I don’t even have to open the plethora of business publications on my table to know there will be articles about management style, bad bosses, and teamwork. It’s a given. One reason being some people think the title “boss” means they have to boss everybody around rather than work “with them.”
Over my years of working in, owning, and advising small businesses I have learned business owners can be the best, most accommodating, and caring bosses one could ever have. And then there are those who make the worst corporate, middle-management boss seem like a loving puppy.
So let’s look at some traits and factors and how being a bad boss, owner, and business seller are tightly tied together. And realize there are a ton of great owners, but like the newspapers, it’s the nasty stuff that sells.
- “A raise? They should feel fortunate to have a job.” That statement, or anything similar, tells you a lot about the company’s culture, i.e. its culture sucks. You’ll find a place filled with people going through the motions because the pain of going out and finding a new job (or not finding one) is greater than the pain of the current situation. One can just imagine the talk over Friday post-work beers.
- One of the things I’ve learned to look at when analyzing a small business is the pension contribution. If the pension contribution is 90% to the owner and 10% to the employees I know the seller’s emphasis will be on how high the price will be, not on the future success of the company, or the buyer. It’s called greed.
- Another item I’ve learned to look at is asset replacement or should I say the lack of asset replacement. Sure profits were high the last few years. But everything is wearing out. My favorite example is the owner who was too cheap to buy a new printer. His accounting staff waited and waited for reports to print. The buyer got a new printer, wasted time was reduced, and I’m guessing based on the pay rate for accounting people it paid for itself in a week or so.
- An essay like this one wouldn’t be complete without mentioning one of my favorites, “Sure I lie to the IRS but I’d never lie to you.” Recently I was referred to a small contractor, too small for me to work with. When I asked about his sales and income he shared whenever people pay in cash they get an unnumbered invoice, hmmm. As regular readers of this newsletter know, I believe it’s just as dishonest when owners blend their personal and business checkbooks. It tends to also tie into some of the above topics because they don’t give raises or replace equipment because they’re so busy taking out every last penny personally.
- Tied to the last point is the topic of benefits. I will state I am not a fan of the current system but it is what it is. I believe there’s a moral obligation, with today’s system, to provide medical insurance when a company gets beyond startup phase and is profitable. I’m reviewing information on a 60-employee plus company with no benefits and asking myself if we should adjust profits for the cost of benefits or the cost of the federal penalty. It’s even funnier when the cost of benefits is “added back” to profits because the benefits are discretionary (the same logic often applies to annual bonuses that haven’t been missed in a decade). Every business buyer lives for the day they can take over a company and tell the company’s most important asset (the people) they are taking something away* -:)
- Another big one, which tied directly to the value of the company, is when the owner makes him or herself the most important cog in the operations. It’s called a dependency and buyers, bankers, and appraisers watch out for this. The lack of delegating takes it toll on the culture, “nobody can do it as well as me and I let them know it,” and is a huge red flag to buyers, especially if they don’t have the same skills. It also leads one to think the staff isn’t all that qualified (to help grow the business).
- Finally, when it comes to buy-sell deals the secretive owner is to be feared. If everything is so good why not have an “open kimono” policy? After all, full disclosure will raise the price of the business. Similar to this, and I seem to see or hear about one of these every year, is the owner who won’t sign the purchase and sale agreement with a representations and warranties clause (the buyer and especially the seller guarantee everything they have told each other is true and correct with most of this information attached to the contract). I always wonder what they’re afraid of? It can’t be good.
Whether you’re an employee in a large corporation or a small business you know what it’s like to have a bad boss. It carries forward to being a bad owner, with priorities on the money they make versus growing and nurturing the business. Finally, these people make lousy sellers and tough to work with as an intermediary, banker, lawyer, and especially as a buyer.
* This is sarcasm and I write this footnote because my proofreader questioned why I wrote it the way I did.