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Business owners, I need your financial expertise

Its been said many ways, but I believe our friend Limi Sami has said it as succinctly as possible: "Cash flow is vanity, profit is sanity". It sounds like the owner needs it tattooed backwards on his forehead so he can read it every time he looks in the mirror.
 
Just to bring this all full-circle. It seems your original post was asking about signing an "employment agreement" to which you seemed satisfied with the terms.

But then later, you state that if you sign, you lose any/all leverage. Leverage for/against what?

And then, you're concerned that the business will fail - run out of cash(flow) mainly.



What is your goal here?



What does signing an employment agreement help/solve, on either end?

What leverage would you "lose"? The ability to re-negotiate the terms?

If the business fails, then the other stuff doesn't matter I guess, does it...?




If you are so integral to the business, and contain all the knowledge to run the engineering, operations, financials, and the business is headed for a [financial] nosedive, then why not lineup your own financing, and buyout your friend. Retain him as a commissioned sales person, and keep the business running in the black?


My goal here is not to be a part of yet another business that fails because of very basic business mistakes. I should mention my last job doing very much like what I do now. They asked me sign a employee agreement after I had been there nearly 8 years and had developed a very successful product for them. I laughed it off and never signed. Then a job came up and the owner made an enormous mistake that cost us a job worth at least 7 million. Then I came up with an idea that would have redeemed us in the customers eyes and saved the customer millions of dollars in operating cost. So I talked to the owner about sharing this idea with the company for a small piece of the action. The response was like I asked for one of his kids in return. I left the company and never told them this idea, and they didn't get that job.

Now my current boss would cut me in on that kind of deal in a heartbeat. So I don't wish to see him fail, I really want him to succeed. However, I have no desire to see what I've worked so hard to do get sold off in a bankruptcy auction or bought for pennies in a venture capital bailout, and yet again I get nothing.

I am a little surprised at the answers here and I think it may be because few people here have experience in this kind of thing. Everyone talks about finding and selling your own product and you know how difficult that is. I don't have that difficulty. I have a long list of successful products that I have invented. The problem is they are all in an industrial markets not consumer, and none of them sell for say $100, they typically start at $100K. So that means ramping up takes so serious cash.

On the sales side I am a pretty good salesman myself. I have never had a problem selling more than the company I worked for could produce. At one company I was the closer, the owner would bring the customer out to the shop for my little demo and stand behind them. I could see the big smile on his face everytime when he knew I had closed the deal. When the owner isn't available to spend time with a customer I do the same thing here. I even get sales jobs offers just walking a tradeshow and talking with vendors whose products I use.

This is a money problem plain and simple.
 
Whats the burn? losses or financing orders?

1) 100% agree about cut the burn rate & move into the kitchen. Investor don't like financing losses - finance growth - equipment, inventory, A/R etc is another matter. Super scalable tech might finance losses but it is tough for a manufacturing business. I'd be leery of a business that took on expensive office space while having losses .

2) 100% agree on the how bloody miserable venture capitalists can be. If you overcome the smugness, they'll want most of the business and you'll spend 1.5 days a week in reporting, which should be spent making sales calls. Avoid if possible - instead, control costs, friend and family investors, cash flowing orders (i.e. w/progress payments), bank, equipment lease and factoring are financing sources.

3) you can only sell your way out of a cash flow crunch if you get big down payments and or progress payments. Otherwise selling places more demands on cash flow.....yes, its the path to profitability, but you need finance those sales - raw materials, WIP, A/R and so on. Do a proforma, monthly integrated BS, P&L and cashflow and watch how you sell yourself right out of cash (should be doing that anyway)

4) Two hour presentation with an HR lawyer, complete with slides and org chart? All those chiefs and so few Indians? Unless he's got $10MM to back it up with, I think you've correctly sized it up. I would never do that when burning, you do everything yourself to conserve cash. You grab some precedent from a lawyer buddy and hammer it out - in 15 minutes then you get back to eliminating the burn. Not that legal advice isn't sometimes warranted, but you don't setup up tables at the Ritz for dinner for 300 when you won't have enough money left over for one happy meal

I would prioritize first stop the burn, work off the kitchen the table, get orders (quotes mean nothing) and possibly find a partner to help - production and the commercial and finance side. If your CEO doesn't see this/doesn't agree and isn't a high net worth individual who can pay for the pleasure of doing it his way, well, I agree on the dicey outlook.

