Whose Advice Are You Going to Take?

[Music] hello everyone welcome to the 21 hats podcast I'm your host Lauren Feldman this week Paul DS Mel Gravely and Sarah seagull talk about the tricky calculation all entrepreneurs must make between sticking to their vision and accepting advice Sarah explains why she's reluctant to take advice from people who don't really know the inner workings of her business which is pretty much everyone Paul on the other hand says taking advice from Outsiders helps save his business during the Great Recession and Mel talks about why he thinks every business should have a board of advisers and why he thinks having a board would have saved him from a big mistake he made recently that leads Paul to ask if you do have a board can you not take its advice plus reacting to a recent post on Reddit the owners discussed the right way to wind down a failing business a process with which Mel and Paul have some familiarity even in Good Times owning and running a business can be a lonely Pursuit our hope is that these weekly conversations brought to you by our sponsor the great game of business will let owners know they are not alone in facing challenges in fact that's the whole idea behind the 21 hats Community engaging with other owners to get the kinds of insights only another entrepreneur can offer if you're interested in tapping the wisdom of this very impressive crowd step one is to sign up for the Morning Report which highlights the most important news of the day for business owners so you don't have to go looking for it step two is to get on our slack Channel just Google the 21 hats Morning Report to subscribe joining me this week on the podcast are regulars Paul DS CEO of Paul Downs cabinet makers which is based outside of Philadelphia and makes custom conference tables Mel Gravely chairman of triversity construction a construction business based in Cincinnati and Sarah seagull CEO of seagull Communications a public relations firm based in San Francisco go the episode is titled Whose advice are you going to take welcome Paul Mel and Sarah it's great to have you here I want to talk about advice today uh specifically how do you know when to take it uh I I've long thought this is a real challenge for most entrepreneurs because you have to be pretty willful and independent to go into business there are always a lot of people telling you you're a little bit nuts to do that but at some point you probably have to be willing to learn from others who may have more experience and expertise but of course even if you're open to taking advice it can be tricky um sometimes as I can certainly attest you can have very smart and experienced people offering you very conflicting advice so to start I'd love to hear maybe about the worst advice that each of you remembers receiving in your entrepreneurial career and anybody oh I've got some my old partner who I formed a partnership with in um 200 2002 insisted that if we simply grew our sales volume and didn't worry so much about efficiency on the shop floor that everything would be fine and that's an enormous mistake because we lost a ton of money as we were trying to grow and then the 2008 recession arrived and we were in serious trouble now did survive it but ever since then I've paid much more attention to profitability rather than just how many dollars are coming in the door so that's that's a pretty big mistake who's who can match that well Paul first did that advice or that uh decision make sense to you at the time no but part of the the issue back then was that I had never really gotten any mentorship from anybody I taught myself my trade and taught myself business to the extent that I knew it which was not much and my partner was older than me uh had been owned several manufacturing businesses and was wealthy and I figured well he must know what he's talking about but he didn't is the short answer and the longer part of that story is that all the businesses that he had run previously he had done with the help of his wife who was a CPA and was the one who actually kept track of costs and profits and productivity and all that and I believe I may have told this story before but about a month after we formed our partnership and she had started working on my business to get the books in order and sort of get everything ship shaped she just died in her sleep and so all of a sudden I had a partner who was deprived of I mean he lost his wife of many years that was very sad but he was deprived of the Steady Hand and the attention to detail that had been a large part of all his previous success and it took me a long time to realize what we were missing uh and so it's a you know it's it's a bad luck story more than anything else I think that if Mary had continued on working with me then we probably would have been in much better shape sah how about you do you remember the worst advice you ever got so I'm always very hesitant to take advice in general because that's what I'm talking about yeah I just because I mean when it comes down to it nobody knows your business as well as you do um and there are nuances and factors that nobody is ever going to be able to know as well as the person that created the business um I was given advice and I don't want to say that it was bad advice it was just not it it wasn't going to work with the model that I was going to create it was advised of not taking any clients for less than $10,000 a month retainer and you know I was like okay well that will you know if we do that that will in my mind I'm like that will get us you know to a nice cushiony re Revenue number pretty quickly etc etc but what