhead capacity; borrowing on your own home (in this case, that could have been done); or even selling the company as a going concern. Anything would be better than to not pay payroll taxes, because that debt ended up costing the firm its bank financing. They lost their bank. The reason the bank decided they didn’t want these people for a client was that they didn’t pay their payroll taxes! They have a rule that says any client that did that was dead meat, automatically. Losing the bank cost these people $150K-plus in working capital that wouldn’t have been lost had $30K been paid to the IRS. They didn’t market themselves effectively. Although I put lots of companies in this pot, this firm wasn’t doing what I would have done if I needed work badly. Basically, all they did was business development, with the principals calling on potential clients if and when they had time. There was no systematic marketing process that included putting a database together, sending low-cost direct mail, or using PR. All these things, if done for a year, would have created client inquiries. They didn’t sell stock to employees. Although this was discussed repeatedly, they always found reasons to not sell stock to someone. “They don’t have the money,” “we aren’t sure he’s our kind of guy,” “we need to do a valuation study,” and so on. Selling a little stock to some of the key people would have been easy to do, would have raised a significant amount of capital, would have helped shore up the balance sheet, and would have looked good to the bank. But none of that was enough for the principals to just do it. They didn’t give up everything that was unnecessary. They should have cut their receptionist, avoided seminars, stopped going on vacation, and cut out or pulled the plug on absolutely everything they could have to reduce expenses. They overspent on office space. It’s classic— the little firm decides it wants to grow, then goes out and makes a long-term commitment for about twice the space they need at the time. This happens due to wishful thinking and ego gratification. Personally, I get ego gratification from having a successful business— not unnecessarily expensive offices! They weren’t billable enough. You can’t have two out of three owners working about 10% of the time on jobs— it just doesn’t work. And that was the case with this firm. In a firm like this, the owners should have averaged 50% billable, at least, or higher if there was anything they could do that a client would pay for. They procrastinated like crazy. Whether it was a decision to hire someone, to fire someone, to sell stock, or to do something different marketing-wise, the principals of this firm stalled, studied, and talked amongst themselves and with others outside the company. What they didn’t do was make a decision and move on! Procrastination killed them. What more can I say? Even though you don’t know who these people are, I hate to beat up on them because they are my friends. But they didn’t do what they should have or could have! Now they, and their employees, and the families of their employees, and their suppliers and subcontractors will all suffer as a result. And it’s a shame! Originally published 2/3/ 1997

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