employees, family-businessI run a small company which offers a portal site for hometeaching teachers.
After reviewing our accounting books for October, it is clear to me that we will continue to lose money for the foreseeable future.
My parents are the primary shareholders in the company, and we don’t share the same attitude about the operation. I feel that this company is too overstaffed, in the relationship with the amount of sales, but my mother thinks our staff are making great efforts, so we need to keep them around and get through our financial troubles together.
She does not understand the accounting, so she is surprised about the financial predicament I found in looking through our books.
It looks to me like she is so determined to protect the staff, that she may run the business into the ground.
Am I evil for wanting to fire some of the staff so that some members can be saved? How valuable is being loyal to employees that may not have a positive ROI? Furthermore, how can I have this conversation with my mother in a productive way?
I think there is a deeper issue.
Decision Making
This is just one of many issues that will come up. The board is one thing, who runs the day to day operations and takes the day to day decisions is another thing.
The board for now, is you, your mother and your father. No one takes clear decisions (from what I’ve understood) and the decision making is very complicated and “balanced/democratic.” It should be everything but democratic on a day to day decision making basis.
This is what needs to be done:
A. ROLES - Set out very clear roles with extremely clear powers.
B. HIERARCHY - Agree on the decision making hierarchy in the company. 1 person takes all day to day decisions for x months. Starting today.
C. STARTING NOW YOU’RE CEO - Have the company’s Board (the 3 of you) elect you as CEO with the power over all decisions for 3 months. Once the 3 months are up the Board can evaluate you as the CEO.
From here, you start making decisions, cutting staff, executing the company’s vision.
Shares, red months, opinions, arguments, and a clash of philosophies will just grow and persist if the decision making heriachy isn’t settled. Do this now.
It depend on all sorts of factors. Chief among them runway, burn rate, and traction. And potential investors who are willing to add to the pot. And whether or not you’ve some coming development that should bring a lot more traction.
If you’ve enough traction and runway to let your revenue catch up with your burn rate, then your mom kind of has a point. Sit tight and you’ll see it through.
If you’ve don’t have enough traction, or any credible way out of the hole in the short term, and a high enough burn rate that your runway is short, then laying off asap might indeed be the right thing to do. And maybe even folding - there’s little point in wasting your parents’ money if it’s a dead-end business.
I take it you’re somewhere in between the two though. Might you have a credible odds to locate a new investor to buy more time? Or perhaps an imminent development that should bring you closer to the brighter scenario? If not, axing expenses to get more runway should be on your radar indeed, if you feel you don’t have enough of the latter.
Presenting it to your parents is simple, though. In practical terms, work out:
Your shareholders will understand whatever you plan to do if you come armed with your spreadsheet to explain your decisions.
I’m going to be a bit British and classical here, and not talk about burn rate…
When you closed the book I presume you are talking about a profit and loss account. Being profitable is nice, but it is important to understand that profit is not the same as cash flow.
Do you have a cash flow forecast? I would always have a 3 month detailed cash flow forecast and a longer term high level one. Do you have a point in the future where you forecast your cash flow to be positive? If you don’t you will run out of money and your business will be insolvent (whether or not it was profitable).
Talk to your mum about this cashflow forecast. It is much easier to talk about than a profit and loss account (no depreciation for instance, no accruals, no prepayments). If you are not making enough cash to make the payroll you need to ask yourself why not and when this may change. Focus on cashflow, everyone understands money in the bank, profits will look after themselves.
One more thing to understand, having a positive cashflow in 5 years is not as good as having one now because £1000 in 5 years is worth less than £1000 now. This is known as the ‘time value of money’. It is really important that you can see a return in a sensible time frame. However if that also means running a big sales team to get it, then so be it, these are the balances you have to strike in business. You can only strike those balances if you are informed and you will get that from a cashflow forecast, not from a montly P&L
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