it did was it it gave me clients that I wasn't necessarily passionate about you know they were the clients that had the big wallets and big budgets but they weren't super interesting and I passed on clients that I was like curious about and passionate about and interested in and invested in and really wanted to see their success because I was trying to meet that number and uh as you know last year I had some of some big clients that weren't necessarily in that bucket of making me having that you know 10K or month or or more um leave last year and it put me in a hole and so I spent the last six months rebuilding a company based on you know small to midsize retainers with more interesting companies that are more in the lifestyle space that make me happy and I'm I'm passionate about and I like the owners and maybe it was good advice maybe it was bad advice but it wasn't advice that I should have taken both examples um and this idea that entrepreneurs are hesitant to take advice all come together for me in it's going to be like sound like a soap box but this idea of having a board around you because Sarah's point that no one knows the business like we do is so true and I don't I don't think there's a way to get 100% around that but what I do want around the table are people who um are as close as I can possibly get to knowing everything right they're not going to be me because we feel things about the business that we can't even articulate right but when you have a group of people around you that you are talking to regularly they understand your gold objectives they know what gets you fired up they understand the strategy they saw you struggle before they can help you look around corners their advice I think is more informed about the total situation and not just about their opinion based on God knows what that you right so Lauren I would I would offer you know I've got uh at least a story or two of people I shouldn't have listened to but when I look at who's around the table with me as a board I have found they give me Good Counsel because they understand what I'm trying to accomplish better and their council's better it's more contextualized than not it's funny I was going to ask you about that Mel because you mentioned this uh on a previous episode and I think in fact after we stopped Taping that episode I think you said to me something along the lines of you wouldn't run a lemonade stand without a board um which I think is pretty unusual for small businesses I think you're more the exception than than the rule yeah yes St statistically I'm sure you're right um but it's because I don't want to take ad hoc advice I don't want to meet someone occasionally and have them tell me what they think because they can't possibly have the context to answer to really guide me where I want to go they were guiding me based on what they think should happen but Sarah just said you know making her heart dance around certain clients is something anyone giving her advice if they don't get that then they're not going to be talking to her in that context and you know why should we listen to those people well I've got a I've got a thought I think that if you have an actual formal board then you have some I mean I'm not totally clear on this but it would be much harder to avoid taking their advice and I for many years was member of a business group that had that function of getting to know me getting to know my business and giving me informed advice but I was free to take it or not take it and Melvin when you get advice from your board are you like could you tell them to just drop dead no I ain't doing that or or what's what are the constraints there yeah so they're all kind of boards um you know there's some that are advisory and you you I wouldn't tell them to drop dead CU you really want them to come back to next quarter but you don't have to follow what what they say for sure uh in our situation we do have a fiduciary board but I can't think of one time that the board um overruled management they may have asked for more questions they may have asked for more frequent check-ins on a project that we decided to go on that they thought had higher risk they may have asked for a delay and a double back to check your facts and make sure you're sure but I can't remember a time where they literally said don't do it I guess they technically can do that Paul the problem with that is if they do then me as the primary owner is going to fire them put other people in their chair and go do what I want anyway like I wouldn't want to do that either so it's like I've just never seen it happen practically I guess is what I'm saying they do slow you down sometimes though because they they have cautions and then you know I want to go check to make sure I'm right Mel do you think what Paul mentioned about having a peer group uh relationship you know with an organization like vistage you see that as the rough equivalent of having a board I don't see it as a rough equivalent I do see it as better contextualized than nothing but you know the one example I was going to give you of of advice that um I should not have taken you know I bought a company you guys have heard me talk about it before bought it um first into first quarter last year and if I would have had a board around me I wouldn't have bought it but I didn't buy it with our existing company I bought it independently and I just missed some steps I was too anxious I listen to people tell me what it was going to be and they couldn't prove it but I believed them I mean just things my board would have said dude go back and double check and it would have saved me a