The Hidden Cost of Bad Hiring

Introduction:

This week, Jay Goltz and Lena McGuire talk about an expense a lot of business owners may not even realize they’re paying. When former employees collect unemployment, they get a check from the government, but then their former employer gets docked. It can add up to real money, and that’s likely to become a bigger issue if the economy deteriorates. Of course, as Jay and Lena discuss, one way to keep your unemployment insurance as low as possible is to do a better job hiring. Jay and Lena also talk about whether it ever makes sense to rehire someone you’ve had to fire. Plus: With Lena’s clients and potential clients putting on the brakes, she’s using this slow period as an opportunity to improve her systems. She’s hoping to avoid a mistake she made last time when she built a business that she was unable to sell.

— Loren Feldman

Guests:

Lena McGuire is CEO of Spóca Kitchen & Bath.

Jay Goltz is CEO of The Goltz Group.

Producer:

Jess Thoubboron is founder of Blank Word.

Full Episode Transcript:

Loren Feldman:
Welcome Jay and Lena. It’s great to have you here. Jay, you did something recently that you don’t do very often, and I’m eager to hear how it went. You actually took a few days of vacation. Did you have a good time?

Jay Goltz:
Yeah, I went with my kids and my grandchildren, five and three, and had a lovely time at a resort in Arizona. But my only issue was I had a hard time sleeping at night. Got up in the middle of the night and couldn’t get back to sleep. And the interesting part, or sad part, or whatever part you want to call this: As soon as I called into work, and I got back in the game, and yep, started sleeping fine.

It’s like, when I’m in the game, I go to sleep fine, and I wake up. But when I’m off, and I have nothing to think about, the void gets filled with—I can’t even explain it, because I can’t sleep. So I sleep better when I’m at work and doing my thing every day. And maybe someone will say, “That’s sad,” but it is what it is.

Loren Feldman:
Were you able to relax and enjoy your time with your family?

Jay Goltz:
Yeah, absolutely. And I don’t know, I’m kind of relaxed all the time. I’m not the person who’s going to sit at the side of the pool for four hours reading. That’s just not who I am. And I respect people who do that. But it’s not like I was on the phone constantly with business or something. I had a lovely time with my grandchildren and my kids and my wife. No, it was all lovely. I just wished that I could have slept better at night.

Lena McGuire:
It sounds like you love what you do.

Jay Goltz:
Yeah, absolutely. And it’s not like I’m stressed out all the time. People say, “Oh, go relax somewhere.” I’m not stressed out all the time. I deal with stuff.

Loren Feldman:
Lena, you’ve talked about taking significant time away from your business. Do you have any advice for Jay?

Lena McGuire:
I love going away. That’s how I recharge. And I absolutely love what I do. I feel like I play for a living, and I can understand where Jay is coming from if he’s not sleeping at night. Because I can think about retiring, and I really don’t want to, because this is part of who I am. It’s what I do. It’s what makes me happy. So I think that maybe part of what Jay was feeling is like something was missing while he was having this great time. He wasn’t 100-percent having a great time, because he wasn’t doing—

Jay Goltz:
No, no, no, no. I gotta tell you, I had a great time. Really, it was simply a case of, I didn’t sleep well. I wasn’t antsy. I wasn’t thinking, “Oh, I wish I was at work.” I wasn’t on the phone: “Hey, what happened?” I was never that guy. I got to tell you, I can still remember going to Las Vegas to a trade show and the old guys on the phone—on the pay phone, back when they had pay phones—”What did we take in today?” I have never been that guy, and I don’t want to be that guy, that I’ve got to know what the sales for the day were.

No, I just, I didn’t sleep well, and I woke up and couldn’t get back to sleep, because I think my brain was not just thinking about what I have to do the next day or whatever, and it just left a void space. And when you have a void, and there’s stuff that you could be worrying about, all of a sudden, it fills up the void.

