A Business Dilemma

Posted on May 16, 2014 by lmsinca

When we bought our business a little over 13 years ago we negotiated for the exclusive right to manufacture and sell two products that were invented, patented and trademarked by the original owner. This agreement would last 20 years (until 2021) and then the tooling would revert back to the family, either to his daughter or grandchildren. My husband first came on board as part of the sales team about 35 years ago right after this product was introduced. It was the launching pad for the business and “the” main product we’re known for. The last two years it was the Number One seller in Tennis Accessories on Amazon over the holiday season.  Over the years we have added numerous other products but this one still generates about 10%-15% of our sales and has actually had a bit of a resurgence in the tennis market since internet sales in general have been increasing every year and we’re able to reach the public more easily.  Funny, there is even a little nostalgia involved.  The product was copied when the patent ran out but both copies never worked the way they were designed to because a couple of steps (trade secrets) were not part of the patent and they missed them.

The tooling is getting old and outdated and part of our agreement was that the original designer/owner of the tooling would pay for repair costs and we would pay him 5% of cost at manufacturing as a royalty. This system worked for about 10 years when the owner decided he no longer wanted to pay the tooling repair costs and so we worked out a new agreement that he would forgo his royalty checks and we would be responsible for the tooling until it reverted back to the family. He is now in his nineties and in a convalescent home at death’s door.

It’s doubtful anyone in the family is interested in really having the tooling back but I’m a little afraid to ask. We are considering if the next hurdle in repairs is worth the expense unless the tooling were to become ours permanently. It apparently needs to be converted to a manifold system which will cost somewhere between 20K and 30K and that is only one of four parts which are also old and having more problems as time goes by.

It’s a great product and makes us decent money every year but we’re just not sure it’s worth the investment. The original owner’s daughter is very unpredictable when it comes to the business.  She hated it when she worked for her Dad but enjoyed the income and while anxious to let it go, tried to screw us over several times with her lawyer’s help during the purchase process. Luckily we weren’t born yesterday so we were able to protect our interests well. I don’t trust her though.

I guess what I want to know is if it seems like it would be worth the investment if we ultimately have to return the tooling anyway or should we just return it early and let them deal with it? I believe that would be the end of a great product though.

My other concern is that I really don’t know how much longer we want to work ourselves and I don’t particularly trust Walter’s health to stick it out long enough for us to recoup the expense. I really don’t want to get stuck doing all the work myself. Our son helped occasionally with putting the parts together for large orders but he’s in CO now and the work is too strenuous for our oldest daughter although she does help out here in other ways occasionally.

I’m also trying to figure out an angle where if we made the repairs how could we end up owning the tooling as I think there is a marketable value to it and we might be able to sell it, even considering the condition it’s in.

Any suggestions?

 

Filed under: small business | 19 Comments »

It’s Demand & Income Inequality (Wed. Open Thread)

Posted on October 5, 2011 by lmsinca

One of my favorite conservatives, Bruce Bartlett, confirms what I’ve been saying for the last year. We’ve seen the economy worsen, from the small business perspective, and slow to a crawl. We talk to between 30 and 40 business owners a day, and don’t forget 78% of small businesses have less than 20 employees, and they all tell us they don’t really give a diddly squat about regulations or taxes right now. They care about the lack of customers. I understand my evidence is anecdotal, and there’s not necessarily a reason to believe me, but now the Bureau of Labor Statistics has verification. I also get it that Republicans and some large businesses care about regulations, especially the energy and health care industries, but could we stop pretending it’s true for small businesses or all large businesses?