lot of grief if I had done that I would have probably still bought it because I wanted it right but I would have bought it differently I would have had my eyes more wide open and so that advice my people around me were like oh yeah this is going to be great it's going to be and it just wasn't it's been a been a bit of a struggle since then I'm curious what what's been the struggle what what um what's gone wrong uh well first the business model was uh not profitable so when I dug into it I thought they just poorly managed but the business model literally how they made money didn't make money and I didn't know that s because it didn't have financial statements flag number one right my board would have never been okay with me buying a business without financial statements so um you know it went from there now again it took until I don't know late last year to get financial statements to figure out that our gross margin was negative where you can't run a business with negative gross margin and so I had to renegotiate contracts and you know it's just been a a bigger nightmare if I had have known that up front I would have started that work last March I still would have bought it please note that I'd still bought it but I wouldn't have dug another you know I don't know close to a million dollar hole in my on my balance sheet because I would have jumped on that problem right away last March Mel are you suggesting that if you had it to do over you would constitute a board before actually buying a business I would I should have I should have and I didn't um I I also probably moved too quickly after stepping down as CEO of of uh of our other company and I should have waited a little longer Lauren and I don't want to turn this into the tale of wo but um there's a bunch of steps that I've not made a mistake like this in a long long time because I've got a bard directors around me that tells me go double check triple check you know when I fell in love with the market that we were failing in they kept saying you know what makes you believe you're going to be successful you haven't been in three and a half years which made me finally pull out it's just very helpful to have that around that's all so I don't have a board yeah most people um and what what constitute formulating a board or putting one together like what's the uh um the point of entry yeah I mean I if for us we started out with a three-person board it was uh two other people I knew and myself to start out with now we're up to seven people now but it's just people that you um who are committed to your success who are willing to meet with you on a regular basis and who you are willing to share all of the data with so that they can be the most helpful um all of the data meaning all your plans all your financials experience with customers blah blah blah you know all of those things and over time they come to know the business as good good as they can and it's not going to be as good as you know it never is going to be that good but you'll find they they really do bring a breath of experience so that that's how we got started though just three people at that time and we've grown it to seven at this point do you pay them we do pay them but um I would tell you that people will do this for you for little or no money they're probably not going to fly in and pay for their flight and stay overnight or anything like that but you know I've served on people's board especially advisory boards where I don't have anything at at risk um for no no compensation because I enjoy watching businesses grow but we do pay our our uh our board members a um it they make roughly around $20,000 a a year on our board which hasn't been Revisited in probably seven years we probably need to look at that again Paul does this give you any thoughts about whether it might make sense for your business um yeah I I actually I'm still struck by the first thing that Sarah said which was that uh she doesn't like to well maybe this is not the right way to put it but she makes a distinction between advice and and informed advice and I actually don't discount just plain advice as much as she might because I think that exposing yourself to Common points of view and commonly accepted knowledge is actually worthwhile even if nothing else you're just figuring out why it wouldn't work for you knowing that that's the ordinary way to think about some situation is valuable to me so my problem for most of the most of the time I've been in business was no advice whatsoever and a lot of that had to do with just it started back in the 80s you know it just wasn't that easy to get it and then I didn't really have advice coming in from the outside world till after I started started uh writing for the Times Lauren and that was a revelation now those people who were reading what I wrote in the times and giving me advice were not at all informed and because the format of trying to digest very complex problems down to a column means you necessarily leave out much of the information but it's way better than nothing so I think that as long as you're not asking people who like are idiots that have know nothing about business then it's worth hearing more advice and it's actually not always completely useless to listen to people who know nothing about business because they're often giving you the perspective of your customer or your employees and that is uh something that that is also I think worth hearing even if you can think of 10 million reasons why they're just dumb and wrong um it helps clarify things in your own mind mind why what you think is right like you're challenged a little bit and