Loren Feldman:
Okay, so let’s talk about some of those things that you could have been worrying about. You’ve had some interesting situations with employees of late. For one, you had an employee who asked for a very big raise, and it happened to be an employee who performed a function that no one else at your company could perform. What did you end up doing with that?

Jay Goltz:
Basically, he came to us and said that he’s decided that he’s been underpaid for years, and he wanted us to double his salary. And we’ve had this conversation when we gave raise reviews. They said, “Listen, we believe we’re paying the market wage. If you disagree, come back with us and we’ll be happy to talk.” And he never came back to us about it. And what he was asking to be paid was, in our mind, just ridiculous. And he quit.

Loren Feldman:
An important role, right?

Jay Goltz:
To a degree, yes, but not in a management way. But like, at some point, you just can’t pay everybody. And I almost never have this, and when I say almost never, I can’t think of the last person who left because we weren’t paying them enough. But this wasn’t, “I want a 10-percent increase.” He literally wanted pretty much double his salary. And I’ve already replaced him. And the person’s got to get trained, and he’s going to figure it out.

But like, we tried to work along and figure out a solution. He’d already told us he’s leaving at the end of the year. Okay. He just refused to train anybody to replace himself and felt like he had us hostage, and he was going to get what he could out of us. And that doesn’t usually work well. And we tried to fix it, for sure. But I can’t even think of another situation in 46 years that that happened. Almost never. I mean, I’ve got people working for me for 30 years, 35 years, 25 years. I seldom have someone leave in that regard. So that was unusual.

Loren Feldman:
I know we talked at the time that he left, and there was a period where you were concerned about how hard it might be to find someone who could pick up what he was doing. How hard did it turn out to be?

Jay Goltz:
Not hard at all. We put the ad out, and the person applied, and was thrilled to change jobs. Here’s just the little funny part of the story, I think: “So, why are you leaving your job?” He said the owner is out of town in the winter and then comes in town in the summer.

Loren Feldman:
Wait, this is the person you hired.

Jay Goltz:
The new hire, right. And the reason he wanted to leave is because it’s a husband and wife, and they scream at each other all day long. So, he’s happy. I think it’s going to work out beautifully. He’s been there a week now, and I think it’s going to be a good thing. Part of the point of the story is: I know who we are, and I know that we’re running a nice company for some people.

And there’s other people that—not a lot—but I’m not apologizing to anybody. We treat people respectfully. We give raise reviews. We’re not screaming at people. And I’m confident there’s people out there who want to work in a company like that, and I believe we found one. So we absolutely tried to fix it with the person that left, but there was just no talking to him. And so, sometimes you just can’t fix stuff, is, I guess, the moral of the story.

Loren Feldman:
Okay, so you had another interesting situation. You had an employee that you had to let go, I think, a few years ago. You’re now thinking about maybe bringing this person back. Can you tell us about that?

Jay Goltz:
We’re thinking about it. We have a little bit different role than they were doing before, but they have a lot of experience with it. And we’re not there yet, but we’re talking about it, and we’re going to see whether being gone for a few years has changed anything. And I do have a different employee who we had fired. It was the beginning of a recession, blah, blah, blah. And we did bring the person back, and it’s worked out just fine.

So I haven’t done it a lot, but I would never make a blanket statement if you asked me, which you haven’t but you’re about to: “Jay, do you ever bring people back?” Not a lot. But I would never say never. I think people change. And here’s kind of the issue: People go through things in life. I mean, people get divorced. People have deaths in the family. People have their own personal stuff, and I think that sometimes things change, and maybe it didn’t work before, but maybe it’ll work now. I certainly haven’t done it a lot, but—

Loren Feldman:
In this case, do you think it’s someone who might have been going through something, or do you think it’s a situation where you’re hoping that they’re going to be a different person this time?

