Did We Make Money Last Year?

The end of the year is past us and a new one dawns before us. If you are in the business world, that particular time of year requires that you find out if the business made money last year. It is something everyone wants to know. Of course the owners are interested. But they come in a poor second to the people that really matter, i.e. the IRS and the banker.

You would think it pretty simple for a business to know such a basic thing. You would think so anyway. While people can usually look at their bank statement, W-2 forms and an investment or two, allowing them to make a fair guess about their own financial situation. Most businesses, including ForeRunner, are on what is known as the “Accrual” system.

Without dipping into the fantasy world of GAAP (Generally Accepted Accounting Principals) and its reversals of common sense, our biggest unknown revolves around whether certain clients will actually pay the invoice we have already counted as revenue. Our costs are real, as the people doing the work get paid every two weeks. But our revenue is only a promise by our clients to pay us. Most clients pay their bills on time, blessed be their name. Others, being held captive to the new CFO’s plan to climb the corporate ladder, practice cash management; essentially meaning that they operate by using their suppliers’ cash. After the required number of calls to Accounts Payable and the client project manager, they will pay.

But this year we have a number of clients who have been negatively impacted by the events of the past year. How is that for a euphemism? Some of our clients are short of cash. I have been there, on a much smaller scale of course, but I have been there and it is hell on earth. My heart goes out to those in that situation. But what do you do when you don't have the money to pay your bills?

Experience suggests that most clients have read Carl von Clausewitz, the great German strategist. Carl, if I may be familiar, said that the best defense is a good offense. You may have come across this insight before and used it yourself. It is a powerful strategy. Rather than a straightforward negotiation over possible discounting on past due invoices, simply declare the service provided to be faulty and/or poorly done. Simply put, the strategy calls for the client to say that "I am not paying you because you did a bad job", rather than "I am not paying you because I am short of money right now."

Of course the strategy works. Carl is still quoted 200 years after his lifetime because he knew how to play the game. The strategy recognizes the reality that an engineers work is not and can not be perfect, but that same engineer is professionally bound to a standard of perfection and is very vulnerable to anyone pointing out the dichotomy . It also provides a justification for acting in a manner that would normally make one feel badly about themselves, i.e. not paying one's bills.

The strategy works, but it has its costs. Both sides know what is really going on, at least once they disentangle themselves from the emotional stew that is created. Trust, that fragile spirit, is lost once again. In the middle of the night, once again we will come face to face with what we do and why we do it.

The next time we work together, and we will for this is a small world saturated with irony, we will bear the scars of previous disappointment. But then that is the world of most projects, hope tempered by experience.