PRIORITIZE DEBT Debt is still a constant for Pam Austin (not her real name) and her husband, owners of a nearly 40-year-old Colorado design/build company. Two years ago, they discovered that their bookkeeper of one year had embezzled more than $500,000. To rebuild, the Austins lent the company personal funds, mortgaged a building they owned, and arranged for an increased line of credit. Although the former bookkeeper was convicted and sent to prison and the Austins received money from their insurance company, they know they will never recoup everything. “We’ll never know how much she stole. She falsified records to show we were doing well,” Pam says.
It might seem overwhelming, so creating a written plan is helpful. “Determine all your debt on a spreadsheet,” Shiner says, “and develop a cash flow forecast — how much you can afford to pay off the entire debt.”
The Austins budgeted debt into the amount they need to produce to make a profit, even hiring five more people to help them meet volume goals. “We figured out what we needed to pay overhead and dig out from debt, budgeted for it, and made it a goal for sales,” Pam says. They created payment plans with vendors, and of course, got a new accounting system. Most important are the preventive security measures they’ve put in place so that this doesn’t happen again.
First, and foremost, they have severely curtailed any accountant’s access. Says Pam, “Open the mail; deposit any checks; mail all bills, statements, and written checks yourself. Keep a check log that only the owners have access to. Have as few bank accounts as possible, have all bank statements mailed to your house, and look at them very carefully. Have actual checks come back to you. Don’t give a bookkeeper sign authority on any account. Make vacations mandatory, which gives you a chance to audit an accountant’s work. Get fidelity and fraud insurance, and do comprehensive criminal background checks on the person.” Even with all these new rules in place, Pam says that “if someone was determined to steal, they would find a way. But [the way we have it set up now] it’s not attractive and easy. They’d probably go somewhere else.”
Having systems is what kept the Austins from going under, Pam says. And although it will take at least five years to dig out from the debt, she says they’ll probably make a profit this year.
However you prioritize your old debt, keep in mind that you’ll be incurring new debt in order to continue working. “The first priority should be to pay for current work,” Shiner says. “Stay current with vendors and stay current with the IRS; it’s not a good bank. There’s a 10% penalty if you’re three days late.”
KEEP BUSINESS GOING In 2003, major companies such as Hewlett-Packard and Intel in Fort Collins, Colo., laid off 4,500 people.
“Our clientele generally sold stock options and paid cash for remodels. But when stocks went down and the layoffs occurred, our phone didn’t ring,” says Bob Peterson, owner of Associates in Building and Design. “The high-tech industry was 60% of our business.”
Peterson decided to lay off some of his staff of 20. “I laid off seven people in one week. It was the most miserable week of my life,” he says. With the help of his Remodelor 20 peer group, Peterson developed a measuring grid/spreadsheet to help him determine whom to lay off. He rated employees on an A, B, C, D scale. “You’d think you’d be smart enough not to have ‘D’ employees, but during the process I found a couple of them. It forced me to evaluate my staff. I do that every six months now,” he says.
He also whittled overhead “line item by line item. We cut the office-supply budget from $400 a month to $300 a month and have kept it there. We reuse binders, recycle paper. If it’s non-financial or an in-house document, it’s got something on the back side of it. We skinnied down the health benefits plan from 100% to 30%, but that 30% is almost the equivalent [dollar amount] of the 100% we were paying four years ago.”