A true story ripped from The (Mis-)Adventures of The Looney Executive
– By Blake Glenn
Click Here … to catch up on Part I of the story
Jimmy Spills The Beans!
Slowly Jimmy unwound the story from deep within the depths of his knotted up stomach. You see, Jimmy and his wife owned a business that supplied nuts, bolts and related items. Fasteners is what they call these things. They had purchased the business a few years earlier from the previous owner. And a big chunk of the purchase price was loaned to them by the prior owner in the form of a note. For instance, let’s say the purchase price was $1,000,000. Jimmy and his wife make a down payment of, say, 20% ($200,000). They pay the remaining 80% ($800,000) over, say, a 7-year period in monthly installments … with interest of course.
Yea, fasteners is real boring stuff. And the industry was cluttered with small mom-and-pop shops doing the same thing, with absolutely no differentiation and consumed by commoditization. The low price was usually the winner. It’s a bad, bad business model dependent totally on volume. At its peak, Jimmy’s firm brought in somewhere around $1,200,000 in revenue. I deduced that they cleared at least $200,000 to $300,000 annually for themselves. But now it was just a few months after the September 11, 2001 attacks and business had fallen off dramatically. Customers just stopped buying. Jimmy was panicking because sales were down to about $700,000, a nearly 50% drop. I thought how terrified he must be. He didn’t say it. But then, he didn’t really need to. His face told the story.
Problem … What Problem?
The problem was that most of Jimmy’s family wealth was probably tied up in this thing. His nuts and bolts supplier business was rapidly tumbling into the dark chasm below. His firm was descending into business hell and it was taking Jimmy’s wealth (and probably his wife’s) right along with it. Maybe the marriage too. Whether or not that would be a blessing in disguise for either party wasn’t for me to surmise.
It scared the hell out of him to think that all of his hard work was doing a Thelma and Louise right over a cliff! Yep. It was driving Jimmy nuts. He was deeply embroiled in a daily living nightmare. On the upside, his wife still worked a job outside of the business. So they weren’t completely screwed. After listening for several minutes, it was clear that cash flow monitoring (or lack thereof) was a big source of his anxiety. He thought there was more cash going out than coming in on a monthly basis. But he didn’t seem to be real sure how much he was losing.
So I asked Jimmy a simple question … or so I thought.
“What does your financial software tell you about your cash flow?”
Jimmy stood amazingly silent for what seemed like hours. He appeared to be in a deep trance. His eyes widened to the size of golf balls. Then they glazed over. I was terrified they would completely pop out of his hairline-receded oval-shaped head. His brow furrowed. His face wore an expression of complete bewilderment. Based on what I’d always heard – but not experienced personally though – Jimmy appeared to be tripping on acid.
As he fixated his dark golf ball eyes on me, I think Jimmy was pondering whether or not I was an alien from the unexplored planet Chromoton 5. He had no idea life existed on Chromoton 5. No one did. For years, NASA had considered sending exploration missions to that region of space. But they hadn’t even completed missions to Chromotons 3 and 4 1/2 yet. But I was an English-speaking alien. And that was something.
Finally, Jimmy began stuttering through a response. He stumbled for a good answer, perhaps a bit embarrassed. He said that he used some vertical industry software to provide income statements and balance sheets quarterly, but didn’t know how to use it for cash flow analysis, or if it even had that capability. Frankly, I didn’t trust the accuracy of his financial statements. As if that first question wasn’t torture enough, I followed with another. I began to feel a sadistic sensation of power – putting a small business owner through a torture chamber of boring and unanswerable questions.
I was soooo evil!
The Evil Power of Boring Questions!
I felt a slight discomfort in connecting to my dark side. But on the other hand, it also felt damned good. A million volts of unadulterated power surged through my body. This evil power was addictive. So I asked another question. Ha Ha Ha!
“So then how do you create monthly financial projections?”
At this point, Jimmy looked at me like I was a Chromoton 5 alien that didn’t speak English after all. Now I appeared to be speaking some dialect of Southern Klingon, and without the benefit of a universal translator. But good ole’ Jimmy suffered through and responded anyway. He said the company didn’t do any projections. He relied on what was in the bank account to monitor his cash. This was a typical small biz owner MO … aka Method of Operation. Watch at least 3 episodes of the original “Hawaii 5 0” (pronounced Five Oh) for further explanation of MO.
There’s one big problem. He didn’t have an accurate way of determining what cash flow to expect from one month to the next. This caused him (and I imagine his wife too) many sleepless nights. So I told him we’d start with the finances. Over the next couple of weeks we analyzed his finacial information. I also helped him to set up a spreadsheet in Excel specifically to track cash flow … nothing fancy, just basic stuff.
Soon we had a good handle on revenue, expenses, and cash flow. Indeed the business was in trouble. But now Jimmy knew exactly how much trouble. And frankly, it actually wasn’t as bad as he originally thought. While we were analyzing cash flow, we also discussed a number of immediate actions he could take to raise or save cash in Phase I of a broader turnaround plan.
These actions included:
- Selling extra inventory
- Providing incentives to get customers to pay earlier
- Making cuts in perks and other miscellaneous expenses
- Consolidating personnel functions, cutting staff … etc.
- Repositioning and charging for value-added consulting services he had been simply giving away for free
- Restructuring the debt held by the previous owner
I also didn’t cushion the blow for Jimmy:
“Death is imminent … unless you act fast and decisively”
Once he exhausted these steps I knew Jimmy would be in a much better position. Not great mind you. Just better. His business might still be in the critical condition, but he’d be off of life support. He might even survive. And survival was better than, well, death.
In Part III and the conclusion of “Jimmy’s Descent Into Hell” … A Potential Murder-Suicide In Van Nuys!
Blake Glenn shares his looney perspectives, stories, and mis-adventures in The Looney Executive blog. He has interviewed hundreds (or at least tens) of people via The Looney Executive Podcasts and former TV show. He’s the founder of a tech group called IgniteTech, and claims to be a direct descendant of the original Looney Executive – Because there must be SOME explanation … right?).
If you dare, he can be reached the old school way … blake@LooneyExecutive.com
P.S. – If you’re really interested in growing the tech startup scene in SW Ohio, you’ll want to join the IgniteTech Meetup Group. Join the group. Come out to our events. Bring your energy and ideas. Build your connections.
Join us on this adventure. And help us to create a great story!