Edit: My initial reaction was thinking it was early stage, but you do have orders? Is burn all losses or just the disbursements of executing on the orders? If the latter you have more options for sure. It makes a significant difference if the burn is losses or just financing orders.

I'm in manufacturing now, but I'm a reformed corporate finance pro. Lots of private equity, debt and M&A deals. Deals like this would roll in.....basically I spent lots of time looking at mostly hopes and dreams and the odd real deal. Early stage with a burn and an appetite to spend? It doesn't bode well
 
How much money have you invested into this venture?

Cash none. However my last raise got me about equal to where I was at my last job and at my age that means I took a hit of at least $100K towards being able to retire. I also put in maybe 500 hrs a year of unpaid overtime over the past 5 years So if the ship sinks I have no chance of recovering any of that.

As followup, after discussing this with my own attorney I am not going to sign the employment agreement. At my last job on day one I was told I needed to sign an employment contract as a condition of employment. When they got around to asking me to sign it was seven YEARS later! I said no I don't think so. I didn't get fired and as a direct result I was able to go to work for the company's rep firm where I am now with no repercussions. I consider theft to be a lack of character at the least and I was extremely careful not to take or use anything from my previous employer even without a contract limiting me.

The contract doesn't give me anything I haven't got by the owners word already. If his word is no good then I am out of here. I made the decision to leave my last job because they flat out lied to me about a new position they offered and I started but after I fixed the problems they told me weren't going through with it.

I will tell what happens. I might get fired, and wind up working in Home Depot! However with the absolute boatload of work we just got it would be a total disaster if I left.
 
This is a rock and hard place for sure. I would look at it like this.
It all falls apart with bad management ect if you leave and you get nothing for the unpaid work you have put in over the years and you end up working for less anyway.

Or you slowly change the business from the inside while there giving it the best chance to succeed contact signed or not signed its more about the money for me at present.
No more unpaid overtime from this day on and option two stay put has a better chance off paying off as flat out leaving will for sure mean your worse of in the short term.


I could be wrong but I would stay put change things, work no more over time and if the money runs out then it's all over. Leaving now will only make you a poor man in the short term and if your a slightly older fella it might be tough to get a job paying the wages your on now.

Stay put change things work only your hours anything extra just say no
 
If you're so certain that you can run the company better (and maybe you can) then can you instead restructure your pay as very senior debt instead? If the company is losing money, then your salary isn't helping that much. Obviously the amount you get paid would have to be significantly higher to compensate for the extra risk, but it might be both cheaper for them than other debt, and would "bind" you to the company like they want.

My thinking here is if the company succeeds as it stands, great, you get paid. If the company fails, fine, you now own the company and can take a stab at it as you see fit. Owner friend can then help you for a salary instead.

Assuming you're comfortable enough to forego the income for some time and believe in the products enough.
 
If you're so certain that you can run the company better (and maybe you can) then can you instead restructure your pay as very senior debt instead? If the company is losing money, then your salary isn't helping that much. Obviously the amount you get paid would have to be significantly higher to compensate for the extra risk, but it might be both cheaper for them than other debt, and would "bind" you to the company like they want.

My thinking here is if the company succeeds as it stands, great, you get paid. If the company fails, fine, you now own the company and can take a stab at it as you see fit. Owner friend can then help you for a salary instead.

In bold ^^^ how does that work? Structure one's pay as debt?



I admit that I'm very green to the "business" world, but have found myself becoming increasingly interested in business over the past few years, thus why I hang out in this forum so much.
 
In bold ^^^ how does that work? Structure one's pay as debt?
Easy.

It is the "suicide kit" version of just walking out the door and going off to start your own business - clean slate.

Going your own way = no baggage and you ain't (yet) dead-broke.

Staying is like working your ass off on borrowed grocery money to keep boilers hot so the pumps on RMS Titanic don't fail before it sinks anyway.

