Dilemma with employer - what would you do? (1 Viewer)

[jomar]

a good friend who came to me with an issue with his employer, asking for advice. I was stumped so I thought I'd run it by the FFA to see what most folks would do. Here's the situation:

Friend works for a privately held family company who he is pretty sure will be out of business in 2-5 years. The owners of the company are simply bleeding the company dry by withdrawing large sums of money while the company itself is not making money. The owners themselves don't do much other than take large salaries and run their country club and traveling expenses through the company, as well as other things. Its once plentiful cash reserves are dwindling and will probably be gone in another year or so.

most of the sales team is aging and will be retiring in the next 2-4 years so he can't see sales improving. the VP of Sales is a relative of the founder and has done nothing to grow the sales force or even maintain it over the last 15-20 years. the only good sales people they have have been there for decades. when he decided something needed to be done, he went and hired a 'Sales Manager' to find productive sales people so he wouldn't have to do any work himself. the Sales Manager is useless as well. the President of the company is another relative of the founder and does nothing to hold the VP of Sales accountable. They've also increased overhead spending in other areas as well, to the point it is so overloaded, he doesn't believe it is sustainable business model. The only way out is for the owners to cut their expenses but this will never happen.

He is the CFO and has talked with the his boss, the President of the company, about the situation and how they need to, at the very least, quit withdrawing money when they are not making any. They agreed. However, the withdrawals have not stopped nor has the traveling and spending. He recently learned that they are going to take more money out after the 2nd quarter. The owners are in a cycle where they are used to having the country clubs, the world travel, etc, but its to the point the company can't afford it anymore. Owners can't stop doing what they're doing as they are in a 'keep up with the Jones's' mode where they live. The would be ostracized from their high-brow friends if they money stopped. I know the people he works for and, sad as it is, this is probably true.

Friend is basically done and would like to move on from the situation but here's the stickler: He is very well compensated at this company and would be looking at a 30-40% pay cut to leave and take another job. He also has a deferred comp agreement with this company that goes into effect when he turns 65, which isn't for another 20 years. He doesn't think that is ever going to happen as the company will probably be bankrupt but nothing is certain. it is possible the company survives through this mess but it seems unlikely. He also has a clause in the def comp agreement that he gets $500,000 if the company is ever sold. it is possible the owners sell the company at some point instead of going bankrupt but they'd never get enough to sustain their lifestyle. the owners have never actually worked and couldn't find another job if they had to. so he doesn't see how they'd ever sell but it is a possibility. Also has a $500k life insurance policy through employer.

his choices come down to:

1. Ride it out and hope for the best. Collect his paycheck and find a job when/if current company goes bankrupt. He doesn't like the prospect of having to look for a job when he's 50 or so but the $500k is still out there under this scenario too.

2. Leave and find a new job now. the 30% pay cut wouldn't cripple him but obviously its not an ideal scenario. he feels it would help his stress level but bye bye def comp and possible $500k.

what would you do?

 

[BroadwayG]

Sleep with his wife

 

[jfranco77]

Even if they do sell it, what are the odds he actually gets his 500k? Deferred comp ain't happening. No need to jump into something but start looking for sure.

 

[IC FBGCav]

Being someone with a job similar to his I would go with option 3.

Keep working where he is at while actively searching for something else. Since he is not in a rush he can take his time and find the best situation for him.

To add: If he is a competent he should know better than anyone else if they will be in business in 2 years let alone 20 years.

 

[Keith R]

Quick answer - Stick it out with the high pay as long as it lasts but get used to living a lifestyle with 30% less income. Invest that 30% conservatively in mutual funds or the like.

 

[msudaisy26]

Ride it out and start saving the 30 to 40 percent extra he is making into savings. This way he will know how to love and budget for the cut and have the money for a rainy day

 

[heckmanm]

I doubt job hunting when he's 50 would be much different than now at 45. If he's not miserable, I'd go with option #1 but start researching/networking now.

