We who turn around businesses have seen this scenario so often before, that we could make a fortune if we had a dollar for every time we’ve heard it.
In a converse spin of the biblical adage coined by Peter over 2,000 years ago, ‘money shall cover a multitude of business sins.’
From 2004-2008, things were going so well that you probably did the following:
- Bought new equipment with a long-term interest-bearing loan, anticipating increasing sales
- Added to your building, or even bought a new building. And you didn’t just add to it. You did everything first class
- Issued all employees upgraded equipment, at your expense, even though they may be able to use that equipment at home or, worse yet, in competition with you. Think of the successful plumber who buys tools for his employees, allows them to use company trucks to travel to and from home, but has no enforceable policy to ensure company equipment is used for company use
- Issued bonuses, raises and enhanced benefits to employees just because. Yes, you claimed it was for good performance. But be honest … you weren’t really sure if the performance truly helped your net profit. And these bonuses/raises weren’t tied directly to your net profit
- Allowed employees to go years and years without being evaluated … and that is IF you even have nailed down exactly what each employee is supposed to do
- Saw no need for a budget that made the company engineer itself around profitability
These are just some of the “multitude of business sins”.
And the quintessential devil of all business sins: DEBT. Especially long-term debt.
Without question, or exception, we can say unequivocally that each business who managed to VERY closely manage, measure, and tie, its valuable resources (employees, equipment use, overhead) to the business’ bottom line during 2004-2008, has survived, and even thrived, through 2013. But if we had a dollar for each time we’ve heard the above scenario played out, bringing our clients to the brink of bankruptcy in 2013, we would be rich on those dollars alone!
Additionally, without exception, the most operative factor that enables your business to compete, or not, is the amount of debt load your business is carrying.
So I repeat: The ultimate business sin is DEBT.
Yes, you should feel some guilt. Imagine what you’ve lost by failing to do what was your duty as a business owner. Yes, indeed, your failure to do some of those things caused your business to have to let employees go, cost you and your family valuable resources for your retirement, and significant corporate distributions that you could, and should, be enjoying now.
The message here: Again, to draw on the biblical admonition, repent! Devise a plan to reduce your debt, and create a budget that engineers your company, with measuring processes and “systems”, to profitability. This budget will ensure you take complete advantage of your valuable company resources, and tie each of them to the bottom line. If they’re not helping you make a net profit, they are standing in the way of a net profit.
One more cautionary tale: The effect of the Affordable Care Act (aka ObamaCare). We still do not know what effect this law will have on businesses. Even the Obama Administration was so far off on its original budget submission to the Congressional Budget Office that now no one has any real faith of what it’s going to cost businesses. The Administration originally intended to tax businesses enough to both cover the uninsured and add tax revenues to the federal government coffers.
Now, with the Obama Administration unilaterally (and arguably illegally) attempting to postpone implementation of some of ObamaCare’s key provisions, even the Administration is not completely aware of how much this may cost.
So, just like all those business sin indulgences in which you engaged during the Great Recession of 2008 to now, ObamaCare may have the same effect on your business, even though it’s not necessarily a chosen indulgence.
Operate lean. Measure everything. As Galileo once said, “Measure everything that can be measured, and what cannot be measured, make measurable.” Protect your valuable assets.