Blathering in public about how indispensible YOU are simply proves you ain't no such of a thing.

Or ain't worth the damned bother if you were.

If a Fairy Godmother (how come they never have "straight" Godmother's?) were to come along and hand out free common sense?

It would be the OTHER guy first out the door...
 
In bold ^^^ how does that work? Structure one's pay as debt?



I admit that I'm very green to the "business" world, but have found myself becoming increasingly interested in business over the past few years, thus why I hang out in this forum so much.

I think he means that rather than actually getting paid, the company would write him an IOU bigger than his current salary (hopefully a LOT bigger though it might not help much).

In the case of bankruptcy/going out of business, that debt would be paid out to him before any other debtors get a piece of it. Is it possible? Probably. Practical? Doubt it. No matter how its structured, SOMEONE is going to want their piece of the pie, and it'll make a lot of lawyers very happy.

Much like the tax man gets first dibs when companies go under, then usually the banks, and after that there's usually not much left for everyone else to fight over.
 
I think he means that rather than actually getting paid, the company would write him an IOU bigger than his current salary (hopefully a LOT bigger though it might not help much).

In the case of bankruptcy/going out of business, that debt would be paid out to him before any other debtors get a piece of it. Is it possible? Probably. Practical? Doubt it. No matter how its structured, SOMEONE is going to want their piece of the pie, and it'll make a lot of lawyers very happy.

Much like the tax man gets first dibs when companies go under, then usually the banks, and after that there's usually not much left for everyone else to fight over.

There's the "suicide kit" part.

Cumpknee goes tits-up, debt can be as worthless as the concept was to begin with, and near-as-dammit always is.

Modest "real" pay, plus stock options, or ACTUAL stock, by comparison?

Not an absolute assurance of success, but far the better motivator, and sure as all-get-out has far the better track-record.
 
I'm not saying it's a great general purpose strategy. But if the facts on the ground are really exactly as the OP states, and the product line is really that competitive, and he could really run the thing better, and he's really that vital to it...

You'd do it with a note secured by something indispensable to the company, that isn't already pledged, and more valuable than your owed money. In my company, you'd want the copyrights for the designs and source code for the software, plus the patents and trademarks.

If there isn't anything protectable, not already pledged, and vital to the company, then there isn't any value there. Stock is the last thing you want in this situation, what's the value of (current) ownership of a company you believe is going under? You want "future" ownership. Banks like hard assets (houses, cars, property, etc) that they can liquidate. They're not going to have written a loan secured by the company's patents.

Now, personally, do I believe the OP is seeing and describing the situation exactly? I rather doubt it. I don't see how a company that has done $400k in four years justifies a $720k per year cash burn rate. But, to have someone believe it, they have to be developing something of value.
 
Now, personally, do I believe the OP is seeing and describing the situation exactly? I rather doubt it. I don't see how a company that has done $400k in four years justifies a $720k per year cash burn rate. But, to have someone believe it, they have to be developing something of value.

Two things on that.

(1) Even if he was, the "best" product almost NEVER wins. The best funded and managed FIRM with better Marketing, Sales, and post-sales support with a lesser but "adequate" product wins. Then - they buy the better idea and kill it off much more often than they keep it and springboard off it.

D'you suppose Theodore Newton Vail had better telephones? No, he did not. First - he had to even get Copper WIRE adopted instead of iron wire. Better plan, better management, and a hard-edged attack plan? Those he did have.

(2) The money isn't "real". Not by a full order of magnitude. At least. Staff cost drive that. A good man in Engineering or Design was over $100K / year fully burdened, eg around 45K to 50K salary, 25 years ago. ONE good man. You need the creator-of teams of such folks?

Just double that figure, then?

25 years ago..

Small companies living off other small companies?

Lot of that going around, but going around isn't forward motion.
 
Thank you for this, Exactly what I wanted to share... Sometimes I fall victim to poor management but I have become wiser... Whatever they throw at me, I will have to add edit and add my own terms
 
Blathering in public about how indispensible YOU are simply proves you ain't no such of a thing.

Or ain't worth the damned bother if you were.