 

[Joe Summer]

It sounds like your friend has enjoyed a similarly "inflated" lifestyle, thanks to his salary being 30% higher than it should have been. If I were in his shoes, I'd keep my mouth shut and scale back my lifestyle a bit. (i.e., "start hiding [30% of my] money").

 

[eoMMan]

Quick answer - Stick it out with the high pay as long as it lasts but get used to living a lifestyle with 30% less income. Invest that 30% conservatively in mutual funds or the like.

This.

Sounds similar to a company I was with a few years back. They eventually filed for bankruptcy and new owners came on board.....who let most of the management and some staff go. Almost everyone else got a pay cut.

He should be looking now and expect a decrease in pay. If a great gig comes along, he should leave. Him being the CFO doesn't look too good if they file for bankruptcy even if he had nothing to do with it.

 

[Cjw_55106]

I agree with the others. Keep the job, but start living like you have less money. Someday, he may need to do this for real and the cushion he saves now, will help him out.

 

[jomar]

Being someone with a job similar to his I would go with option 3.

Keep working where he is at while actively searching for something else. Since he is not in a rush he can take his time and find the best situation for him.

To add: If he is a competent he should know better than anyone else if they will be in business in 2 years let alone 20 years.

he is looking now. that's how he knows he will take a pay cut.

if he does find a good situation with the 30% pay cut, do you take it?

lastly, he does believe they can make it 2-3 more years but you never know. a large account or two could come in the door tomorrow and solve some of the issues.

 

[jomar]

this guy isn't too pleased with the owners pissing away money and a good business that employs 80-90 people so he mentioned a possible third option:

resign from his employer and instead sign a 6 month employment contract at a much higher pay rate than he currently has. His employer is going to be lost without him and would have almost no choice but to agree. he works 6 months showing a new guy and his boss what he does, how he does it, and ensures a smooth transition while he finds a new job. He banks the extra money to cover a few years of his pay cut.

he's pretty frustrated with the situation and would like to leave on principal if nothing else. He is the CFO and told them to knock off the withdrawals and they haven't. That might be enough to get me to leave if I was in his spot rather than having a bankrupt business on my resume as a CFO

 

[IC FBGCav]

Being someone with a job similar to his I would go with option 3.

Keep working where he is at while actively searching for something else. Since he is not in a rush he can take his time and find the best situation for him.

To add: If he is a competent he should know better than anyone else if they will be in business in 2 years let alone 20 years.

he is looking now. that's how he knows he will take a pay cut.

if he does find a good situation with the 30% pay cut, do you take it?

lastly, he does believe they can make it 2-3 more years but you never know. a large account or two could come in the door tomorrow and solve some of the issues.

Chemical X lives near me and we hang out once in a while. He used to do business loans for a bank and told me how a large majority of private business owners treat the corporate account like their personal account. So that is more normal than not depending on the extent which in this case seems extreme.

If he finds a good situation with upside and I would bolt but there are more things than money. Work environment is important too. One of my biggest perks is be able to come and go as I please without any grief.

Also, the stress the of trying to run a business financially when money is being taken out of non business purposes sucks. Running a business is hard enough without financing the partners extravagant lifestyles.

The pay cut aspect, ranges of salary for a CFO varies greatly, so 30% is really not indicator on what to do plus it is hard to know that he is going to lose 30% by changing jobs. Going from 200K to 140K isn't as big a deal as going from 100K to 70K IMO. But that also depends on his personal bills, age and if he is living paycheck to paycheck or not.

 

[RUSF18]

Just to be clear here...is the company privately held ONLY by the same family members who are treating the company like their personal bank account? Or are there also some smaller minority shareholders in addition? Because if he as the CFO is attesting to financials that he know are bull####, he's got a problem.

 

[Foosball God]

Start hiding the company's money

 

[Gr00vus]

He should be looking for another job. If he finds a good one with a future he should take it, even if it means taking a pay cut now, he'll probably be better off in the long run all the way around. As mentioned above, he's in a good position as he's got some time to look, which is why I wouldn't suggest he go with the mercenary plan. That would put an unnecessary time constraint on landing the next job.

