Editor's Note: In last week's episode, we left off with our hero(?) wondering where he was going to come up with $18 million to avoid all sorts of legal actions that would forever impact him and the organization he represented. Read on and enjoy. As always, you can find all my blog posts from 2013 to the present on my website at http://stevemarshallassociates.com/steves-blog/
The Immense Power of Collaborative Thinking
There are a great many people wiser than I am and one of the things I have heard over and over again is, "One day at a time, one step at a time."
- Step 1 - I put the CFO, and her team of accountings temps to work to see how much of the $18 million we could account for to provide documentation to the Feds and the other grantmakers to which we owed the money;
- Step 2 - Begin conversations with the original Board Members to let them know how they had failed in their fiduciary responsibility to the organizations and its future.
At the end of a six-month marathon of forensic accounting, my hero, the CFO and her team, had accounted for close to $15 million of the grants which we duly forwarded to the grantmakers. The remaining $3 million was accomplished through fundraising from the Board(s) and a $500,000 promissory note, secured by the imminent distribution of a bequest. Then, we turned ourselves into the Inspector General for the Department of Justice to receive whatever punishment they deemed appropriate. As we thought, it was relatively minor, because, after all, we had repaid the money and, the worst part of their ruling was that the original entity was barred from ever being eligible for federal grants again. This judgment sounds worse than it was, as the original entity as a corporation would cease to exist in the next few months anyway.
The best part of this whole ordeal was that it brought the entire team of staff, volunteers, and professionals much closer together as a working team that endured long after we sent the feds their checks and the merger was complete. About the public, no one will ever know the gritty details of this shameful incident, and that is the way it should be in my mind. We transformed lemons into lemonade.........the hardest way possible.
Fool Me Twice, Shame on Me!
Fast forward ten years to 2016 and I am starting to think about the future; mine and those around me. As Frank Sinatra stated in his famous ballad about growing older, "It was a very good year," I am looking at the autumn of my career and seeking a business or an asset that can work for me, rather than working for it. Then, I found the perfect business (or so I thought)! I had been frequenting a business for several years in my town and wondered what it would be like to own such an enterprise. I even had gotten to know the people that worked there very well and knew about all the strengths and weaknesses of this business. So, when the "For Sale" sign went up, I contacted the broker representing the owner and asked, "How much?" The number he gave me was sky high; about six times annual receivables (the staff told me this dollar figure) and I inquired whether he was in a situation where he would negotiate. The broker hemmed and hawed and finally said something I already knew; the owner had moved several states away and was a motivated seller (the staff was very helpful here, too; they hated him).
I decided to take the initiative and called the seller at home in Houston (the staff gave me his number!). I made an offer that was more reasonable to me - three times annual receivables, and he refused. I reminded him that his deferred CAPEX amounted to almost $750,000 and that any shrewd buyer would figure this out during diligence anyway, so, if he wanted to sell it, he would have to be a little flexible on the price. He left off that he would think about it and get back to me, which he did the next day and said he would sell it for four times annual receivables. I agreed but said that my terms would be some cash and the remainder in the form of a note from me to him for ten years with a balloon payment at the end of that period. We haggled about this, but he finally agreed, and we closed in December 2016.
I Bought a Car Wash!
Matt Damon starred in a very cute movie called, "We Bought a Zoo" in 2011, which told the (true) story of how a journalist bought a failing zoo in England and, with blood, sweat, and tears equity, brought it back to life. Nothing so dramatic in my case; it had been an operating business for 14 years and was still doing very well, grossing $500,000 annually. I looked at it this way; short of the planet running out of water, it was almost a recession-proof business. I even had an accountant review the owner's tax returns and his books before I said, "Yes" - the performance of this business was stellar. In addition to the regular people coming in once a week, I can't tell you how many people that would come in there with 19-forgotten cars and trucks and spend $10 to wash a rusted and faded paint vehicle. With just three part-time employees, and is in a very advantageous location next to a huge mall, anchored by a large Kroger grocery store, what could go wrong?
The Feds - Again!
In March 2017 I received a call from the (state) Department of Revenue looking for the owner. I responded that I was and asked how I could help them? The gentleman on the other end of the call immediately launched into a series of questions about the whereabouts of the sales tax reports for the years 2008 to 2015. I finally stopped him and said that didn't own the business during that time and had only recently acquired it in late 2016. He asked where he could find the former owner and I decided to stall a little bit and said I would have to find that information and call him back. My first call was to a contract law attorney I knew and asked him for his opinion on this matter, and he immediately said, "If he didn't pay the sales taxes due for that period, then your contract with him is null and void, and he has committed fraud." OMG! His next words gave me a chill as frosty as the Arctic; "And, if he doesn't pay the state or can't pay them for the taxes due, they will seize and close the business until they are paid."
Next Week: Moving on