On Aug. 29, the House majority leader, Eric Cantor of Virginia, sent a memorandum to members of the House Republican Conference, telling them to make the repeal of job-destroying regulations the key point in the Republican jobs agenda.
“By pursuing a steady repeal of job-destroying regulations, we can help lift the cloud of uncertainty hanging over small and large employers alike, empowering them to hire more workers,” Mr. Cantor said.
Evidence supporting Mr. Cantor’s contention that deregulation would increase unemployment is very weak. For some years, the Bureau of Labor Statistics has had a program that tracks mass layoffs. In 2007, the program was expanded, and businesses were asked their reasons for laying off workers. Among the reasons offered was “government regulations/intervention.” There is only partial data for 2007, but we have data since then through the second quarter of this year.
The table below presents the bureau’s data. As one can see, the number of layoffs nationwide caused by government regulation is minuscule and shows no evidence of getting worse during the Obama administration. Lack of demand for business products and services is vastly more important.

(lmsinca)

I also came across this interesting study yesterday. We’ve looked at so many statistics on income inequality, but I’m not sure anyone really understands why it’s important. I think this study gets to part of it at least. I also believe the “Occupy Wall Street” protests reflect the helplessness people, especially young people, feel in being able to combat it. Oh I know, they’re just a bunch of kids and unemployed people who don’t understand the global economy, but they know what’s happened to them over the last three years and it feels wrong. They’re calling themselves the 99% and that’s for both being unemployed and without benefits and also in the bottom 99%.

For example, the bailouts and stimulus pulled the US economy out of recession but haven’t been enough to fuel a steady recovery. Berg’s research suggests that sky-high income inequality in the United States could be partly to blame. So how important is equality? According to the study, making an economy’s income distribution 10 percent more equitable prolongs its typical growth spell by 50 percent.

Berg and Ostry aren’t the first economists to suggest that income inequality can torpedo the economy. Marriner Eccles, the Depression-era chairman of the Federal Reserve (and an architect of the New Deal), blamed the Great Crash on the nation’s wealth gap. “A giant suction pump had by 1929-1930 drawn into a few hands an increasing portion of currently produced wealth,” Eccles recalled in his memoirs. “In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When the credit ran out, the game stopped.”

Many economists believe a similar process has unfolded over the past decade. Median wages grew too little over the past 30 years to drive the kind of spending necessary to sustain the consumer economy. Instead, increasingly exotic forms of credit filled the gap, as the wealthy offered the middle class alluring credit card deals and variable-interest subprime loans. This allowed rich investors to keep making money and everyone else to feel like they were keeping up—until the whole system imploded.
There is a link to the study here which is in the current issue of Finance & Development, the quarterly magazine of the International Monetary Fund.

(lmsinca)

And last, but not least, it’s the trade deficit stupid. This piece in The Nation is an important one I think. Essentially, we need to get the wealthy investors to quit investing in financial instruments and steer them into long term “making stuff for export and consumption” stuff. There are ways to do that but they probably won’t like it too much because it’s much easier to do what they’re doing now.

But what’s behind it all is the fact that the United States cannot pay its way in the world. And while a smaller country would have expired long ago, we keep stumbling along, getting sicker, losing industrial weight, because the rest of the world has an interest in continuing to hold us upright. 

For Keynes that would be the challenge—not just to bring down but to eliminate it: the whole thing. The failure to do so has real implications for other parts of Keynes’s theory. The answer to our crisis is not to “hire and rewire,” or to have a lot of public works. Let me add, by the way: I’m a labor lawyer; I want the government to spend. I love public works. I’d love a new O’Hare Airport. I’d love a repaving of Lake Shore Drive. And certainly Keynes loved public works. He saw people starving; he had a heart. We have to do something. We can’t wait for the trade deficit to come down. But that’s not the answer—it’s urgent, to be sure, but it’s just a first step. The answer is to get rich people to put their money into real “investments” and not “loans.” It’s to induce the rich in this country to invest “by employing labor on the construction of durable assets.” Call them widgets; call them iPads. Call them anything we can wrap, ship and sell to somebody abroad.“Oh, but he wouldn’t put that ahead of the stimulus.” 

No—but he’d put them together.



Filed under: free trade, income inequality, Keynes, lack of demand, regulations, small business | Tagged: | 10 Comments »