 

[IC FBGCav]

He should be looking for another job. If he finds a good one with a future he should take it, even if it means taking a pay cut now, he'll probably be better off in the long run all the way around. As mentioned above, he's in a good position as he's got some time to look, which is why I wouldn't suggest he go with the mercenary plan. That would put an unnecessary time constraint on landing the next job.

Never burn a bridge if you don't have too. :thumbsup:

 

[chet]

He should be preparing a syndicate to buy the shell out of bankruptcy. That's the money play.

 

[jomar]

Just to be clear here...is the company privately held ONLY by the same family members who are treating the company like their personal bank account? Or are there also some smaller minority shareholders in addition? Because if he as the CFO is attesting to financials that he know are bull####, he's got a problem.

currently owned by 5-6 family members. sounds like those 5-6 family members are costing this company $2-3 million in salaries and paid expenses before you factor in the S-Corp Distributions, which run another $600-$800k per year. so these people are costing easily $3m per year and do next to nothing. they could disappear tomorrow and business would be affected little, except for the plus to the checking account. when you factor in this company might be doing $30 million per year in revenue, that's a huge hit for something that is not helping the company in any way

Also, he does not have to attest to the financial statements of a privately held company

 

[jomar]

He should be preparing a syndicate to buy the shell out of bankruptcy. That's the money play.

this is something I discussed with him. we know people who have money laying around that could buy up this company. get rid of these owners and you instantly go from making no money to making $2-3 million. since they haven't been making money, how much could they ask someone to pay? with the building, inventory, receivables, etc., probably looking at $5-6 million for a company that will make that back in 2-3 years. the problem is that he doubts the owners would sell for that because they'll blow through that money in a couple years. then they have nothing, which they will have any way when the company goes kaput. they don't sound like the brightest bulbs in the bunch.

if someone buys the company, they still have the issues with the sales force too.

 

[msommer]

Being someone with a job similar to his I would go with option 3.

Keep working where he is at while actively searching for something else. Since he is not in a rush he can take his time and find the best situation for him.

To add: If he is a competent he should know better than anyone else if they will be in business in 2 years let alone 20 years.

he is looking now. that's how he knows he will take a pay cut.

if he does find a good situation with the 30% pay cut, do you take it?

lastly, he does believe they can make it 2-3 more years but you never know. a large account or two could come in the door tomorrow and solve some of the issues.

The alternative is to be a 50 year old unemployed CFO whose last company went belly up - no one is going to line up to hire him...

 

[Spike]

Ride it out and start saving the 30 to 40 percent extra he is making into savings. This way he will know how to love and budget for the cut and have the money for a rainy day

This is a great idea.

 

[fantasycurse42]

I'd ride it out and continually look for comparable comp... I don't understand why it is impossible for him to find that if he looks long enough. Doesn't sound like he is being forced out, so he could take 12-24 months with his search if need be.

 

[sbonomo]

He should be preparing a syndicate to buy the shell out of bankruptcy. That's the money play.

I was actually thinking of something along this line. He is definitely a "key man" in a bk situation meaning that if they are forced to file most likely he will be included in the team that stays. That being said, it is tough working in a situation that you know is going to end up terribly. If they are forced to file, the company will have time to go through the bk process where one of the options will be a 363 sale. I doubt he he can participate in the purchase so he needs to act sooner. Now, he will be able to negotiate some sort of stay bonus in bk that will probably mirror the sale incentive he already has. Overall, if he can keep his sanity, waiting this thing out is probably a good financial choice. Sounds like the ownership team is going to push it in a bad direction quickly so worse case scenario is that he looks for a job in the interim that pays what he is making now.

 

[sbonomo]

He should be preparing a syndicate to buy the shell out of bankruptcy. That's the money play.

this is something I discussed with him. we know people who have money laying around that could buy up this company. get rid of these owners and you instantly go from making no money to making $2-3 million. since they haven't been making money, how much could they ask someone to pay? with the building, inventory, receivables, etc., probably looking at $5-6 million for a company that will make that back in 2-3 years. the problem is that he doubts the owners would sell for that because they'll blow through that money in a couple years. then they have nothing, which they will have any way when the company goes kaput. they don't sound like the brightest bulbs in the bunch.

if someone buys the company, they still have the issues with the sales force too.

if they are generating 3-5mm of normalized ebitda, it would sell for 5-10x multiple in todays market. No way this thing sells for that based in what you have told us.