there's always some value to being challenged I got some advice last week it was not informed advice but it was more like a a strategy I guess I was um on a trip I we were with I was with a a colleague of mine and we were opening um a new location for um a business owner it was it was her fifth location uh for consumer-based um industry and I was just chatting with her and I said you know I'd love to pick your brain about like how you expanded and kind of your strategy and kind of how you did it and she looked at me and she's like you know it's about all about it's the something of Threes where you replicate yourself times three and that's how you grow your team so meaning that I would find three versions of myself um to hire and then those three people would find three versions of their self higher and that's how she grows and that's not informed advice that's more of a strategy I guess but like I kind of thought about them was like you know what I I that's really cool I like the way that that sounds I don't know if it will work with my business um but it's something that I will certainly mull over and consider because I've always kind of struggled with how do I grow my team where no one person is overwhelmed yeah and I that um that distinction you just made is just like perfect right because what she gave you was kind of a strategic framework to Think Through um that's very different than don't take retainers under $10,000 a month like that's that's hugely different right that is a the $10,000 a month idea is a very specific thing you know that um has everything to do with who you're serving and how you're serving them and she couldn't have possibly known that so her advice could be useful because it's more strategic high level yeah there's a category of advice that is broadly applicable one one that I've learned is is pretty pretty on the Mark is every time your revenues double triple choose a number your systems will probably break and you need to rebuild them all and I've seen that play out in all kinds of different situations and it's pretty much true that when you start to push more of whatever you're doing through your existing pipeline you might have to get new pipelines you know you might need more capacity and it's something that you should be aware of I'm curious uh Paul or Mel did it give you any pause when you heard Sarah say that she didn't like the retainer advice because it pushed her in the direction of taking clients that she wasn't passionate about uh I'm wondering if you think maybe getting paid more should be enough reason to to get passionate oh I don't think that um I when I heard her say that and I did note it too Lauren um what I heard was what's important to her business and she gets to decide and my advice should be related to what she's decided she wants and um and nothing more than that I it's not for me to Define where she wants to play that's her that's why we're on our own cuz we want to Define that so no didn't strike me at all her challenge then is to to make sure she builds a business that keeps all that in Balance makes enough money and has the kind of client base she wants to deal with and it almost always works out better it is a challenge though I want to jump in that you know why I do what I do has never been about the money and I used to have a business partner who was a little bit more focused on the money and I I think that that was beneficial to me because that's never been something I've cared about I think if I confine myself to jobs I'm passionate about I'd still be working alone and so one of the things that you learn after you've been in business for a long time and I think this applies to like marriage too you learn the difference between the hot initial passion of whatever you're doing and what you need to do to sustain it and uh in my case we get calls from all kinds of different people and a lot of those jobs I'll be like geez I don't I'm not particularly interested in this but it's revenue and that allows me to support my team and my goal is to build the business and provide a place for more people to come work for me and have a good experience and so the idea of of $110,000 a month is the floor you know Sarah that was not the right thing for you but I think that one should not also necessarily say no to things too quickly if you could if you learn how to just do work if you if you're serving a restaurant and you learn how to serve a wide variety of people you're just going to have a better chance of being in in business 15 years from now because that's just more people you can serve I know but I I don't think that your decision should be based on a number like for example you know there was some dumb guy here in San Francisco that decided he was going to rent out his apartment um to make some cash and then he started doing that for other people and it eventually became this cool company called Airbnb that everybody knows of but you know he probably hired a PR agency with he probably didn't have a lot of money to begin with until he got investors but it's a cool idea so like I think that it's a delicate balance between like finding the revenue so you can do the cooler projects um but also making sure that any client that you take on you have at Le some people on the team that are excited about it cuz if you don't have that you're just going to lose them like 100% you have to have somebody that is excited about that Gizmo widget or food item or whatever you're pitching because if you don't have that and that's kind of how I judge it if I know that my team is excited about a client I know that we're going to deliver really