What Exactly are You (Personally) Guaranteeing?

In the 1990s, President Trump nearly ruined himself by personally guaranteeing many millions of dollars in loans, and then said he regretted guaranteeing them. But it seems he has not followed his own advice. With the NY Times releasing some of his tax records and other financial information, he allegedly is personally responsible for loans totaling at least $421 million, most of which is coming due within four years.

What does all of this mean? Realize when you get a mortgage or a car loan you are signing a promissory note, guaranteeing you will pay it back. These loans have collateral so the lender can go after your house or car to help repay the debt if you don’t pay. Where it gets “sticky” is when there’s no collateral, which is rare when it’s a personal loan, other than credit cards, which don’t have collateral.

When an individual or small-business owner wants a loan they usually personally guarantee it. When the loan is to an individual, say an executive buying a business, if the loan is to the person it is a legal obligation on that person an in affect, they are guaranteeing it. If the lender makes the loan to a corporation or LLC, which most are, they ask the borrower to personally guarantee it. 

When a private equity firm or similar investment firm borrows money, the partners won’t sign a personal guarantee. The same with larger corporations. So one has to wonder why lenders asked the president to personally guarantee all the loans. Not knowing the details, I can only guess it’s because they were risky loans, there was worry about non-payment, and hiding behind the corporate veil. 

I asked my friend Greg Russell with PRK Livengood Law in Bellevue (www.prklaw.com) about personal guarantees and here are his comments:

  • He reiterated a bank will want a personal guarantee when the loan is made to an entity.
  • Business sellers will want a personal guarantee as they are unsecured creditors, coming in after any senior debt, personal home equity, etc.
  • A borrower with a personal guarantee must report it for any financial dealings and this contingent liability may impact the availability of credit.
  • A personal guarantee can hold for a long time. There is a statute of limitations of six years, which starts from the time of breach. Within this time the lender can get a judgment to keep the debt alive.

Lenders, of all types, have the most interest in personal guarantees so I discussed them with Bill Barclay, Regional Manager of Commercial Banking with Columbia Bank. Here’s what Bill had to say:

  • 95% of Columbia Bank’s loans have a personal guarantee on the borrower. He said, “If things hit the fan, we want them walking down the aisle with us.”
  • Those not having a guarantee are generally larger firms with diversified ownership and management along with private equity firms.
  • If there’s not a guarantee expect tighter loan covenants that may create a personal guarantee if triggered.
  • An existing personal guarantee (from a different lender) won’t have much impact on future credit if there’s only one. The bank will look at all contingent liabilities and multiple guarantees may require a closer look.


Personal guarantees are something business owners, business tenants, those of us in the buy-sell world, and others deal with all the time. Business buyers and other borrowers do their best to avoid them, but those with the money make the rules. I always come back to a client from about a dozen years ago who didn’t like what the bank was doing. He didn’t think they were creative or flexible enough. I commented to him, “The bank’s not in business to be creative or flexible, they’re in business to be paid back.” I know if I lent someone money I’d want as much security as possible. 

Businesses and Workers – It Must be Teamwork

Two interesting articles appeared on September 6. The Seattle Times published a Los Angeles Times article titled, “Instacart shoppers face unforgiving metrics: ‘It’s a very easy job to lose’” and American Compass released an essay titled, “Conservatives Should Ensure Workers a Seat at the Table.

The Times article covers the harsh metrics imposed on Instacart shoppers including ongoing tracking of order filling, notices to employees via an app when they’ve earned a 10-minute break, and monitoring the words employees use with customers to make sure they use the preferred script. They offer low wages, keep employees from getting enough hours to have benefits, and drive them hard. These are the jobs people leave regularly creating turnover and training costs for employers.

The American Compass is a conservative organization so it’s a bit surprising they wrote what they did about unions, including, “Rather than cheer the demise of a once-valuable institution, conservatives should seek reform and reinvigoration of the laws that govern organizing and collective bargaining…” They make the case it’s a mutually beneficial relationship when owners, managers, and workers work together.

Compare the above to most small businesses. Talking to business buyers, I regularly hear about how they like building teams, helping employees grow, and improve. Business sellers often seem to care more about their people keeping their jobs than the price they get for the business (as in, I’ll take a little less from someone I feel I can trust to take care of my people).

Unions came about because of horrible working conditions. In my opinion, one reason they’ve lost membership is they became too rigid and too political (for private sector workers). 

It’s interesting to see how things could swing back with influence from both sides of the political spectrum. It’s also fascinating to see how some technology-based service companies (like Instacart) are returning to the employment practices reminiscent of 100 years ago.

There has to be a balance between management and workers because animosity hurts all.