 

[jomar]

He should be preparing a syndicate to buy the shell out of bankruptcy. That's the money play.

this is something I discussed with him. we know people who have money laying around that could buy up this company. get rid of these owners and you instantly go from making no money to making $2-3 million. since they haven't been making money, how much could they ask someone to pay? with the building, inventory, receivables, etc., probably looking at $5-6 million for a company that will make that back in 2-3 years. the problem is that he doubts the owners would sell for that because they'll blow through that money in a couple years. then they have nothing, which they will have any way when the company goes kaput. they don't sound like the brightest bulbs in the bunch.

if someone buys the company, they still have the issues with the sales force too.

if they are generating 3-5mm of normalized ebitda, it would sell for 5-10x multiple in todays market. No way this thing sells for that based in what you have told us.

I'm confused. are you saying $5-6mm was high or too low?

They are not generating 3-5mm ebitda. sounds like the last 2-3 years have been between 0 - $250k maybe. how much would you pay for a company that hasn't made any money the last 3 years?

IIRC, he said the business was valued at $9mm a year or two ago but we didn't think anyone would pay that now. they do have a nice building, so a buyer would basically be buying that plus any other assets like inventories, equipment, etc.

 

[sbonomo]

He should be preparing a syndicate to buy the shell out of bankruptcy. That's the money play.

this is something I discussed with him. we know people who have money laying around that could buy up this company. get rid of these owners and you instantly go from making no money to making $2-3 million. since they haven't been making money, how much could they ask someone to pay? with the building, inventory, receivables, etc., probably looking at $5-6 million for a company that will make that back in 2-3 years. the problem is that he doubts the owners would sell for that because they'll blow through that money in a couple years. then they have nothing, which they will have any way when the company goes kaput. they don't sound like the brightest bulbs in the bunch.

if someone buys the company, they still have the issues with the sales force too.

if they are generating 3-5mm of normalized ebitda, it would sell for 5-10x multiple in todays market. No way this thing sells for that based in what you have told us.

I'm confused. are you saying $5-6mm was high or too low?They are not generating 3-5mm ebitda. sounds like the last 2-3 years have been between 0 - $250k maybe. how much would you pay for a company that hasn't made any money the last 3 years?

IIRC, he said the business was valued at $9mm a year or two ago but we didn't think anyone would pay that now. they do have a nice building, so a buyer would basically be buying that plus any other assets like inventories, equipment, etc.

typically in theses cases you would add back all distributions/owners comp and just account for tax. If they are able to pull 3-5mm out of the business there is some real value there. So the value is much more if I understand you correctly.

 

[elbowrm]

Tell your buddy to seek out the closest chapter of the association for corporate growth (ACG).

 

[johnnycakes]

If he's the CFO he should be doing his share of bleeding the company, too.

 

[johnnycakes]

Seriously. I've seen this a few times before. Your friend can't change anything they do. He can only change what he does. If his suspicions are correct, he should start planning how he's going to land on his feet in a couple years... not IF he's going to land on his feet.

 

[mr roboto]

Have him buy the business. On owner financing, make sure the note payment is at least what they are used to pulling from the business. Reform it and BAM. Dude is rolling.

 

[lod01]

Definitely ride it out until it is right on the edge of the cliff and then bail out. Being the CFO, it should finish off the company because they certainly won't find anybody competent to step in. You'll also feel like you had a hand in pushing it over the cliff.

 

[Mrs. Rannous]

Just to be clear here...is the company privately held ONLY by the same family members who are treating the company like their personal bank account? Or are there also some smaller minority shareholders in addition? Because if he as the CFO is attesting to financials that he know are bull####, he's got a problem.

That was going to my question. If he's a fiduciary, and it sure sounds like he is, he could be in a world of hurt if this hits the fan.

