Look at it from Antenucci's standpoint: "In many ways, we used that loss to finance the next year's growth. We didn't have the internal capital, so we spent more than we had, to position ourselves for the next initiative. We were able to sustain a significant amount of growth and be competitive from a compensation point of view in the industry."
One of the financial rules of service industries that frustrates Antenucci is that "backlog has no value until you've done the work." Much of PlanGraphics' 1993 loss was spent building a $9-million backlog of business for 1994. And Antenucci thought that should well cover the bank's position.
Not to Taylor's way of thinking: "Yes, contracts generate receivables, but receivables protect a bank only in a liquidation. In the real world, if something were to happen to PlanGraphics, those receivables would be diluted because what was provided to the customer might not be payable unless PlanGraphics completed the subsequent phases of those contracts. No matter how much confidence I have in John Antenucci," he goes on, "when a line of credit comes under criticism, the loan officer has to counsel the management of the company to put things in better order.
"You might think if you just keep growing, you'll keep making money. John is proof that's not true. Normally, companies grow and then plateau and bring the organization along. Then they grow some more, plateau, and bring more organization along. That gives the company time to catch its breath," Taylor says. "But when management can't keep track of everything that's going on, can't tighten the controls, you wake up at the end of the year and you've lost $600,000, even though you've got a book of business that's more than it was the year before and the outlook for the future book is strong.
"Nobody runs a company like the fellow who owns it," says Taylor. Clearly, he felt that Antenucci could not run PlanGraphics effectively from the road. So he suggested that Antenucci "find someone who can sell while you're here, or at least find someone who'll manage the company while you're out selling."
Antenucci followed Taylor's advice and hired a chief executive to "give structure to the chaos around us and rigorously enforce rules on everyone, including on me." At the same time, Antenucci engaged a consultant to coach him in the intricacies of small-company finance and began a search for a chief financial officer -- not to repair the past but to prepare the future. "The financial picture has become more complicated. We work internationally and have to deal with conversion of funds and international banking instruments and the like. Farmers Bank, quite frankly, isn't adept at those things," says Antenucci.
Taylor made another suggestion: "Find financial support besides the bank." In other words, he was asking Antenucci to get him off the hook. Farmers, Taylor intimated, wouldn't be increasing PlanGraphics' credit line in the near future, even though PlanGraphics could offer as collateral as much as $1.5 million in receivables in a given month. "Banks can do certain things for short periods of time, but they can't do them forever," Taylor explains. "In spite of how much the bank may admire John Antenucci and PlanGraphics, we aren't always captain of our ship. We have external auditors, internal auditors, bank examiners, the FDIC and the Federal Reserve looking over our shoulders every day, and they look at the same things we look at: the size of the borrowings, the aging of the receivables, the profitability of the company. When the authorities feel you've overreached, they start classifying assets. And that reflects on the management of the bank. No bank wants to put itself in that position."
Then Antenucci suggested that they'd "all look a whole lot better" if the bank would redefine the overage by converting some of it to long-term debt, on which PlanGraphics would pay conventional principal and interest. Taylor's assessment of that gambit: "John's balance sheet of preceding years ate up whatever equity he had, and it takes a while to build that back." The bank would not be willing to restructure the debt until Antenucci's consultants "packaged the company so someone can look at it and make a prudent business decision whether to invest in it. You can't borrow your way out of debt."
Even as it became apparent in 1994 that PlanGraphics would have a profitable year, booking $500,000 chunks of business at a time, Taylor saw problems. "I don't think John's ever had anybody tell him how much it actually costs to do business. His profit is supporting more growth when it should be paying back existing debt because these profits are just going to generate business that his capital won't support. It will keep feeding on itself. When a bank is supporting a company that's losing money, the first thing that bank wants them to do when they're making money is to reduce their debt. You have to support growth with internal funds. Not your first year, not every year, but you ought to be working toward a goal of self-sufficiency."
Taylor also fretted about PlanGraphics' failure to emphasize the need for employees to get enough billable hours to "justify their salary and the G&A they create." And as PlanGraphics took on ever-slower payers Taylor proposed that Antenucci coax cash flow by "going to the big corporations and telling them you require 30% up front. Just don't bid on those contracts based on having to wait for your money."
Antenucci is practicing what his banker preaches. In a recent 60-day assignment from Unisys that would take 30 days on the client's side just to process the paperwork, Antenucci arranged to bill for the entire job well before it was completed. With Niagara Mohawk, a large electric utility for which PlanGraphics is involved in a multimillion-dollar project, Antenucci had already negotiated a 10% up-front mobilization fee.
But PlanGraphics' overdraft could be expunged only when some really slow payers put their checks into the mail. Of PlanGraphics' $300,000 overdraft in December, $250,000 alone was covered by a single receivable that was several months tardy from a Fortune 500 corporation. Taylor recognizes the problem: "Big companies design their systems so they don't pay you. They work the little fellows as hard as they can, and they break a lot of little fellows by doing it."