If a Fairy Godmother (how come they never have "straight" Godmother's?) were to come along and hand out free common sense?

It would be the OTHER guy first out the door...


What axe do you have to grind against the OP?

I suppose this is the appropriate place [within the PM forum] to discuss such business matters. How is this any different to a a machinist, posting on here, voicing concerns about a dead-beat employer? That happens often enough, yet it's OK, and this thread topic is not...?

I have asked about your personal career story, because like I mentioned earlier in the thread, I have really become interested in business, management & ownership. To read-between-the-lines of many of your posts, it seems like you spent a good stint of your career in corporate level management. Is that the case?

You've been awfully critical of the OP in this thread, for even bringing this discussion to the table. I don't understand why. Perhaps you have a very good & wise reason for feeling that way. If so, please share it, because I ( and many others ) are frankly here to learn.
 
What axe do you have to grind against the OP?

I suppose this is the appropriate place [within the PM forum] to discuss such business matters. How is this any different to a a machinist, posting on here, voicing concerns about a dead-beat employer? That happens often enough, yet it's OK, and this thread topic is not...?

I have asked about your personal career story, because like I mentioned earlier in the thread, I have really become interested in business, management & ownership. To read-between-the-lines of many of your posts, it seems like you spent a good stint of your career in corporate level management. Is that the case?

You've been awfully critical of the OP in this thread, for even bringing this discussion to the table. I don't understand why. Perhaps you have a very good & wise reason for feeling that way. If so, please share it, because I ( and many others ) are frankly here to learn.

Criical because he's a nut-job.

"Within the PM Forum"?

Might as well put your business details, relationship with the Boss, living arrangements, hours worked, home life and days away, project spend, burn-rate, all other private financial data in the newspapers.

Then mail a copy to your bankers. any other investors, anyone who might have WANTED to be an investor, any one who might have wanted to be a customer, any competitors.

Except there is no need. The internet has already carried it to the globe. Google indexes it so well.

This.. is how a disgruntled Employee f**ks over a company. As he has done, and well.

He is now toxic. Not employable. Cannot be trusted with sensitive information or ANY information.

His company is now toxic. Problem-stricken. Tolerates fools and saboteurs.

His product is now toxic. Dependent on fools.

"Harsh"? "not my job", bit he can expect to be fired.

Then sued for damages.

You didn't REALLY think a "PM Forum" was a private conference room, did you?

He's been "on the radio", "on TV". "in the press", and even "gone down in history" plus a lot more.
 
He may have said it in too many words, but Bill is right.

There's enough details in this thread to damn a business and to figure out what business it is.

Putting these details out in the open is not a great idea.
 
That's what I was wondering, is there enough of his foot in his throat to damn him? Sure seems like it, I understand this guys pissed, but his motives "appear" to be malevolent, I'm not saying they are just what it looks like. If what Thermite said is true, which I am inclined to believe it, your screwed. The company more importantly is screwed and I don't see why you would come on a public forum with a user name that is probably your full legal name and divulge all of this information. I have read nothing here that benefits you or helps you in anyway, you already said yourself you spoke to your lawyer, why come here? Like said before you have probably lost all fight legally in your rant, opened yourself up to legal repercussions, most likely destroyed your friendship if it wasn't already, and sabotaged your employer. No doubt its a sad situation.
 
In the case of bankruptcy/going out of business, that debt would be paid out to him before any other debtors get a piece of it. Is it possible? Probably. Practical? Doubt it. .

agreed, imo it won't happen. Sr debt means secured, give up first position to a employees salary will preclude any investor or lender from ever looking at the deal.

however it may be moot in that the wages might be more secure than Sr debt, depending on jurisdiction. Converting it to debt can look like a settlement - ie you've agreed its now debt not wages whereas in many place like here, salaries and taxes get a priority even over secured first position debt if it comes to a liquidation

Bill you're being maybe a touch too harsh, but I agree with sentiment....this isn't a private office. otoh it was at least attempted to keep it anonymous.

Perhaps we could all agree that the right thing is for the amateur sleuths to keep it so, anonymous, to protect the innocent so to speak.
 








 
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