I Want to go Gordon Ramsay Sometimes!

There are times I want to scream at partners in mediation! I have had people dig into positions and refuse to give an inch. Can you imagine so much hatred between people that they refuse to come to terms when separated by a couple thousand dollars on a buyout? When it’s not about business and far from rational, I sometimes want to scream, “what’s the matter with you two? You want to get lawyers involved and have more meetings over $2000?! You would rather spend $3,000 to not compromise over half of $2,000? Are you just stupid?!!!” 

I Have Only Gone Full Gordon Ramsay Once

Two guys who were partners in a successful business came to me because the trust had broken down. One partner was fully responsible for managing the business and the other had put up a considerable amount of money to get the business started.  The plan was for both partners to work in the business after it got going. Three years in, there were accusations that the working partner was using the company debit card for personal purchases.  That’s a pretty serious charge to make against your partner. They agreed to mediation and we scheduled our first meeting.

At that meeting, I asked to review some financial records pertinent to the accusation. Turns out they didn’t have very good records. Yes, there were the usual bank statements, credit card statements, and some sparse spreadsheet accounting.  So, I asked about getting some receipts to match up with line items on the bank statement. “Uh, I’ll try to find them.” Not a good sign! I never know where a case is headed when the books are a mess. 

At the next meeting, we had a little more data to work with.  I suggest we pick a transaction and look into it. “OK, look at this charge at Citgo [gas station]!”, the accuser says. Good. We match up the receipt for about $95. “There! See! I knew it.”  Yes, indeed, we uncovered the crime of the century! Read on…

 The Crime—and the Proof!

What did we uncover? When filling up the delivery truck our partner in crime bought, ready? A CANDY BAR! It was right there on the receipt! Using the company’s funds for personal use! Got him! Imagine if this happens every day, 5 days a week, 52 weeks a year for 3 years! At $1.75 each, we could be into some serious money, right?! No wonder they weren’t able to begin profit distributions! Skimming is never proper and it can be fatal in a partnership.

The real issue was that after 3 years, the working partner was only making $1200 a month and the other partner was getting nothing in return for putting up $400,000 to start the business. Both guys mortgaged assets as well to start the business.

Revenue? Sure, they were doing $2.5 million in sales! COGS was about $1.2 million. The overhead wasn’t much. So why, after 3 years, are these partners unable to get some money from this business?

Looks Like a Lot of Candy Bars!

Where’s the money going? That was hard to say because the books were a complete mess. (What a weird term: Complete Mess? Would a mess be better or worse if it was ‘incomplete’?) Over the next few meetings, I helped them clean up the accounting and develop a picture of how the business was actually doing. I persuaded them to hire a bookkeeper to go back to the inception of the business and produce good P&Ls for each and every month.  The tempers cooled off and they were in a better place when I wrapped up the mediation. 

So Why Did I Lose It?

About a year later, they called me again. They were having the same old arguments over money and candy bars. Did you get a bookkeeper as I recommended?

Yes.

Are you reviewing the P&Ls every month as I instructed? 

We haven’t had time.

Okay, let’s review the past 2 months. 

Here.

Wow! Your sales are on track to hit $3 million in revenue this year. Are you both finally taking respectable salaries? No? Why? There still is no money. 

Look, you’ve got $20,000 in office supplies last month. And the electric bill for your 400 square foot office is $15,000 for last month? Did you hire more people? Under “Salaries” you have $250,000 for the month? They both said, “we didn’t catch that.” “That’s why we’re showing negative for profit.” I asked, “Is there money in the bank?” They replied, “Yes! A lot. We thought the checks just hadn’t cleared yet. That’s when I lost it. 

“Guys, you have a business that’s generating $3 million a year and you have no idea what’s happening with the money. You are “winging” your tax reports and filings. You pay no attention what’s going on with your own business yet you keep getting into disagreements over candy bars? I can fix that easily. With the revenue you’re generating, we can easily afford to set an allowance of $40/month for Johnny to get a candy bar when he fills up the truck. Done. Agreed. But you’re 4years into this business and still do not have basic bookkeeping. I repeatedly instructed you to get a competent bookkeeper and to review the P&Ls EVERY MONTH.  I cannot work with you any longer. You get in petty fights over nonsense like candy bars while hundreds of thousands of dollars is unaccounted for. I cannot continue to try to help you. Get a qualified bookkeeper and get your act together before you are dragged into the mother of all audits and end up losing this golden egg laying goose.  Grow up. This is serious stuff. You both mortgaged your homes to start this business and it’s potentially doing great. Don’t blow it. 

Mic drop.  Chris out. 

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