On the Brink of Bankruptcy
© 2001 Door & Access Systems
Publish Date: Fall 2001
Author: Tom Wadsworth
On the Brink of Bankruptcy
How one dealer saved his business from financial failure
It’s not uncommon for small businesses to bite the dust during these slow economic times. You might be one of those who are feeling the pinch. If you’re looking for some hope, read on.
This is the story of Russ Wunderlich of Wunderlich Door (pronounced wonder-lick), a typical door dealer of a typical size in a typical town. Although Russ had successfully run this typical door business since 1976, he found himself in 1996 drowning in debt and on the brink of bankruptcy. His recovery from this predicament is anything but typical. It’s the stuff of legend.
Five years ago, his payables were 8-10 times his receivables, but now it’s the other way around. Today, Russ Wunderlich proudly boasts that he pays all his bills on time, taking advantage of every possible discount. His profitable company carries a healthy $100,000 line of credit at the bank, and his business has an excellent credit rating.
How did he do it? Here’s his story.
In 1996, what were the key signs that your business was in trouble?
We were always delinquent when paying our suppliers. We were on credit hold with everyone. We could not afford to purchase or lease new vehicles and equipment, and we could not afford the upkeep on our old dilapidated trucks. It was impossible to be profitable, and it was difficult to make payroll each week.
In retrospect, what were the steps that led you into financial difficulty?
We allowed ourselves to get into a position where we did not control the sale. Too much of our business was acquired with low price bids and high volume. We were not fully aware of our costs, and we had not raised our service rates in five years.
How much of your business was new construction?
New construction was more than 50 percent of our business, and about two-thirds of it was residential.
If you could point to one faulty business concept that led you to the doors of bankruptcy, what would that concept be?
We thought we needed every sale in town. That led us into too much new construction business sold by being the low bidder. We also allowed the contractors to use us as their banker.
How would you describe your darkest hour?
In late 1996, things were getting real bad. But the darkest hour was in February 1997 when the payroll bounced at the bank. Over two-dozen employees couldn’t cash their paychecks. They either called me or left jobsites to come in to see me. It was humiliating. Without knowing what the outcome would be, I promised them that I would make good on their paychecks and cover all of their associated expenses.
I immediately met with the bank officials and pleaded for help to cover the overdraft. Fortunately, they were sympathetic and gave me a temporary short-term loan on my personal credit.
I really didn’t know if I could make it. I thought I was going to lose everything. I hoped I could at least end up at zero and not still be in financial debt. I had never felt worse in all my life. I could have crawled into a hole. My integrity and all that I had stood for was in jeopardy, and I was utterly embarrassed.
What was most embarrassing?
I didn’t want my dad to know how bad it was. He had built the business and had earned a reputation as a successful, kind, generous, and honorable man. I looked up to him in every way, and I wanted him to be proud of me. I wanted so badly to make it on my own.
In late 1996, he was on his deathbed. I remember that he looked up at me and said, “It’s pretty bad, isn’t it?” I just said, “Yeah, dad, but we’ll be okay.” That was hard for me. He died Dec. 4, 1996.
Did you actually file for bankruptcy?
I went to my attorneys, but they wouldn’t let me go through with it. They explained the long-term negative effects of going bankrupt. They asked me, “What did you do differently when you used to make money?” They challenged me with the fighting will to work out of it. They made me realize that, if I could turn things around, I would have a lasting pride about being successful. After searching my soul, I decided we could do it.
How did you satisfy your creditors?
Upon the advise of my attorneys and bankers, I immediately started dialogue with my creditors. One in particular was very understanding, and he gave me the opportunity of a lifetime. I had just inherited my aunt’s estate, and he allowed me to give him the proceeds in order to satisfy my largest debt.
Why was that so significant?
Because of his generosity, I was able to get a line of credit and the beginning of a new way of business life. I pledged to myself that if I could avoid bankruptcy, that I would never allow myself to ever get into this type of situation again.
I have had a storybook turnaround that may only come once in my lifetime. Had I not changed my old business philosophy, I wouldn’t have made it. I know I must retain control of the sale, and that profit is the ultimate lifeblood of success.
What were some of the first steps you took to turn around the business?
I dismissed every salesperson who had told me we couldn’t raise our service rates and our prices. I cut our staff by 60 percent. We raised our service rates immediately, only to find that our service business increased. By cutting overhead expenses, we found we could be more profitable with smaller markups.
For each sale, we decided that making a profit would be the rule, not the exception. We stopped selling new construction jobs where we were the low bidder. In short, we stopped the nonsense.
How long did it take you to dig out of debt and turn the company around?
We were able to discount supplier invoices in nine months and eliminate our original debt in 18 months.
If you could point to one key business concept that led you out of financial difficulty and onto the road to profitability, what would that concept be?
We decided to sell “value” to our customers, “value” being defined as a high degree of service and quality. We felt we could not give service, quality, and value, and go for the low bid at the same time.
In practical terms, how did you add value to your sales?
We offered only quality products and services. We sold upgrades to our sales. We provided the best service in town and charged our customers accordingly. In doing this, we found a niche where our competition couldn’t compete with us.
We learned to realize that not everyone could afford us. When a customer would comment that our competition was cheaper, we helped them understand why we were more expensive.
When we get a customer who only wants lower prices, we are happy to send them to our competitors. We are interested only in profitable sales with healthy margins. I think we should be embarrassed when we find out we’re the lowest bidder.
Are you doing anything differently now to adjust to the slower economy?
Not really. Our philosophy of selling “value” and not price and volume has continued to work for us. Our sales are off almost 10 percent since March of this year, however, it is the first year we have not yet needed to draw from our line of credit at our bank. We are holding our own.
We have lists of improvements for our grounds and buildings, and we keep our men busy improving our facility. Selling at lower prices in hopes of keeping cash flow and the men busy is a false business principle for us. That form of doing business only drains our profits and causes tremendous financial loss.
In your mind, what are the biggest benefits to running a profitable business?
As a business owner, I have absolutely no pressure because we are able to pay every supplier on time and take early payment discounts. I thoroughly enjoy the business. I feel very proud to be in this position. Now, I control my company; it doesn’t control me. I love my job.
Our customers know we pay our suppliers on time, that we are profitable, and that we can afford to back up our products and services with the best warranties. We are fully capable of adhering to our motto of 49 years, “Always give more than you promise.”
At a Glance
· Joliet, Illinois
· Established 1952 by Russell E. & Edna A. Wunderlich
· 18 Employees
· 12 Vehicles
· Mix: 60% overhead doors, 40% hollow metal doors
Russell J. Wunderlich
· Started in door business in 1952 (part-time at age eight)
· B.S. in Mechanical Engineering, Purdue University, 1967
· Full-time at Wunderlich Door since 1970 (his father retired 1981)
· Owner since 1987