well the client's going to be happy and we'll maintain that client if a client comes to me and it's like the most boring client in the world but they have tons of money I'm going to step back like I can't tell you how many times we get approached by AI companies and I say no because it's just it's a saturated space everybody thinks that they're doing something original and they're not and it's just it's just not our area of where what we're interested in doing Sarah I think you just made an important distinction the way you just described it you're making this decision based Less on you're excited and passionate about the project and more on whether you can do a good job for this potential client and that certainly makes sense to me I want to move on to something else I want to give you all a chance to offer some advice to someone who wrote about an interesting situation on Reddit the the small business subreddit uh there's a lot going on here but I think it surfaces a lot of familiar themes and issues so let me read it to you hello all it begins I tried searching for some directions and shutting down a small business but I've come up short short long story short my father made a significant investment into an electrical business with a partner that turned out to be a corrupt idiot my father has since passed away and the partner has been booted from the business now my mother with minimal business Acumen has been attempting to run the business over the past few years although my advice and the advice of many she's consulted with was to shut it down as the financials were in a really bad place fast forward a few years later my mother has sunk an additional 150 K into the business with minimal Improvement her hope was to get the company lean and relatively stable so that she could sell it off to a buyer over the next 12 months well that aspiration has hit a hurdle today is one of the employees didn't pay the past month's uh sales tax and now the government has locked the company's accounts with a bond uh 20,000 is owed in taxes she's finally come to the realization that it's time to shut her down before she sinks any more money into the failing business what's the best way to proceed and then this person uh lists some key facts it's an electrical company that does 3 million annually in Revenue it's assets include 100,000 in inventory 400,000 in accounts receivable and 275,000 in vehicles uh liabilities include the 20,000 in taxes own 60,000 in credit card debt 180,000 owed on a vehicle and 500,000 in an SBA loan uh the SBA loan was issued issued during Co and the company has yet to make payments on it nor has the government reached out about the loan uh the company also has a lease for the building through 2025 at 7,000 a month the company is simply too cash poor to continue on another challenge is the accuracy of the books there basically are no books um familiar theme here huh shocker that business is doing poorly yeah uh this naturally makes it difficult to try to sell the business that said surely the intangible assets uh phone number customer list Etc has some sort of value what's the best way to proceed with shutting down the business thoughts I literally want to cry for this person like this is so sad and painful and just gives like anxiety like just oh awful well let me start because Paul this is kind of the way you and I met am I right it is I was in a in a bad position in in late 2009 and was pretty sure I was couple of weeks from shutting the door although I wasn't encumbered by anywhere near that amount of debt and uh like this this person I started looking for like what do you do and found pretty much nothing and so I reached out to you and you were writing for the times at that point with the thought that whatever I whatever happens to me is probably going to be pretty pretty bad uh but since I could not find any advice about it I thought it might be doing some service to the to the broader Community to at least record what happened and so that yeah I was going to have a bad time but there at least would be something that comes out of it now what came out of it I did not anticipate which was an excellent relationship with you and a chance to write for the times and turning my business around and all kinds of good things but this person sounds like wow you know they've they've pretty much screwed up or somebody has screwed up pretty much in every possible way it's really hard for me to see how you survive it and I guess that their actual question of what do I do next my thought would be because of the government's involved and you got a landlord and you've got you know you've got every flavor of trouble landing on your head I would consult a bankruptcy lawyer I guess but but I'm not an expert in these situations thank God so I don't know what are the rest of you think Mel before you answer let me uh um mentioned that I was a little surprised on Reddit the responses tended in the direction of hey wait a second Don't Panic here uh it looks bad but you do have some assets and you might be able to turn this around enough to to sell it so what do you think now H there's no way in hell they've got anything left to sell so no i' say because of what I'm now this is assumption my assumption is this is taken a toll on the mother uh emotionally and clearly financially because she's put some more money into it uh I say it's time to raise the red flag um I have closed a business uh before it is I can't even express how emotionally um devastating it is to go through the the process of closing a company that has outstanding liabilities but um the only thing worse is to keep going