Comment by jacquesm | Hacker News Reader

Comment by jacquesm | Hacker News Reader

Two weeks ago I took a look at a company in distress. Three years of figures: 2010, profitable, 2011, still profitable but substantially lower, 2012, huge loss. Every year their turnover grew but their margins decreased (because they had to bid lower (more competitive) on contracts in order to grow their revenues). The CEO had no idea why they were in trouble, he'd attributed it to his co-director making off with money (which in fact he did, but only relatively small sums). They've filed for bankruptcy last week and to this day I'm not sure if I've been able to adequately explain to him that if you lose more money on every subsequent project that you contract that you can grow your revenues only until your cash reserves run out. Even with the figures laid out pretty clearly I think he still does not really get it. Puzzling.

I think they thought that as long as they were winning the contracts from their competitors that they were doing well but if you don't accurately track your purchasing you will never know whether you are making money or losing money on a contract.

The more examples I see the more I'm convinced that a big cause of failing businesses is just failure to do math. I've seen so many businesses struggle because they failed to do the simple thing: concentrate on profit margin and focus on maximizing it.

I work for a plumbing/heating/HVAC distributor and the absolute biggest number they look at is margin. Real simple shit, especially when you use a system that always shows the GP% on every screen.

"We lose money on every deal, but we will make it up on volume"

Like Milo Minderbinder's egg syndicate. https://en.wikipedia.org/wiki/Milo_Minderbinder#The_Syndicat...

I wonder if the co-director making off with money or some other piece of the story was more important than you give it credit for.

A lot of the comments on this thread are "can't they count?!" which to me seems to beg another "why." Maybe having a scapegoat allows him to avoid seeing realities. It seems like a psychologist would be as relevant as an accountant.

Exactly. There are glaring holes here, money "lost", and people hiding behind lawyers.

And, aside from being completely gossipy and unprofessional, the controller's account doesn't add up (no pun intended).

It amazes me that the normally astute HN crowd isn't digging deeper.

Great comment. I had a professor say often that "cash is king." Obviously these companies aren't paying attention to cash at all.

Actually, the opposite is true. They've got more cash coming in, and cash in the bank, which is masking the operating loss on each sale.

They don't have the cash to pay their bills. Clearly they don't have excess cash coming in. Cash is still king. They are just masking the cash deficiencies of their business by raising it through funding.

Yeah, in the optimistic financial planning they may be budgeting for a profit on every project? I always expect profits to be a fair bit lower than the back of the envelope estimates, so many little unaccounted for things come up.

Gross margins vs net margins was all it took to put close to a 100 people on the dole. In a cut-throat industry it takes pretty precise bookkeeping to know what you can bid on a contract, if you think you're making 10% when you're actually making -10% growing your business is the worst thing you could possibly do. First you'd need to fix your margins, and if that is not possible and some competitor still outbids you then you should simply let it go. Otherwise you'll end up winning all the battles but you will still lose the war.

Just replace the embezzling co-director with defecting technical leads and I've seen something nearly identical.

I think it's simple denial.

They've decided that they know what the problem is/was and being in a position of power surely have to shortage sycophants for reaffirmation.

I expect they'd see the situation quite clearly from the outside, abstracted from emotions and prepared rationalizations.

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