Smart Money: Handing off business to employees can be disastrous

Bruce Williams is a national radio talk show host and syndicated columnist

Dear Bruce: After my divorce, I decided that if I wanted to eat I'd better get a job, and I liked the idea of working for myself. I was 48 when I started my first business and 52 when I started my second. Five years ago I decided it was time to retire and I turned the business decisions over to the employees, thinking if they did well I would just turn the business over to them. I am now pushing 71. They ran it into the ground, and I don't know if I should hold an auction or try to rebuild the business and then sell it. I really would appreciate your opinion M.R., via e-mail

Dear M.R.: You've rewritten a very old story. Oftentimes, when the boss turns the business over to someone else, particularly a smaller enterprise, the business goes right down the toilet. So many people have the opinion that whatever comes in is profit and they're dead wrong. Whether you want to go back into this business is another story.

I had an uncle who was a partner in a very successful lumberyard. Right after he got out, the business went into the ground. He was persuaded to come out of retirement and the business went right back into the black again and then went under after he left. He was the driving force of that enterprise, although I don't believe that anyone working there at the time would have thought so. The same thing was true here. Whether you want to invest your time and effort, at your age, into rebuilding the business is another story. I suspect you might view it as a challenge. That being the case, I would undertake it. Strictly as a matter of economics, letting go might be the appropriate thing to do.

Dear Bruce: I am 37 and a school teacher. I have made up my mind to start my own business. I wanted to get your opinion on government grants. There are several places where you pay a small fee for the information they have put together and they guarantee results. Please let me know what you think I should do. I am projecting my start-up costs to be between $50,000 and $75,000. K.R., via e-mail

Dear K.R.: You are hoping to get someone to give you money to start your business. I know there are places that advertise that the government is just going out of its way to thrust money into hands such as yours. Your only responsibility is to stretch out your hand. While that makes for good writing, it's not reality. Ask yourself "Why should anyone give me money to start up a business?"

Loaning you money is another matter. When you try to borrow money, some type of collateral is usually required. Banks are not in the business of loaning venture capital (which is what you're talking about). Venture capital guys are not enthusiastic about small numbers. Most of us have had to save, scrimp and do without in order to save some capital to get ourselves into business the only avenue open to you other than loved ones (who would loan you money on faith rather than on reality). I would not pay any fees for information about grants. In most cases, you'll just be a tad less wealthy at the end of that transaction.

Dear Bruce: Some time ago I loaned a friend money to start a new entertainment appliance for installation in bars. He signed a note, but I have neither received money as repayment nor gotten any interest. I would like to know what is the time limit on such a loan? Do I have any recourse? The amount that was loaned was $10,000. Can I sue him or is it just a bad debt? Incidentally, I have not been able to locate the person, as he has moved out of town and presumably out of the state. Reader, via e-mail

Dear Reader: You asked if you can sue the person. First you have to find him. He would have to be served, and if it's out of state, it becomes that much more difficult. On top of this you ask about time limits. We'd have to go back to the note. Did an attorney prepare it or was it something that you picked up at a stationery store? All of the above having been said, the overwhelming likelihood is that you loaned money to a bum, and he has stuck you. To my knowledge there are no positive tax consequences here. The biggest plus is a lesson. I hope you've learned it.

Dear Bruce: Four years ago, we loaned friends $30,000 to use in building up a business. We agreed on monthly payments, plus interest. They were sporadic. Now, they're refinancing their house and plan to pay off the remainder of the loan. Can we make some part of the payment retroactive? What are our options in lowering the IRS bite out of this payoff? We are retired and on Social Security so our income is limited. M.C., via e-mail

Dear M.C.: You have to separate two things: the return of principal and any interest on that principal. Only the interest would be taxable. Assuming a 6 percent return, the maximum interest you would have to account for is about $1,800. Given this and your very limited income, I don't think that's enough to get excited about. On a side note: when I began reading your letter, I expected to see that the friends were stiffing you. Loaning money to friends is seldom a good idea, but I'm delighted that you are at least getting your money back and some small amount of interest.