“Take a rest; a field that has rested gives a better crop.” (Roman poet) Ovid

Owners Should Know What’s Going On, Shouldn’t They?

The September issue of the Fearey Group’s newsletter was titled PR Failure #26: The Ellen-ments of a Talk TV PR Nightmare. FYI, the Fearey Group is Seattle’s premier PR firm and you can see more at https://feareygroup.com/. I appreciate their allowing me to use an excerpt and write about it.

I’m going to tie their newsletter’s topic to small business ownership and buy-sell deals. First, here are what I consider the top two paragraphs for their newsletter.

Sitting atop the pedestal and feigning a lack of responsibility.
It’s hard to hear “Ellen” and not imagine the smiling, bright-eyed, gregarious TV host. This is by design. Everything surrounding The Ellen Show is made for you to equate the face of the brand with those qualities. The show has a merch store on its website and an offshoot video hub, known as “Ellentube.” The logo for the TV show is simply the word “ellen.” Her production company’s name? A Very Good Production. You get the picture. Like many people who make it big, as her celebrity and business grew, Ellen distanced herself from the employees who make her brand and empire function. In her July 30 letter, she stated, “As we’ve grown exponentially, I’ve not been able to stay on top of everything and relied on others to do their jobs as they knew I’d want them done. Clearly some didn’t.”
While this may be true, the head of any operation must stay informed about how business is done. Leadership, from the face of a brand to corporate and organizational executives and CEOs, must recognize their culpability in issues that arise and act swiftly and tangibly to rectify missteps. Hopefully, that’s before the issues go public and become a total PR failure. The words of one of the brave employees who came forward have never rung more true as an example for us all: “If [Ellen] wants to have her own show and have her name on the show title, she needs to be more involved to see what’s going on.”

I think the most important line in the above excerpts is, “While this may be true, the head of any operation must stay informed about how business is done.” Here are three ways not paying attention can manifest itself.

Follow the leader – Businesses rely on their reputation. From what the boss does to what the lowest level employees do. When the employees see the owner/boss cutting corners, not carrying about details, or going through the motions, they will also. They will emulate the pride the owner takes in his business. And it will show with quality, customer relations, and the culture. The employees will push the limits, like on Ellen. In my books I tell the story of visiting a company and seeing the employees eating lunch in their cars. Walking in my first impression was, “they don’t care.” It was a dirty mess, and the lunchroom was worse. No wonder people ate outside. Impressions like this do not increase the value of any business.

Can’t see the forest for the trees – This is the opposite of the previous point. This is when the owner is overly involved, won’t delegate, and micro-manage everybody and everything. It’s known as an owner dependency and it means there’s a lot of personal (owner) goodwill versus company goodwill. Recently we were calling one of our client’s customers to get a feel for how they thought of the company. One area of concern was the customers related more to the owner than to the company. This proved to be false, which is great.

I know nothing – Did you know, at least as of a year ago, the most popular TV show in its time period was Hogan’s Heroes (this from a friend who sells TV advertising)? The “I know nothing” line is from that show and it sure is apropos to the Fearey Group’s example, isn’t it? It also comes into play in buy-sell deals when the seller is asked to represent and warranty that everything they told the buyer is true and correct. All of a sudden the owner who brags at her club about how important she is to the business and says it would fail if she wasn’t around now wants to qualify it (at the urging of her attorney in most cases) by saying “to the best of my knowledge” all I’ve shared is true and correct. Let’s face it, there are a lot more owners described in the second example than the first and they can’t claim they don’t know what’s going on. My experience tells me 90% or more of owners know even the most minute details about what’s going on from customer status, to operations, to margins, to the employees. 


The above is why companies should have a board of directors or at least an advisory board. This can keep the owner/CEO from straying or from ignoring things. Healthy tension should be the relationship between board and owner/CEO. Not like what’s been reported about the Boeing board. Boeing was just hit with a lawsuit saying the board of directors was lax on their oversight of the 737 Max issue. Management knew what was going on (supposedly) but weren’t held accountable. This has elements of all three examples above.

Time Change – Life Change

Our dogs have been affected ed by the change from Daylight Savings to Standard Time. They get up at the same “time” in the morning, but the clock says it’s an hour earlier, so we get up earlier also.

Change is tough for a lot of us, people and dogs. Change of a job, home, school, and especially when it comes to business ownership. It’s why I tell people half of what I do falls into the intangible’s category, because we deal with big change.

One client told me the ability to share his thoughts and questions with someone on a peer level was the most important part of our relationship. Knowing the right questions to ask and the right answers to get is what most of us want.

The buying or selling of a business is often the biggest life-changing and financial change for business buyers and owners/sellers. An experienced guide with a proven plan adds a lot of value (whether my firm or another reputable firm).