like that would be worse to to start doing crazy things like putting more money in or taking retirement funds or borrowing money from friends or any of the things that just make the future harder what I would suggest that she this family would do is to reach out to an attorney and to look for a liquidation firm so they're not really attorneys but the reason I call my attorney for direction is because I want a legit company I want to make sure I'm not going to get taken because these companies going to ask you for money up front because they know what you're about to go through and there's no not going to be any money on the back but Lauren people start doing things from their heart and I'm not even sure they're completely legal um for example they'll make sure that employees get back pay instead of paying a bank back for a loan I'm not sure in all cases that's legal and you can end up with clawbacks and and personal liabilities and you start piercing your Cor corate Veil and they can come after you more personally for things you haven't even signed for so to me this is this gets kind of simple one I wish I they have talked to us last year because we could have saved them a year of grief two I'd call an attorney and ask them to introduce me to a firm whose business it is of winding down companies and then I'm going to follow their steps even when it feels horrible to do so can I ask was that business that you had a close down a business that you had started yeah I had started with some partners and um I tell you all my I've gotten pretty good at running companies now but back then um that I say this was my where I really went to learn I mean it was just a bad model in the first place we executed kind of mediocre we had great people around us but um we just didn't have a good business model and um we had a couple of good years and then it just we just couldn't sustain we separated the company into two pieces liquidated one of the offices as a separate business and and people lost stuff so when I say close it down people lost stuff they didn't all get paid back Banks didn't all get paid back landlords didn't all get paid back things did not settle to zero and they're in that situation today the best they can do is what I like to call take cover and that means take personal cover so that they're prepared for the future and uh there's experts out there that help people walk through that and tell them what they're really up against and how creditors are going to behave they'll talk to the creditors for you they'll make the arrangements for you they'll prioritize who gets paid first based on the law and based on you know um the assets that you've got I will say that that a lot of people ask me about starting up a business and one piece of advice I've always given that I never had to take myself was set a line set some definition of where you are where you're going to call it no like no failure I've always had the thought that I didn't want to put myself in a position where someone came and took my house and never got there but I think that contemplating what failure looks like before you start so that you don't keep shoveling precious resources time and attention into a losing proposition is absolutely worth doing particularly if you you are uh putting your family's wealth at risk your relationship at risk and that's that's just something I've told people and I've never heard anybody say it was you know like oh I I ignored that and everything turned out great and a lot of people don't ever have to contemplate it but if when you're starting a business you're all optimistic and you're excited and you only see the Golden Road going out ahead of you but there are dark clouds coming and if you can't just say to yourself okay this is what failure looks like to me and when I reach that point I'm actually going to do something about it as opposed to just continuing to suffer and let it get worse I mean the business you in this letter is probably a great example of that i' I'd be pretty surprised if problems weren't popping up all the way all along I mean if you know if you don't have any books after how many years you've been in business like that's an enormous problem right there and circling back to uh where Sarah started this episode if this person had said to any business person like hey I'm I'm operating without books what do you think of that and and uh you don't need to know much about their business or the particulars or this that the partnership you don't need to know anything other than that that's just a terrible idea don't do it and so uh I I just I just wish people don't go down a road where it just keeps getting worse and you can't extricate yourself the reality is a lot of businesses fail how do you run a business without books it can be done apparently for a while Mel you've seen uh a business3 revenue like yeah I can't wrap my head around that yeah I me either um and if I hadn't seen it for myself I wouldn't have believed it um but it's relatively easy uh um Sarah you you you simply take in what you take in and you send out what you send out and you do the taxes at the end of the year and uh you don't need financial statements to do taxes I know it sounds crazy but you don't and uh it's a little harder when you've got planting equipment like these people do so I I question you know that but you can do it and um but darn it's dangerous well I I think that the other thing is that there's books and there's books so for 16 years I operate basically without books because I didn't know what they were now I bought myself a copy of QuickBooks in like 1993 set it up any old way I