And just because the company is privately held doesn't mean he isn't on the hook. If there are minor (under age) partners, a lot of people could be on the hook.

 

[Baloney Sandwich]

The best move is to tell the CEO that he needs to revamp the sales leadership if he and his family want to continue to take money out of the business. Also suggest laying off some of the employees. Both of these ideas should garner the CEO's attention while also positioning your friend as a guy looking to make sure the family's gravy train keeps rolling along as long as possible.

For your friend, extending the potential shelf life of this company increases his flexibility on an extrernal search for a new position. I'm not sure why your buddy is sweating his age though giving that he would be looking for other CFO jobs or similar senior finance position. Those tend to be people with some years behind them.

 

[Cjw_55106]

I must admit, the more I think about it, the more I see the irony. Your buddy is worried that the company is wasting money, yet he gets paid 30-40% more than he really should. Am I missing something here?

 

[Johnny Rock]

He needs to assert his logical reasons for change in-person again to the CEO/Board and follow it up with a professional, strongly worded email backed up with facts and referencing his earlier conversations; cc his personal gmail for record-keeping.

There won't be any business or money left when his DC vests in 20 years. That's a pipe dream IMO and no reason to stay. The stress and dread will likely only get worse and affect his life in other ways.

He's still in an advantageous position here. Take advantage of that time. Keep purposely looking for a new job, keep trying to do the right thing, keep it all legal, keep looking for another job and when he finds it he should give 30 days notice in writing and move on.

 

[Smack Tripper]

What kind of work do they do that poor management is more attractive than sustaining through operation.

Is it worth trying to acquire the company?

Is there any knowledge he's gleaned to start up a competitor?

Or is he in a dying industry?

 

[mr roboto]

What kind of work do they do that poor management is more attractive than sustaining through operation.

Is it worth trying to acquire the company?

Is there any knowledge he's gleaned to start up a competitor?

Or is he in a dying industry?

Yeah I asked along these lines and was serious.

 

[jomar]

The best move is to tell the CEO that he needs to revamp the sales leadership if he and his family want to continue to take money out of the business. Also suggest laying off some of the employees. Both of these ideas should garner the CEO's attention while also positioning your friend as a guy looking to make sure the family's gravy train keeps rolling along as long as possible.

The CEO and Sales Leadership are related. President is scared to ruffle feathers among family. sounds like they are all useless and have no idea how to run a business and wouldn't be doing so except for the fact that the founder of the company was related to them. Founder is no longer in the picture.

 

[jomar]

I must admit, the more I think about it, the more I see the irony. Your buddy is worried that the company is wasting money, yet he gets paid 30-40% more than he really should. Am I missing something here?

this guy is running a $30mm/ year company and has been for 15-20 years. Owners of the company trust him, know his abilities, and are willing to pay him not only for that, but the fact that he is doing most of the Presidents work as well. He is running the place (along with the COO) while the family owners are out traveling the world and spending money.

With a new company, each person does their job and that's what they get paid for. If he were to get a new CFO gig, they're not going to pay him to do the President of the company's job. so his pay can go from $180k to $120k, for example.

 

[Cjw_55106]

The best move is to tell the CEO that he needs to revamp the sales leadership if he and his family want to continue to take money out of the business. Also suggest laying off some of the employees. Both of these ideas should garner the CEO's attention while also positioning your friend as a guy looking to make sure the family's gravy train keeps rolling along as long as possible.

The CEO and Sales Leadership are related. President is scared to ruffle feathers among family. sounds like they are all useless and have no idea how to run a business and wouldn't be doing so except for the fact that the founder of the company was related to them. Founder is no longer in the picture.

This is baffling to me. He would rather fold the company than ruffle feathers? Im sure everyone in the family will be delighted if the place shuts down in a couple years.

 

[jomar]

What kind of work do they do that poor management is more attractive than sustaining through operation.

Is it worth trying to acquire the company?

Is there any knowledge he's gleaned to start up a competitor?