When City Slickers Go Camping

I was reminded of the Billy Crystal movie City Slickers when I saw the following, which would be funny if these people weren’t damaging our planet:

  • A Seattle Times article on how the Cascade wilderness areas are being trashed (organic and inorganic waste) by city people deciding to get outdoors during the pandemic but not knowing how to act (as in, carry out their waste).
  • A neighbor who loves the isolated outdoors said a deep-woods campground that usually has half of their 30 campsites available was filled with large RVs the last time he went there.
  • A recent Wall Street Journal human interest article about city dwellers experiences in the outdoors. The two best stories are about the young lady who didn’t bring a sleeping bag because it was hot out, camped in a valley, and said she had never been so cold in her life and another lady who was appalled by campsite restrooms (an outhouse I’m assuming) and drove over a mile to a gas station to relieve herself.

So what does this have to do with business? The analogy is there are a lot of people who get into business with the same amount of preparation as the city slickers described above. I get calls regularly from people wanting to get into business (often starting one) and it’s usually to create a job using their skills versus growing a business (I refer these people to the local SBA/SCORE office so they can get a mentor and counseling). 


  • Know why you want to do what you’re going to do.
  • Get the right help to succeed.
  • Realize getting into business (or exiting) isn’t easy. 
  • Plan.
  • Make a decision; analysis paralysis doesn’t help anybody.

Things always look better and easier from the outside. Just like, “the grass is always greener on the other side.” It’s only looks easy, better, or greener when you don’t do the things you’re supposed to do and do them correctly. Doing it the right way takes more time and effort, and it’s worth it.

If You Don’t Have Time to Do It Right, When Will You Have Time to Do It Over” John Wooden

Nothing is as Good or Bad as Proclaimed

Disclaimer: the title has nothing to do with current events like Covid, the recession, racial injustice, any political party, or similar. While not about sports it may have something to do with your favorite team, especially if they’re bad.

What caught my attention was a front-page article in the Wall Street Journal’s weekend Exchange section on August 22 titled, “Why Aren’t There Enough Paper Towels? The lede was, “A decadeslong effort to eke out more profit by keeping inventory low left many manufacturers unprepared when Covid-19 struck. And production is unlikely to ramp up significantly anytime soon.”

The article “blamed” the just-in-time inventory system, i.e. lean manufacturing, which means only having enough on-hand to last until the next shipment arrives. When you operate like this it’s tough to increase output when there’s a spike in sales. The same applies to the manufacturing operations. If your machines are cranking out all they can operating 24/7, you can’t quickly increase production (this is how the paper towel plants were operating).

On the other end of the spectrum I talked to the owner of a manufacturing operation doing about $20 million in sales who told me they constantly struggle with productivity and therefore profitability. He said, “It must be me.” I won’t argue with him, at least until I know more because often it is a people issue, and more often than not an owner issue.

Georgia-Pacific increased production by 25% by reducing the number of products made, which reduced the amount of equipment changeover. The owner I spoke with can probably increase productivity with a manufacturing process expert advising him. Just-in-time isn’t a panacea and operational inefficiencies can be improved.

The above is what planning is for.

  • What if sales go down 10-20-30%? Banks call this a stress test. 
  • What if sales go up 20-30-60%? Can you handle the production, the cash and credit needs, the stress on your people, and even finding enough people?

Most businesses don’t do this. Even more owners don’t plan for their exit. Nobody predicted Covid and very few were ready for its effects whether good or bad.

Nothing is as Good or Bad as ProclaimedNothing is as Good or Bad as Proclaimed“Nine tenths of the ills from which intelligent people suffer spring from their intellect.” Marcel

Inflate the Swimming Toys Not Your Assets

On August 24 my phone buzzed with a news flash from The Wall Street Journal. It said the New York Attorney General is investigating the Trump Organization to see if the Organization and President Trump inflated his assets in financial documents. The reason is supposedly “to secure favorable loans and tax benefits.”

I’m not going to take sides but rather ask a few questions and tie this to what I see daily with the buying and selling of businesses. The questions:

How could this happen? His assets are mostly real estate and it’s easy to appraise real estate.

Why did this need to (supposedly) happen? In my world it means the deal doesn’t qualify on its own.

Why didn’t the bank(s) verify? This one seems easy. They wanted to make loans to a prominent borrower.

This can’t (easily) happen with business buyers. Yes, they can inflate their resume, like they do for jobs, and that’s why relationship is so important. A good seller will sniff out a buyer giving a line of baloney (and I really don’t mean baloney).

