36: The Fancy Trap
I deserve this. I’ve worked hard. I’ve done my time. I’ve paid my dues. After all the hard yakka, I deserve the jet ski, Audi, Ranger Raptor, $5000 computer or new iPhone. So goes the downfall of a small business. This is Clickstarter, I’m Dante St James. This is episode 36, and Day 2 of my daily series, April Foolproof Your Business where this month, I’ll cover a bunch of quick, useful tools, strategies, marketing methods and ideas to give your small business a shot in the arm. Today, the Fancy Trap. My uncle, who passed a few years back had a home construction business in the 80s. At the height of it, he employed over 150 people, had built some 500 homes, had offices in various parts of New South Wales, and had built a palatial mansion with a Sydney northern beaches outlook that was just magnificent. He drove an oversized Ford Bronco and he and my aunt lived a life of luxury travel, luxury cars, luxury food and a tendency to be showy and overly generous with gifts to those they loved. They were at the top of their game. What wasn’t obvious to everyone around them, was the state of the accounts. While there was plenty of cashflow coming in, my aunt and uncle were workers, not business people. They didn’t understand much about accounting, tax, planning for retirement or macro-economic indicators in the finance pages of the newspaper that were warning of an impending recession that would have a devastating effect on the building industry. And of course, not knowing this, they expanded their business, took on more debt to finance more projects and continued to upgrade their lifestyle to match the extra revenue that came in. When Paul Keating’s “recession we had to have” took hold, 150 people lost their jobs, dozens of projects stalled, payments faltered and within just one month, this family home builder had gone under. In just one month, a life of luxury had been reduced to rubble. There was no safety net, no savings and nothing left once the liquidator had finished distributing money from the asset sales to the creditors. My uncle, he never recovered. He lived the rest of his life a broken recluse. It had lasting effects on his wife, his children and a whole generation of we cousins, nieces and nephews who became used to the cautionary tale of the uncle who got too big, too bold, too fancy, too fast. That lesson certainly stopped me from attempting to start a business as an adult. All I recall is that, the one relative I knew who had a business, had failed. And not only failed, but ended up a shell of a man with lifelong mental demons that never left him until his dying day. Talking with my parents and my cousins about this many years later in a new century, I get a more clear picture of what happened. It’s not so much a story of a recession, or an industry in flux or even uncontrolled business growth. From their perspective, they noticed an out of control personal spending habit. All fuelled by a desire to be liked by people. It meant that employees were being paid almost 80% more than anyone else in their industry. It meant that, for the sake of ease, contractors were engaged who weren’t anywhere near reasonably priced. Site foremen were gifted $50,000 cars (a lot of money in the early 90s!) and lavish parties were thrown for staff several times a year. There was expensive food, premium alcohol, strippers, gold watches, three and four international holidays every year and high-ranking executives who were skimming the books. By the time the recession hit and building slowed down, the company was $22 million in debt with no invoices being paid for work done and no way to meet its financial obligations. Even once the assets were sold, they were sold at a time when there was no money around to waste on fancy stuff. Assets valued at nearly $8 million sold for less than $700,000\. Including the cars, mansion and two holiday homes. It was truly a fire sale. The desire to be fancy is almost bred in to us. Status is shown...