“How can I end this with dignity?”

anxious-for-solutions-to-family-business-complicationSteve,

Let me start by saying I took the SFS in Portland this year and really enjoyed it.  The problems I’m having at this point deal with a lot of the same things that were discussed in class.

We have been in business for about two and a half years.  Business wise we have made good money.  We are a strictly restoration business at this point and our customer service is second to none in our area.

We have 4 full time techs on salary, an office person (my sister), a sales person plus myself and my father. (My dad and I are 50-50 partners.)  I realize we have grown too fast and cuts must be made.  We must also diversify and have plans to do so when money allows us to move into residential and commercial carpet cleaning.

Of course now we are having cash flow issues and payroll has us stretched beyond our means.  Our largest referral source no longer refers due to their internal problems.  We do use the SFS Weekly Flash Report and it works well.  I believe I have the answers to get our company back on track but they are hard to make happen. Why?

First off my partner and father does not believe in sticking to a budget. He is primarily involved in sales which means that my dad may spend 3 hours a week actually on sales calls. (That our sales person sets up for him!) First thing I said when getting back from SFS was, “Our #1 responsibility is increasing profitable sales in our business!”

But Steve, for some reason I think my dad believes the actual work of selling to be beneath him. This attitude is so weird, Steve, since my father has been in sales his entire life and has had a lot to do with our success right out of the gates.  So I do appreciate what he had accomplished.

But our challenge is my dad is all about growing at any cost and getting bigger.  I’ve relayed the stories you told of the million dollar a year business with the owner having nothing in savings versus the owner/operator that grosses 200k per year, is debt free and with a large nest egg for retirement.  But my dad doesn’t get this.

Steve, my point is I do want to make a living and good money. But I don’t need to have my business grossing a million dollars a year just for “bragging rights”!  That being said I do want to grow and achieve financial freedom but not at the cost of crushing debt.  I believe we can run this business debt free and yet me father relies on debt for everything.

I know partnerships are bad and have learned my lesson for certain.  What I need to do now is get this ship sailing properly again.  I know I’m also to blame and  own up to that.

I feel as though there are 3 options. 1) I buy my dad’s portion out and I run the business from this point on. 2) My dad buys me out. (I doubt this would work as he is 66 years old and does not really know whats actually going on with the business other than the sales part).  3) We sell the company.  The business is too young and has no real value so this is not really an option.

Sorry for the long letter but I felt you needed some facts before being able to respond with any type of useful info.  I’m open to any comments you may have. Please don’t hold back!

Sorry in Seattle

PS Steve, after reading this letter my wife just pointed out to me that what I have not come up with a solution where my father and I continue to work together.  Interesting. I think I subconsciously recognize that philosophically we have very different view of how to run a business. This is obviously a major problem and I don’t think it will ever go away. Therefore I haven’t included the option of the status quo continuing. It can’t.  (My dad has spoken of phasing out of the business from the beginning- just maybe not this soon.)

Wow, Sorry, we do get ourselves into some serious jams, don’t we? And of course business problems are compounded when they involve family and the emotional stew that this represents! Yet I think the very act of pouring yourself out in writing may have helped you analyze the situation.

Yes, I would agree that you and your Dad are philosophically and emotionally incapable of working together in business. And recognizing this fact is will be an important step for both of you. Once you’ve seen this then you both can move on both financially and more importantly emotionally while salvaging your family relationship.

NOTE: Don’t feel like the Lone Ranger here! I loved my Dad a lot but he was the worst business partner I ever had. And I am sure he felt the same way about me!

So let’s address three key points:

#1- Do you like (maybe even love?) this industry and want to stay in it? If so, then you and your Dad need to come to a parting of the ways. The cleanest way is for you to buy him out. One way to do this is come up with an equitable and financially possible arrangement (probably including your father providing owner financing) for you to buy his share of the company. Then if he won’t play ball (and he probably won’t since this is about much more than just money) simply “hold his feet to the fire” by saying, “Ok, Dad, then let’s flip this and you buy me out!” You will be amazed how fast he may become “reasonable”!

Now I don’t know much about your company, Sorry, but another way to split up (which is really your goal) is to divide the equipment and your territory geographically. (If possible.)  Not as clean as a buy-out but sometimes it is what it is.

#2- It appears that no matter what you do with #1 above you MUST get control of the purse strings including your Dad’s spending. (And more importantly his business borrowing that YOU will be on the hook for!) Do you even know what liabilities your dad has taken on under the guise of the business?

NOTE: I would strongly suggest you get an attorney to review your partnership arrangement since in many states one partner becomes legally liable for the debts of the other partner if they fall under the business.

#3- Just looking at your company description: “4 full time techs on salary, an office person (my sister), a sales person plus myself and my father” tells me you have more people (and much more payroll) tied up in admin than you do in production. You are right, this is a seriously top heavy company and especially if the non-production people are not producing profitable accounts! Cuts need to be made and not in production. (Unless there are employee performance issues I am not aware of.)

But I digress! What to do? Honestly? Go lay all this out for your Dad. Maybe at 66 he will be willing to retire and let you buy his share out while supplementing his Social Security, etc. (I don’t believe passive income like this will affect his SS benefits.) If not, then you may need to review the Biblical account of Abraham and Lot. Abraham offered Lot two different areas and basically said, “We are splitting up. You choose which one you want and I will go into the other area.” It worked for them and I hope it does for you!

Steve

PS Who knows? Your “other area” may be commercial/residential carpet cleaning while your dad buys you out of the restoration side of things. Or here is an idea! You spoke about “diversifying”. Many of our SFS restoration members have found that adding regular commercial carpet cleaning contracts to their business really helps even out the peaks and valleys of restoration losses. So you buy your dad out and he stays on as a commission only sales person.

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