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I'm curious if anybody here has any experience with a not necessarily failed, but unsuccessful business venture. Here's some context.
I work for a company where the ownership recently changed. Under the previous ownership, they had employees, many of whom stayed for years and decades, of varying quality. But they got by. Working for old ownership was by no means a perfect sunny picnic, but they were fairly reasonable in areas. Gave reasonable raises and expectations were written down.
New ownership has taken over and cracked the whip and turned everything on its head, expectations are piled on and increase every quarter, and have not rewarded with salary increases.
Half of the staff has either been let go/laid off or left voluntarily in that time, and many of the people who left is what management themselves would consider their better employees.
Their attitude has been so brazen, I almost feel it's as if they know there's no consequences to a bad ending for them, which would be ... most of their employees leaving, having to bring in randoms to patch the holes, and having to deal with possibly (but not necessarily) losing clients.
I mean, these aren't dumb guys. Two of them I know have had previous business ventures that didn't pan out, and I head one guys has had at least 2 previous.
Now, I'm aware none of these guys is going to end up on the street begging for change, that's not how it works, but what are the real consequences?
So, risk versus reward of buying and running a business... any one care to enlighten me?
If the new owners are using borrowed money with little or no skin in the game they can milk the cash flow cow and just walk away when the whole thing implodes. The business world is full of sharpies who do exactly that.
If the new owners are using borrowed money with little or no skin in the game they can milk the cash flow cow and just walk away when the whole thing implodes. The business world is full of sharpies who do exactly that.
That sound about exactly what I envisioned to a T...
Care to elaborate?
How can you borrow so much $ without being accountable? Perhaps they know that the eventual sale or liquidation of assets will be enough to at least pay off the loans? Investors?
I have bought several companies that were failing and turned them around. Often part of that is getting rid of the innate culture that permeated the organization and that often means the skillful, yet entrenched employees.
One thing that can make a large difference (depending on your state, IL is notorious for this) is a new work force can dramatically reduce your work man's comp, and health insurance costs, as they are based on pools.
Often old customers are given larger concessions than you might imagine and are not as profitable as you might think, in the past, I slowly turned over old customer accounts let them go to the competition and then bid them back a couple of years later, having substantially increase the profitability of the accounts. Which is to say. if you are the best, sometimes it is in your interest to let your clients sample the competition.
Also, sometimes the purpose of an acquisition is not to turn a profit, as part of an overall tax management strategy. Sometimes, as part of a greater whole you may want to lose or breakeven for a few years, depending on how you intertwine your various business interests.
If the new owners are using borrowed money with little or no skin in the game they can milk the cash flow cow and just walk away when the whole thing implodes. The business world is full of sharpies who do exactly that.
Amen to that. The principles (CEO and CFO) borrowed money from a bank and did a leveraged buyout of a division from a larger company of which the CEO was a VP of. The company made large computer based composition systems. They had several systems installed and carried them as accounts receivable when they were actually installed on a trial basis.
They paid themselves well and had lavish perks. They held it together for two years and then defaulted on payments to the bank, so bank took the company over. The principles walked away unscathed. The bank "investigated" and found the systems were on the trial basis with several in the process of being returned so the accounts receivable were bogus. The bank sold the remains of the company for pennies on the dollars. A year later, the company closed the doors.
I read a book written by a former IRS agent. Some people are so in love with the idea of owning their own business that they end up working long hours for less than minimum wage and are still unable to pay their taxes. A few even fail to turn over the tax withholdings from their employees. Foreclosing on these businesses is often an act of mercy.
This IRS agent did not just show up announced. By the time he was involved, there had been letters and telephone calls from the IRS concerning their unpaid taxes.
I read a book written by a former IRS agent. Some people are so in love with the idea of owning their own business that they end up working long hours for less than minimum wage and are still unable to pay their taxes. A few even fail to turn over the tax withholdings from their employees. Foreclosing on these businesses is often an act of mercy.
This IRS agent did not just show up announced. By the time he was involved, there had been letters and telephone calls from the IRS concerning their unpaid taxes.
Well now we are both guilty of derailing this thread, lol.
But another side of this involves franchising, which often carries with it, its own personal type of hell called a personal guarantee. People often assume a franchise is profitable for the zees because of the prevalence of the units. They fail to understand that a zor can very profitable while the zees go broke. Often the personal guarantee is the reason the zee keeps working a unprofitable venture.
Unfortunately far too many soon to be zees are so enamored with the tired trope of being their own boss and owning their own business they fail to do their due diligence or listen to reason from their consultants or advisors. Though I have not worked with a SUF in a few years now, I still get notices from a many former clients stating they should have taken my advice and not pursued the venture under the conditions of the FA presented to them.
I have bought several companies that were failing and turned them around. Often part of that is getting rid of the innate culture that permeated the organization and that often means the skillful, yet entrenched employees.
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Ideally, of course, the owners do want to turn around the company and make it largely profitable, etc...
But they're playing the game to lose... and they know it. They are not rewarding their top employees. Nor the new ones who came on during the start of their regime.
Quote:
Originally Posted by johngolf
Amen to that. The principles (CEO and CFO) borrowed money from a bank and did a leveraged buyout of a division from a larger company of which the CEO was a VP of. The company made large computer based composition systems. They had several systems installed and carried them as accounts receivable when they were actually installed on a trial basis.
They paid themselves well and had lavish perks. They held it together for two years and then defaulted on payments to the bank, so bank took the company over. The principles walked away unscathed. The bank "investigated" and found the systems were on the trial basis with several in the process of being returned so the accounts receivable were bogus. The bank sold the remains of the company for pennies on the dollars. A year later, the company closed the doors.
That sounds like that might be the ticket...
Again, these are not dumb guys that bought the company.
With the way they are operating, they are well aware that they stand to lose ANOTHER quarter to a half of their staff once we get out of COVID. So, they're using COVID as an opportunity to cut all costs (overhead has been slashed in every area) and work people to the bone, threatening them with their jobs.
I've just got to imagine they said to each other something like ... "Best case scenario, we retire FAT in 7 years. Worst case, we default on loans.
Fully leveraged deals rarely end well. If the good workers can pull it off, start a competitor. Also, managers are known from time to time to acquire a bankrupt company and fix it once the agitators are thrown out. The key is sticking it into bankruptcy before everything is destroyed. Tell the competitor bids that if they win, all of management is walking out. Buy it for nothing.
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