Hi,Guys, we have had a very hectic 12 week period at mrlifeadvise.
In late June we got an emergency call from a former owner of a 200+ person company that 5 years after the man had left his company to his two children the company was going under.
And he called us in to see if we could use some of our magic to see what was going on.
The company works in manufacturing of industrial parts both as a subcontractor and with their own production line in a very advanced industrial facility.
When the man left the company two his son age 43 and his daughter age 40 today, 5 years ago the company was doing 30m Usd annually in revenue, had a profit of around 3 million Usd.
And they had some reserves of around 4 m Us DOLLARS, which by all accounts should make this a very stable company also for the future.
The workers had been alarming him for a 2 years period, but he had taken those alarms lightly and thought that it was just about the different management style that his very well educated children had.
Compered to his more rough around the edges, a pupil of the so called school of hard knocks, a man that was born dirt poor and who worked 6 days a week for 40 years to build his own business, and by all accounts did a really good job, doing so.
So 5 years after he retired at the age of 70, now 75 years of age, his company has 9 million Usd in debt and the turnover has gone down to 18 million Usd on an annual basis.
So when we where called in to consult in June, we could clearly see that something more sinister that just bad business was going on behind the scenes here.
The son worked as the CEO and the daughter worked as the CFO.
Both had attended ivy league schools starting from Prep all the way to the university.
And because they controlled now the company/ it was theirs so to speak to run but the father still had 51% of the control, but was no longer active at all in the business.
He was mostly travelling around the world, enjoying his retirement.
So a very long story in a bit shorter format is that both the CEO and CFO so brother and sister had become gambling addicts over the past 15 years time, but now with access to big money it has escalated to an unheard of level.
So basically the brother has lost 7 million dollars betting on sports, mainly NBA,NFL and Soccer.
The daughter had been playing high stake slot machines and lost about 3 million dollars during this time period of 5 years.
So what they had been doing was gambling instead of taking care of the company that was left to them, they had a stake of 24.5% each now and was gonna inherit another 25.5% each when the father had passed away.
And they had borrowed money at a very high interest against their stakes in the company.
This was one thing we found out, when we did a forensic accounting expedition.
But what was even more troubling was that they where both spending up to 10 h a day gambling instead of running the company.
In the first 3 years the other workers and mid level management was able to cover their end to keep the business going but after losing two large client over the past 24 months period it all came crashing down on them.
We got both the brother and sister into a separate rehab for gambling addicts where their is a 5 year plan to get them both healthy again.
But the sad part of this story is that it looks like the company will go up for sale to a foreign buyer who will then move all the production and 200+ people will be left without a job to go to in this fairly small town.
If this would have been known 2-3 years ago then maybe the company could have been saved as is!.
But with a 75 year old CEO now, back in his own seat, but with 49% of the company in lenders hands, he do not believe that he can solve the 10 million dollar debt to the lenders by by keeping the company.
We are still always amazed that it is legal to offer an interest rate up to 40% each year as a finance company.
So even if the interest rate on these loans are 24% it is still to high to cover with the current situation.
So the punchline we are coming to is that never ever start gambling when you are a business owner.
It can go very quick , and suddenly you are hocked and you are losing everything you worked so hard to build, in the first place.
We have seen over the years that there are two types of gambling business owners, the one that we saw here in the example above that lost it all, and then there are those who gamble just to the tip of the edge, but never goes over he edge.
But even those who never goes over the edge, create tremendous stress on to their business.
So we know a guy called Brian, who has had a business for over 20+ years and he does the same turnover give or take 15% each year, at around 2 million dollars a year.
We strongly believe that he should do 20+ millions each years with his company.
But the problem is that he gambles to the edge, which means that he takes out so much money that could have been used for investments in new products , R/D, and machinery.
But because he can not stop with the sports betting this is how his life is today and has been for the past 20 years time.
So the lesson is this today!, never ever start to gamble if you are a business owner, and if you are starting a business and you are gambling STOP IMMEDIATELY!, WITH WHAT YOU ARE DOING!.
If there was a way to become a winning bettor on sports-books dont you think that there would be sitting smart people emptying the sport-book companies accounts.
There is studies that shows that in the United states of America their is less than 500 people who be on sports, that makes more than 75.000 dollars a year in net profit.
So that tells you that even if there are a few Billy Walters out there, the chance of you getting struck by lightning is far greater than the chance of you being a successful sports gambler or slot machine gambler.
So do yourself and your employees and your family a huge favor and stop if you are currently gambling and if you are not, then never ever try it!.
Thank you for reading.
Sincerely.
Mrlifeadvise.
