Donald Trump doesn’t understand how bankruptcy can destroy small business.
In 2001 I decided to start a business. I had a great product that I thought everyone would want. I mortgaged my house to start the business. My business plans did not work out and I had to close the business down. But every vendor I contracted with for the development and production of the product got paid. I left no invoice unpaid. I did not declare bankruptcy. The only person who took a loss was me.
In high school I started working for a small business that sold sprinkler supplies in Carmichael, CA. I was the warehouse worker stocking shelves. There were a total of four people employed at this little business – the owner, two counter/warehouse/delivery men, and the bookkeeper. By the time I got into college the owner had expanded my duties to part-time bookkeeping and purchasing.
Bankruptcy can devastate a small business
One of my duties was to prepare the Accounts Receivable ageing for the owner. It was a small office and I heard the distress and anger of the owner over contractors who were 60 and 90 days past due. The credit to these landscape contractors was largely based on a handshake. We all heard the choice words of the owner about some contractors who had the nerve to drive up in a shiny new turbo diesel one ton pickup and plead that he was broke and couldn’t pay his outstanding debt. The back office protestations of the owner grew to a volcanic roar whenever he would receive the notice of a bankruptcy filing from these contractors. As an unsecured creditor, there was virtually no hope of him ever getting paid.
I also watched as the owner dutifully paid every invoice that was due each month on time. Even when there may have been a disagreement with the vendor over damaged goods or lost shipments, he always paid the bills. Most of the vendors where large corporations who would never be put at risk of insolvency if our little company didn’t pay our invoices.
After years in the irrigation business I thought I had an idea for a better mouse trap – a low cost irrigation controller that could receive program changes via wireless data transfers initiated from a notebook computer. In the beginning of 2001 I took a mortgage out on my house, and with the additional capital from a partner, started developing the idea. In the summer of 2001 we went to market. In September of 2001 the United States was struck by a terrorist attack on the Twin Towers and the Pentagon.
Very quickly my initial trickle of orders dried up along with my cash reserves. This was not in my business plan. But it was reality so I had to deal with it. I scaled back the business and set aside plans for further development of the product that I knew was crucial to its long term success. Just think if Steve Jobs had stopped improving the iPhone after its first release!
Because I needed cash flow, I went out and got another job. I kept the business limping along building the controllers on my kitchen table after I had soldered all the little processors, diodes, and stuff on to the printed circuit board. I kept paying my bills for the irrigation controllers, wireless airtime, and marketing. I was not, however, paying myself.
As I saw other companies leap ahead of me because they had the capital to develop better versions of my controller, I finally decided to call it quits in 2005. I still had outstanding debts. I could have filed for bankruptcy, but I didn’t. People took a chance on me. Businesses I knew in the irrigation industry extended me credit based on our relationship. I could have walked away from those debts and it would not have hurt their bottom line.
When people are asked why they have a certain belief system you often hear, “That’s the way I was brought up.” In terms of business ethics, I was brought up in a small company that honored paying your bills. I saw the effects of people who did not place the same value on meeting their commitment to pay their bills. There was no way that I was going to be “that guy” who stiffed someone for money. I was not going to be the jerk who walked away from my promise to pay for goods and services that were extended to me on faith. I was not going to be the domino that started a string of financial disturbances for other companies, owners and their employees.
I understand that bankruptcy, and its various chapters, can be important tools for companies and families to restructure their debt. In the best case scenarios, debtors are able to gain some time and space to put their financial house back in order and all their creditors eventually gets paid. Bankruptcy is also abused by individuals and corporations as a means of escaping from their obligations. Donald Trump is just one of many contractors who look at bankruptcy as a financial instrument to improve their position.
Contrary to how many of my social media friends may think of me, I am very fiscally conservative. I believe everyone should pay their bills regardless of whether you are a big business, small business, government organization, or a family. You shouldn’t spend more than you make. When you make a contract obligating you to pay for a good or service, and the other party met their part of the contract, honest men and women pay as agreed. You shouldn’t use officially sanctioned legal means such as bankruptcy to avoid paying your debts. It’s just not cool.
To imply, as Donald Trump has, that his bankruptcies were just part of the ethical business practices afforded to entrepreneurs like him and are standard operating procedure for corporations is just an anathema to me. Just because a business practice is legal does not mean that it is ethical. An ethical business person does everything in his or her power to meet their financial obligations. An ethical business person puts those people who have extended credit, supplied goods and services, or made deposits on future products before their own financial well-being. Donald Trump obviously was raised in a different business environment than I was.
This is one reason why I support the Affordable Care Act. It allows individuals and families to pay their bills. It allows people the opportunity to get the necessary medical treatments to recover from an illness and get back to work. It helps families avoid filing bankruptcy because of overwhelming medical debt.
I suppose it is congruent with Donald Trump’s business philosophy that he wants to repeal the Affordable Care Act. He has no problem with bankruptcy. He obviously doesn’t understand how unpaid medical debt has put such a strain on families, hospitals, and other professionals who provide health care services. For Donald Trump, bankruptcy only exists in the realm profit and loss statements, balance sheets, and his taxes. He doesn’t understand that bankruptcy equals real people not getting paid.
The gentleman I grew up working for is a staunch conservative. We’ve had many heated political discussions. Regardless, we do agree that people should honor their debts and pay their bills. Perhaps Donald Trump should sit down and have a frank discussion with this small business owner of over forty years and how bankruptcies and contractors not paying their bills can be a severe burden to companies. The Donald might learn a thing or two about business ethics.