A business buyer can’t inflate their liquid assets because they’ll need to use those funds. They can’t inflate their real estate assets because banks will get an appraisal. In other words, the bankers in my world are a lot more thorough, aren’t desperate, or swayed by a big name.

It’s a bit different on the seller side. Can inventory values be inflated, sure, but if the deal says the lower of cost or market the value can’t be more than the cost. And dead inventory is not hard to determine. All you have to do it look at purchase dates and if it’s been around too long it’s not very salable.

Fixed asset values are a little trickier and I tell buyers and sellers the buyer’s real concern should be when the assets will have to be replaced (their remaining useful life) not the exact, current value. “Anticipated capital expenditures” is the key phrase. 

Cash flow is, however, the tricky one. Small business accounting tends to make cash flow a moving target anyway and a lot of owners “manage by checkbook.” Meaning, when there’s money in the bank we’re doing fine.

It’s when we get into my term AAA, adjustments, assumptions, and add-backs (click here for more on this), that it starts to resemble the asset inflation mentioned above. There are three situations driving this:

  • Either CPA driven or owner driven there’s an incessant need to reduce taxes. This is why owners will buy a new truck or piece of equipment they don’t need. I find it ironic when CPAs tell an owner to buy something they don’t need to save on taxes. I’d sooner have ~70% of after-tax cash than 0% plus something really not needed.
  • Owners blend their personal and business checkbooks. The reasoning is the same as in point one.
  • When it comes time to sell there’s the desire to get as much as possible (understandably). If the true value is not enough the numbers get manipulated. For example, the owner who brags at his or her club how important and indispensable they are to the business is suddenly an unneeded detriment to the business (so their salary is really profit). Or we’re not sure the marketing worked so let’s add it back to profit (because we won’t do it again).


Inflate the Swimming Toys Not Your AssetsI don’t know what really happens with mega-banks and mega-loans as in the opening paragraph other than greed rules. The borrowers want the money, the banker was the bonus, the bank wants a “name” customer. I do know it’s a lot more ethics and sanity in my day-to-day world, and I’m glad about that. 

The Phone Doesn’t Right Just Because You Want it To

A good friend of ours told me his sales team made their first sale ever to a non-affiliated customer. He was hired earlier this year to build a sales team and plan a sales effort because for the last 20 years the only sales were to other firms under the same ownership umbrella.

The salespeople at this company were order takers. And I’m guessing lazy order takers at that. When I taught a class at the local SBA/SCORE office on growing a consulting business I always told a story about a fairly new consultant who loved the computer and felt because he sent out a newsletter once a month the phone would ring. Yeah, sure it would, from telemarketers. 

“It’s amazing what happens when you actually pick up the phone and call your customers” was said to me by Keith Jackson with Industrial Revolution, www.industrialrev.com, in response to my question about how his marketing was going about six months after buying the company. I’ve used this statement before and it’s such a good line I can’t help using it again (I know it verbatim because I wrote it down when I heard it and I use it regularly). And, I know Keith is reading this. 

Some tips:

  • Want to increase sales? Have your people (and/or you) reach out to prospective customers and referral sources. As you grow it increases your chances of exiting with style, grace, and more money.
  • Want to buy a business? It’s contact sport; the more contacts you make (who get to know you) the better your chances. It’s hard to find a mature, profitable, and fairly priced business so be active.
  • Want to sell your business? You and/or your intermediary had better be active with the marketing (not just the advertising). Calls to your/their network, their database of buyers, and others will accelerate the process.

In this day and age of text, email, LinkedIn, and Facebook personal, one-on-one contact is still the best for B2B, advisory, and many other businesses.

“If the phone doesn’t ring it’s me.” Jimmy Buffett

Coasting – Downhill

A business owner told me his sales were X dollars – put in whatever figure you want, $100,000, $1,000,000 or $10,000,000. His actual sales were:

  • 2017 – 90% of X
  • 2018 – 75% of X
  • 2019 – 65% of X
  • 2020 – on track for 50% of X 

The abovementioned owner is coasting and the business is going downhill. And once on the slope it’s tough to recover. I’m sure there’s not a lot of calling to customers, much less prospective customers. I can’t imagine there’s much marketing at all.

What’s compounding this is he has no idea of what’s really going on. Yet all it takes is paying attention to the financial statements. He doesn’t need to have management reports, although they would add a lot of value and clarity.

Business buyers want one of two things:

  • A well-oiled machine with room to grow.
  • An underperforming business in a solid industry (coasting).

What they rarely want is a damaged beyond-repair business. Whether you’re an owner or advise owners, keep these points in mind. Coasting (downhill) doesn’t let you exit with style, grace, and more money.

“If liberty means anything at all it means the right to tell people what they do not what to hear.” George Orwell