felt like so I had some record of what was going in and out but actual books I didn't have anything like it until uh my partner's wife set us up it was shortly after she got everything in shape with an actual chart of accounts and some basic cash management systems that's when she unfortunately passed away but you can do it for a long time as long as there's money in your bank account yeah and uh and the other thing is that if you start a little business by yourself and you don't do anything that's just like blatantly illegal or dangerous there's nobody's going to look over your shoulder you could do it however the hell you want and you can be as bad at it as you feel like and as long as you can continue to keep the the plat spinning or the balls in the air nobody's going to come shut you down now it sounds like the people in this letter went way beyond that point I just don't see how you can strategically grow you know build a b build if you don't aren't watching what you're doing like today I'm really excited I have a a gentleman coming in who's a fractional U CFO and he works with particularly with PR agencies um because I need somebody who can help me look at the numbers and uh you know plotter course for growth and I I I don't know how I would do that without somebody looking at my books and having books that were clean and tidy and accurate um how do you I I guess you can grow by default but you can't grow strategically unless you understand your numbers totally agree I I disagree I'll tell you exactly how I did it for a long time which was that I produced a product and did fairly effective marketing that brought a greater and greater number of people to my door every year and we operated in a business where people gave me a deposit so we were running kind of a Ponzi scheme where the grow the business was actually losing money every day on a crude basis like my manufacturing was not profitable but because the client base was growing the money to get the you know to keep the balls in the air was arriving in the form of the deposits and as as long as I could keep the sales up I never ran out of money I mean I came pretty close and now that I actually understand the difference between uh acred profit you know acur revenue and just Revenue uh I haven't had this problem but you can do it if your business is growing and people are giving you enough cash to subsidize today's operations even if they're losing money now some businesses it won't work the reverse of that is a business that's growing but that requires you to purchase a ton of inventory you could be making a profit and not have the cash to grow because you got to lay out so much up front now that was just not my business so and maybe with this electrical contractor or whatever they did it may have been a version of the same thing they started clearly at zero because that's where every business starts they got to 3 million that's a substantial amount of money so that's probably what was happening they grew for a a good long while that Finance terrible operation and then it caught up with them let me ask you about a couple of specific points in this uh one that caught my eye is the reference to $500,000 in an SBA loan uh it says it's a a CO era loan there's been no payments made nor has the government reached out I'm assuming correct me if I'm wrong that this is probably an idol loan not a PPP because there's no mention of possible forgiveness which means that you know this loan actually is supposed to be repaid I'm curious about the government not reaching out and them not making payments is there a situation a legitimate situation under which they might not need to have made payments yet or is that a potential Time Bomb set to go off there as well anybody know clearly all the all the pandemic related loan programs were the administration of them has been subpar and you can hardly blame the the people who are actually trying to do it because all of a sudden this this necessity to shovel out couple of trillion bucks and 60 days or whatever it was and then keep track of it and get it back eventually like Congress put whoever is administering that program in an impossible situation and the fact that nobody's come knocking on the door yet doesn't mean that nobody's coming knocking on the door so I would absolutely treat that as something real and if you if you wish otherwise good luck I wouldn't poke the bear so I was I was having um a conversation with a cousin of mine who knew my mother well my mother was a corporate tax accountant and her she gave him particular advice a long time ago was if the IRS isn't knocking on your door don't don't call them you know um and my feeling is that you should prepare to pay the stuff back but you don't necessarily want to trip an alarm um if you don't have to couldn't you be racking up significant penalties by not paying it back if it is scheduled to be paid back sure yeah I don't know anything think about the I don't I know anything about particular loan um but here's what here's what I would say I wouldn't pick any one of these individual items and start trying to deal with them that is the mistake and this is not a time to figure it out I'm telling you I've seen people do it this is the time to get someone that knows the science of closing out a business and there's a science to it and um you want the scientists working with you to close it out this is not an intuition figure it out talk to your buddy call up the the IRS or call up the loan officer yourself I I wouldn't do any of that if you call up a bank and say hey we're have a little trouble here if you call up your landlord