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Honest Business

THE BANKER

44% Come clean to Norton

30% Keep quiet, tell Norton little

26% Compromise, say little but look for investment

In Their Own Words . . .

* "Banks don't like surprises. Norton's an entrepreneur's dream -- don't blow it!"

* "Convince Norton you can handle it. If he disagrees, take it to another bank for evaluation."

* "I'd keep quiet. Growth is my business, banking my banker's."

* "Bankers haven't the foggiest idea how to run a company. Tell them only what they require."

* "Without my bank I'm out of business. So I don't do anything to test the relationship."

* "I'd ask Norton to come to lunch and show him this wonderful opportunity, but tell him when I run the numbers they look thin. Get him excited, give him the facts, ask for his assistance."

* "Could you get the job and phase in the affiliates on a dated schedule?"

* "Work with the new client to get some up-front money."

* "I spent 10 years as a banker on Wall Street. No surprises to your banker!"

* "Bankers are never very knowledgeable or competent."

In Real Life

On the spot: W. Mark Baty Jr., Accredited Business Services, Cleveland

Some years ago, Baty was running his own metals recycling business and was approached by a big customer. To land the account he needed a load lugger -- a specialized truck with a hydraulic lift on the back -- costing some $60,000. Approaching the bank for a loan, he knew his overall financial situation was a little shaky: he was in debt to his parents and in-laws, stretched out on his credit cards, and finagling his receivables and payables. "I'd try to collect my receivables in 10 days if I could, and I'd put off my payables for 30 or 60 days, whatever the traffic would bear." But he also knew he could get the account if he had the equipment.

What he decided: "You don't lie to a bank -- but I certainly don't believe in offering them more information than they ask for. You don't tell them the loans your parents made to you, the money you've used from credit cards for your business. Playing with your accounts receivable and payable, you definitely don't tell your banker that. You're doing a little bit of creative financing, you're using everything you can to keep your business going."

The upshot: He got the loan, paid it off, and the banker was never the wiser. "You're not lying to anybody, and you're not falsifying records. It's something that's done every day in business."

THE SUPPLIER

65% Tell Wilson

11% Keep mum

24% Postpone

In Their Own Words . . .

* "Tell him. Then set a payment schedule agreeable to all."

* "Tell him. You can always find eager vendors willing to grant terms. It isn't worth your ill health fending off collectors and repo men."

* "Keep quiet. Once you start to do something, it's ridiculous to vacillate."

* "We kept quiet. We kept one strong credit reference and finessed a number of purchases off that reference."

* "I got several bids in a similar situation, making it clear that a delayed payment schedule was an important decision-making criterion."

* "Postpone. Too many start-ups overextend their expenses."

* "Buy used furniture. If you have to have all the best trappings at this point, you probably should have stayed where you were."

* "I stretched out payments once, and I regret it. Be up-front and negotiate terms, then stay within them."

* "I bought door panels and bridged boxes to make temporary desks."

* "We got the equipment and later went into Chapter 7. Because I guaranteed the payment, the equipment company got everything they were owed."

In Real Life

On the spot: Kurt Listug, cofounder of Taylor Guitars, Santee, Calif.

Listug was only 21 when he and his partner founded their guitar manufacturing company; the partner was all of 19. "We had no idea what we were getting ourselves into." But they plowed ahead, ordering supplies and materials even though they weren't quite sure how they would pay the vendors. Among the orders: $1,200 worth of rosewood, purchased from C.F. Martin & Co., a venerable and considerably larger guitar manufacturer.

The $1,200 didn't get paid. And didn't get paid. "I remember being so broke," recalls Listug. "We only owed them $1,200 -- how could we not have it? But we didn't, for a long time." Martin finally gave up, sending the bill to a collection agency. But Listug's company still couldn't pay it, and the creditor too threw in the towel.

What he decided: "Years later, after they had written it off, we started to catch up. We made a list of our bills and added that one to it. Finally we had the money and we paid them -- out of the blue. They were shocked by the whole thing."

The upshot: Listug's company now has 35 employees -- and a deal with a supplier who gets his wood in India. "We're not buying from Martin now. But we've bought rosewood pretty regularly from them over the years."

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HOW THE SURVEY WAS CONDUCTED

A few months ago we sent the Inc. Business Ethics survey to a random sample of 5,000 subscribers across the country. A total of 388 readers replied, for a response rate of 7.8%. The first 337 responses were tabulated by computer to give the answer percentages reported above. Except for minor editing, the situations described in this article are as they appeared in the survey.

Many thanks to those who took the time to fill out the questionnaire. One professor of business communications even asked her students to take the survey; though the results arrived too late to be included in this report, we'll try to report them in a future issue.