Or is he in a dying industry?

they buy parts from a manufacturer and install and service these items. Poor management is mainly in the sales area only, where family members are in charge and do nothing. things were run by him and the COO for years without issue even with the lack of sales management. they had a handful of good sales reps. those reps are now aging and will be retiring in the next few years. It dawned on sales management a few years ago that they needed to find new people. rather than the family member actually stepping up and doing the work, he hired someone to do it for him (a sales manager). the sales manager sucks but the VP Sales doesn't care because he still doesn't have to do the work and he can point the finger when he needs to. the sales manager brings on bad salespeople who do nothing but cost the company more money and can't sell before they get fired a year later. Sales Manager will get fired eventually too but the family member who is VP of Sales just sounds incredibly lazy and entitled. They've added overhead in a couple different positions too and, combined with the family expenses, the company just can't afford everything. Add in the fact that sales aren't growing and you can do the math.

He doubts family will sell as they will never get enough to sustain their spending for retirement.

I suspect everyone in the company has non-competes

industry is not dying. most companies in this area are probably growing but with no sales management, it doesn't sound like they have.

 

[jomar]

The best move is to tell the CEO that he needs to revamp the sales leadership if he and his family want to continue to take money out of the business. Also suggest laying off some of the employees. Both of these ideas should garner the CEO's attention while also positioning your friend as a guy looking to make sure the family's gravy train keeps rolling along as long as possible.

The CEO and Sales Leadership are related. President is scared to ruffle feathers among family. sounds like they are all useless and have no idea how to run a business and wouldn't be doing so except for the fact that the founder of the company was related to them. Founder is no longer in the picture.

This is baffling to me. He would rather fold the company than ruffle feathers? Im sure everyone in the family will be delighted if the place shuts down in a couple years.

at this point, yes, that sounds exactly right. He's met with the family along with the head of their CPA firm last year and, among other things, laid out their cash flow that showed them running out of money around the end of 2015/early 2016. VP of Sales made some suggestions to cut expenses to operations that were apparently laughable. CFO and CPA firm showed them that it was overhead that was killing them and the cash distributions to family members with no net income were obviously hurting cash flow. this is common in S-Corps. Owners get used to 'free money' that was being distributed during the good years and when business slows, owners continue taking money. They agreed to one more distribution and that was it. CFO didn't agree with the one more but thought it better than business as usual. no he's hearing rumbles of more money being taken and he's had it.

He's told them they are going out of business but, like I said, they need to keep up with the Jones's and keep up the appearance that their rich. it sounds like their plan is to just hope things work out. he told me flat out that he told them to cut their spending now or a bankrupt business will cut it for them. but they need their money. he was really pissed about the situation. apparently the only cuts they've agreed to were Christmas bonuses for their managers and the employer 401k match. this kind of sent him over the edge as he doesn't feel its right to penalize the employees when the only reason the company is losing money are these family members. the COO was told to tell his managers that there would be no xmas bonuses because 'cash was tight'. 2 weeks later, the owners took another cash distribution. CFO knows this but no one else in the company knows whats going on and it isn't like he can tell anyone in the company.

 

[B-Deep]

Question

if he rides it out and the company goes under, wouldn't being the CFO of a company that went belly up be black mark on his resume?

 

[Super King]

How much is the building insured for?

 

[mr roboto]

Question

if he rides it out and the company goes under, wouldn't being the CFO of a company that went belly up be black mark on his resume?

I would think he could fairly easily explain it. CFOs don't make sales.

 

[jomar]

Question

if he rides it out and the company goes under, wouldn't being the CFO of a company that went belly up be black mark on his resume?

I'd imagine it wouldn't be a selling point for him but I think he'd be out before that happened.

 

[jomar]

How much is the building insured for?

I have no idea. probably for what its worth

 

[RUSF18]

You really know a lot about your friend's company!

 

[B-Deep]

Question

if he rides it out and the company goes under, wouldn't being the CFO of a company that went belly up be black mark on his resume?

I would think he could fairly easily explain it. CFOs don't make sales.

sure he could, but a crappy CFO who ran the place into the ground could explain it away too/. In this case the CFO would be correct, but how does a perspective employer know?