and say you have a little bit of trouble paying your I think it was $7,000 a month you're triggering problems that I just wouldn't do I'd solve this holistically it's the only hope of that family getting out of this with um with you know anything less than um skid marks on their knees I I think that's great advice that that's absolutely just for what it's worth in 2009 when I was really in trouble I just sent an email to my landlord and said hey you know like I'm in trouble could I could I we do something here can I skip a month's rent no reply other than a registered letter saying you're being evicted oh Lord so I like guy okay well that's not going to work he actually isn't a terrible guy but he just sent the message in a very clear manner like you could screw anybody else on your list not me and so I started paying them and we're still buds 20 years later but uh as as Mel said you this is really a big problem and it requires a real solution I'm sure Mel's right about that I brought up the 500,000 loan more just I I wanted to call attention to it in case somebody out there with a viable business is sitting with a loan um and hasn't heard from the government yet and in that same spirit I would ask about the issue of I guess how did he put it one of the employees didn't pay the past month's sales tax uh so now they out 20,000 do you guys consider that an acceptable excuse an employee just didn't file it no can I just State just make a comment on that the loan you brought up you know what I would do if if there's a legitimate ongoing concern it has a uh outstanding loan to the government I would say you need to understand the terms of that laan and and somewhere they're written what are the terms what are the expectations of this loan and I would at least understand those right so you should know if their penalties you should know if their payments do you should know when the timing is you should know that stuff yeah as far as that comment about the back sales taxes it didn't sound completely accurate to me because a month behind on sales taxes doesn't get your your account locked and it doesn't trigger a $220,000 um Bond penalty um so they're probably more than 30 days behind in my mind because 30 days the government just can't even figure out you're behind in 30 days let alone lock your account no I I agree I I'd agree with that I mean and the number sounds like one month sales tax is 20,000 you know like 6% or whatever in Pennsylvania you would be doing a ton of business in that month so uh yeah something's something's off here well you know now that I look at this it's it's written a little bit amb ously it's not 100% clear that it's one month it could be multiple months right it has to be doesn't have I mean anything can happen to have you miss a month anything legit IL legit it could just happen um they do see that as theft though you know that and withholdings from employees checks they see it as theft you took money from an employee or you took money from a a customer that was meant for someone else and you kept it that is theft so they do treat it very aggressively but not 30 days lock the account and throw away the key that just that doesn't happen I don't think that happens I mean all the people who are suggesting that this business can be saved are ignoring the fact that it that like who the hell is managing this this c yeah like wait the people who got you in there are gonna get you out of there and I don't think so so and there's nothing there's nothing there to sell so it's not like some white Knight's going to come in and uh you know used trucks they're not worth much in defense of Reddit I would just say I don't think they were thinking that continuing on this path with the same people in charge was going to solve anything I think they were looking at the $3 million in Revenue got it some of them I think put some misplaced hope in the 400,000 in accounts receivable but they were looking at it as you know there's something to work with here and maybe maybe it's salvageable at least to sell it for for some her Parts yeah yeah and I think the I think the liquidation firm I'm using that term I really don't even know that's the actual name but your lawyers will guide you the right way they'll let you know that I mean they you know they'll they'll help you through if a customer list has value they want to you know bring in as much as they can but this team needs to get away from this thing because they're not the people to take it home I mean their businesses that are distressed mildly distressed that you could probably sell you know like the worst house in nice neighborhood but this is just a crater with smoke coming out of it so I don't think there's anything much to to salvage here all right well if nothing else it is a uh a cautionary tale for why business owners should uh listen to advice my thanks to Paul DS Mel grav and Sarah seagull and to our sponsor the great game of business which helps businesses use an open book management system to build healthier companies you can learn more at Great game.com thanks everybody one thing before you go everything we do at 21 hats is created by entrepreneurs for entrepreneurs to help us all learn together so if you get something out of this podcast or out of the morning report please tell a friend tell an enemy tell every business owner you know your word of mouth entrepreneur to entrepreneur will always be the most effective way to build this community for all of us thank you it means a lot this episode was produced by another entrepreneur Jess staron founder of blank word Productions thanks for listening everyone [Music]