Recently a nice small business owner dropped into my office to talk.
As is often the case these days, he was initially greeted by Nina, my associate, the smartest young lawyer I've trained in Arizona bankruptcy law in many years. She was Summa Cum Laude undergraduate, you know? Passed her bar exam first time, and soaks up information like a tiny sponge.
She talked to him for a little while, attempting to elicit information from him, so that my discussion with him would be more productive, and ultimately he said, "I didn't come in here to talk to you!"
And that sorta put the kibosh on that conversation.
So when I dropped in to talk, Nina had not accumulated a lot of information to make my talk with him efficient, but it didn't take a long time to discover the skivvy.
He had a great business, and he was bringing in lots of dough.
But the gross was half what it had been a few years ago.
So far, nothing new, no problem.
But he wasn't making his nut, the amount he needed to keep the doors open on a weekly basis.
Because he hadn't reduced his overhead at all from the glory days a few years ago, before the depression hit.
So he had a staff that was perfectly okay to handle twice the work that was now available.
So what kind of bankruptcy did I prescribe?
Frequent readers will know that I often get to talk to nice people and then send them on their way, reassuring them that they or their business don't seem terminal to me at this point; on the other hand, what do I know?
So it was on this day.
I told him it looked to me as though his medicine was simple: go sit down with his bookkeeper, and figure out how much dough was coming in per month.
And then fire half his employees.
And then put some money in his pocket every month, then rinse, then repeat.
NOTE FOR THOSE WHO HAVE NOT EVER HAD TO MAKE PAYROLL: THIS GUY was on a collision course with complete, total, I-couldn't-fix-it-insolvency.
His business would have died the true death if he did not make those changes, and he may be too soft to make them, in which case ALL OF HIS EMPLOYEES WILL BE OUT OF WORK, NOT JUST HALF OF THEM.
Let's back over this topic again; it's not dead yet.
Business owners love their employees. It's hard not to love them, and it's the dirty little secret of small business that nobody ever talks about.
Because business owners normally love their employees (because running a small business is a lot like running a family, no kidding), firing one of them is like kicking your kid out onto the street to starve.
As a general rule, these employees would come in to see the boss and ask for an advance because Lucille was expecting and she had to get off her feet, and couldn't make much from her waitress job when she couldn't walk, you know?
Firing people who have been with you twenty or thirty years is very, very difficult.
But, heed me well, business owners: harder times are coming.
You may take the course that causes you the least pain, short-term. You may decide to keep all twenty employees with you until the end.
But then all twenty are out of a job.
Putting it another way, every business owner runs a little-bitty lifeboat. It has, depending on the volume of business and the profit margin, a maximum number of people it can support and keep out of the cold, cold, briny deep.
And when the volume of business goes down, or the owner has to cut prices to get some business in the door, the number of people the lifeboat can support goes down.
And if somebody doesn't get tossed overboard, everybody in the lifeboat will go down into the briny, including the business owner.
Over the last thirty years, I have seem many business owners who could not bring themselves to fire Harry, and Susie, and Jimmy, and Bob, when business volume dropped.
And therefore, there was a bankruptcy ultimately filed for the business owner, as well as for Sam, Jacob, Theodore, Willy, Allison, LaVerne, Julia, Robert, James, Willy II, and Tricksy.
Sometimes you gotta be cruel to be kind, and, just so you know, there's no easy way to do it.
There is a wrong way to fire people, which is to do it one at a time, in tiny increments, because it's so hard for you to do.
When a business owner does it that way, the employees are all spending their time sending out resumes, because they're not stupid, and talking to your competitors. That's not good.
While there's no good way to fire employees so you can continue to support your remaining employees, I've heard from my small business clients that it works best if you do it all at one time, and cut to the bone, so you don't have to keep firing the survivors at irregular intervals.
Makes morale and productivity fall through the floor.
.
As is often the case these days, he was initially greeted by Nina, my associate, the smartest young lawyer I've trained in Arizona bankruptcy law in many years. She was Summa Cum Laude undergraduate, you know? Passed her bar exam first time, and soaks up information like a tiny sponge.
She talked to him for a little while, attempting to elicit information from him, so that my discussion with him would be more productive, and ultimately he said, "I didn't come in here to talk to you!"
And that sorta put the kibosh on that conversation.
So when I dropped in to talk, Nina had not accumulated a lot of information to make my talk with him efficient, but it didn't take a long time to discover the skivvy.
He had a great business, and he was bringing in lots of dough.
But the gross was half what it had been a few years ago.
So far, nothing new, no problem.
But he wasn't making his nut, the amount he needed to keep the doors open on a weekly basis.
Because he hadn't reduced his overhead at all from the glory days a few years ago, before the depression hit.
So he had a staff that was perfectly okay to handle twice the work that was now available.
So what kind of bankruptcy did I prescribe?
Frequent readers will know that I often get to talk to nice people and then send them on their way, reassuring them that they or their business don't seem terminal to me at this point; on the other hand, what do I know?
So it was on this day.
I told him it looked to me as though his medicine was simple: go sit down with his bookkeeper, and figure out how much dough was coming in per month.
And then fire half his employees.
And then put some money in his pocket every month, then rinse, then repeat.
NOTE FOR THOSE WHO HAVE NOT EVER HAD TO MAKE PAYROLL: THIS GUY was on a collision course with complete, total, I-couldn't-fix-it-insolvency.
His business would have died the true death if he did not make those changes, and he may be too soft to make them, in which case ALL OF HIS EMPLOYEES WILL BE OUT OF WORK, NOT JUST HALF OF THEM.
Let's back over this topic again; it's not dead yet.
Business owners love their employees. It's hard not to love them, and it's the dirty little secret of small business that nobody ever talks about.
Because business owners normally love their employees (because running a small business is a lot like running a family, no kidding), firing one of them is like kicking your kid out onto the street to starve.
As a general rule, these employees would come in to see the boss and ask for an advance because Lucille was expecting and she had to get off her feet, and couldn't make much from her waitress job when she couldn't walk, you know?
Firing people who have been with you twenty or thirty years is very, very difficult.
But, heed me well, business owners: harder times are coming.
You may take the course that causes you the least pain, short-term. You may decide to keep all twenty employees with you until the end.
But then all twenty are out of a job.
Putting it another way, every business owner runs a little-bitty lifeboat. It has, depending on the volume of business and the profit margin, a maximum number of people it can support and keep out of the cold, cold, briny deep.
And when the volume of business goes down, or the owner has to cut prices to get some business in the door, the number of people the lifeboat can support goes down.
And if somebody doesn't get tossed overboard, everybody in the lifeboat will go down into the briny, including the business owner.
Over the last thirty years, I have seem many business owners who could not bring themselves to fire Harry, and Susie, and Jimmy, and Bob, when business volume dropped.
And therefore, there was a bankruptcy ultimately filed for the business owner, as well as for Sam, Jacob, Theodore, Willy, Allison, LaVerne, Julia, Robert, James, Willy II, and Tricksy.
Sometimes you gotta be cruel to be kind, and, just so you know, there's no easy way to do it.
There is a wrong way to fire people, which is to do it one at a time, in tiny increments, because it's so hard for you to do.
When a business owner does it that way, the employees are all spending their time sending out resumes, because they're not stupid, and talking to your competitors. That's not good.
While there's no good way to fire employees so you can continue to support your remaining employees, I've heard from my small business clients that it works best if you do it all at one time, and cut to the bone, so you don't have to keep firing the survivors at irregular intervals.
Makes morale and productivity fall through the floor.
.
I am not a small business owner, but I know a really good article when I read one. Nice job, Joseph, on a really awful subject.