Gulag Flooring

I sent a letter to my two California Senators a few months ago. Of course, those two Senators have bigger fish to fry than my concerns; bigger fish such as how to keep the seventh largest economy in the world, California, from becoming insolvent. I presume that's why I haven't yet received my response from them, some five months later.

Here's the letter:

I listened on television to President Obama's speech to Congress last night, and can draw inspiration from his words. But there is a problem in my industry that dilutes the potential effectiveness of this national economic recovery program.

I am the CEO of a private corporation in California manufacturing hardwood flooring. I am concerned that during these times of shrinking economic opportunities that our private sector manufacturing company, and our tax-paying citizen-employees must compete directly in the national marketplace not only with foreign imports, but also with U.S. and state-owned or
-sponsored prison enterprises.

Yes, incredible as it may seem, we face in the marketplace every day competition from wood flooring products made in prisons by low-paid prisoners in Tennessee and South Carolina, and maybe other state prisons I don't know about. Large flooring corporations like Armstrong Industries and other smaller competitors capitalize on this source of captive prison labor (pun intended). As a specific example, one of our prominent California manufacturing competitors recently laid off their 75 local taxpaying employees, and sent the work away to, not China, not Vietnam, but to the prison labor force of the Tennessee prison system. When our company loses business transactions, and we've lost plenty of them in recent months, our employees face layoffs, and the resulting loss of their abilities to pay their rent or mortgages, and the loss of their wages being recycled through the economy. When the prison industry managers lose business transactions, the prisoners simply go back to their taxpayer-supplied rooms and wait for their dinners.

When times are good, this prison industry issue is a minor irritation and routinely overlooked. Nowadays, when things are not so good, it's becoming a big deal. It's obviously unfair to private enterprise, struggling or not, even on the face of it. Surely, the original intent of the prison industry was to provide other state-owned purchasing requirements, such as furniture for schools.

This inequity should be simple to fix. I ask you to introduce clarifying federal legislation requiring prison industries to sell prison-produced products only to public entities such as schools. Prison labor should never, especially now, be placed in competition with private sector labor.

Sincerely,

James P. Oliver, CEO
Plantation Hardwood Floors
Oxnard, CA 93030
www.plantationhardwood.com

How 'bout Them Finances!

I was chatting on the phone with an industry colleague the other day. We two are in different aspects of the flooring business - he is a flooring installation contractor, I am a flooring manufacturer.

Beyond dark-humored comments like, "Write if you get work...," the subject turned to the obscure but ever-lurking danger of working, really extending oneself, for a general contractor, a homeowner, or another flooring contractor, and then not getting paid.

In these trying times, we know some commercial firms will disappear into insolvency. Or not disappear - I know a company that is currently severely insolvent, but still lives, zombie-like, from job deposit to job deposit. If the acquisition of job deposits slows or stops, that final deposit from an innocent and trusting client will be forfeited.

If we stay on top of the commercial insolvents' credit reports, we'll presumably know in time to take evasive action. On the other hand, private homeowners tend not to go broke, but sometimes find excuses, usually irrelevant, to withhold payment for work done.

But my colleague and I were thinking of the client who decides, for no apparent reason, simply not to pay his bill. The proferred hypothetical situation is the client who, unknown to anyone, is down to his final project, has no new projects in the pipeline, has spent all the end-users' deposit- and progress payment monies, and has nothing left to pay us with. The financial damage to us could be upwards of 50% of the contract value, or more.

The question then hanging in the air: what can we do to prevent this from happening?

There are several approaches. The favorite: in California, we file preliminary liens against the owners' properties. But what if your state will not allow this?

Then you have to get creative. Some ideas:

• Contract for a payment bond on the suspect client. Offer to pay for the premium, usually about 5% or so. You may find out right then that the client is not bondable, and thus not financially reliable.
• Contract for payment up front, or at least sizeable deposit upfront with balance due before delivery of the goods.
• Contract for interim payments to minimize the outstanding balances due under the contract, and stop work if the interims are not paid.
• Bypass the suspect contract party, and make your deal with the end-user directly. In this scenario, make sure the suspect contract party can reliably be paid his customary and expected project margin - either by the end-user, as is traditional, or by you.

The ultimate answer may be some combination of the above. But the real solution is to know with certainty the financial status and capabilities of your business counter-parties. This admonition applies equally to suppliers, as it applies to clients. A broke supplier has probably mis-spent your deposit money, or fails to deliver against your time-sensitive obligation to your own client. A broke supplier also lacks the capability to respond to a legitimate complaint about quality or performance, or to spend the money to fix a problem.

In these days, if you don't know the financial status of your counter-parties, you can easily come to understand the awful meanings of "uncollectible account receivable," or "inability to timely deliver."

Chill out! It's a Holiday!

I think I need an attitude adjustment.

I call trucking people to discuss picking up a load of flooring...and have to leave a message. I call the raw flooring mill to discuss an order...and have to leave a message. I check my email...it's mostly spam (no, not you Conrad and not you, Sunny). I check my voice messages. All quiet.

Oh yeah. It's a holiday.

Holidays always throw me for a loop. Shouldn't be this way. Holidays are always forecast. Holidays are always on the calendar - in different colors, to boot. Holidays are eagerly anticipated by the vast majority of people, working or not. Holidays mean good things: good food, family around, places to go have fun, time to do nothing. To relax.

Holidays also mean that shipments won't be finished in time. A project will fall behind. Paperwork will accumulate faster than it can be processed. (There's a rule: it takes five full workdays to recover the output missed in one non-work holiday.)

Did someone say, "workaholic?"

I'd hate to think so. But the workload mountain looms all the time - and I cannot see over it. I hear the wolf scratching at the door. I can't look back - because something's gaining on me!

I'd prefer to say "entrepreneur." Doesn't sound so pathological.

Have a happy holiday... (I'll be here chillin' when you all get back to work.)