Jay Goltz:
Here’s the fairly unique situation with my particular company: I have lots of people who have never worked anywhere else. I hired them as kids at 22 years old, and 20 years later, they’re 42 years old, and they’ve never worked anywhere else and don’t have that perspective. So when they leave, they find out what the real world’s really like, and maybe it changes their perspective. And the guy that we brought back that’s worked out nicely, yeah, he had been at three other companies, and it wasn’t pretty. And he was thrilled to come back, and it’s worked out just fine.

When I was much younger, and I started dealing with people problems, I remember saying, “I got a business degree. They don’t teach this in business school. I didn’t sign up for this.” And the answer is: If you own a business, yeah, you signed up for this. You might not have known it, but yeah, you signed up for this. You’re dealing with people, and people are people. So I no longer whine about that. Like, I get it. People go through things in their life. Things change. So it’s a dynamic situation. People mature, people learn lessons, people go out in the real world and find out, “Oh, well, maybe I wasn’t right in what I thought.” So I’m open to it. I don’t know if we’re going to bring the person back or not at the moment, but I feel good about the fact we’re at least talking about it and thinking about it. I think it makes sense.

Loren Feldman:
Obviously, it depends to some extent on why this person was let go initially. If it was for stealing or something like that—

Jay Goltz:
No, no, it was never anything like that. It was just not working.

Loren Feldman:
But if it was because of interpersonal issues with other employees, that’s a different discussion, I suppose.

Jay Goltz:
Yeah, and I don’t know where that’s going yet, but I have done it, and it’s worked out fine. And first of all, if you bring someone back, you know what they are, who they are. You go bring a stranger in—and here’s the other new issue: Hiring has gotten much more difficult. There’s no question about it. The generations have changed, and I’m dealing with stuff now that I would have never dealt with 20 years ago. It’s just gotten much more difficult. There’s no question. And I think from talking to other business owners, they know exactly what I’m talking about.

Back in the olden days, if you called five people from resumes and you made appointments, five people showed up and they interviewed. Now, five people respond, and then you make appointments, and three of them don’t show up—like, regularly. This is a regular thing, and it’s not just me. Everyone I talk to says the same thing. I haven’t talked to anybody who looks at me and goes, “Jay, I don’t know what you’re talking about.” They all know what I’m talking about. I don’t know if it’s social media. I don’t know if it’s texting. I don’t know what it is, but people think nothing of making an appointment and then not showing up.

Loren Feldman:
Lena, are you looking forward to having employees?

Lena McGuire:
No. [Laughter] It’s scary. No, I am looking forward to having employees. I am not looking forward to having the difficulties associated with having employees. I mean, I see it with the customers too, the same thing with making appointments. There’s this idea that it’s easy to make appointments, and then there’s not the courtesy of canceling or calling. So that’s when I instituted a policy that I send them an invoice and then they get on my calendar after they paid for it, so that eliminates a lot of the no shows. So I give people a call, and then they want to schedule an appointment, so I’ll send them the invoice, and then it’s crickets. So at least I didn’t waste my time.

Jay Goltz:
And I can’t explain why that happened. In the whole new phrase—I think it’s a new phrase—ghosting. That phrase wasn’t around 10 years ago.

Lena McGuire:
It’s big now.

Jay Goltz:
Yeah, right. I don’t even know what caused all of this. With all that being said, I’ve got lots of lovely, wonderful new employees who have been with me for 2, 3, 4, years who are all fine. It’s just, it’s definitely trickier.

Loren Feldman:
So Lena, you don’t have this issue right now, but I know you’ve been thinking about creating systems to improve the operation of your business. What prompted your thinking about that?

Lena McGuire:
Most of it was because I have a lot of time on my hands right now, so I’ve been trying to improve.

Loren Feldman:
Is that because business is slow?

Lena McGuire:
Business is slow right now. Yeah, we’re starting to see the pullback. March is traditionally the season—you know, I live in central New York, so the snow is starting to leave. So people are starting to think about remodeling. But I’ve had a couple of projects be put on pause. I don’t know if they’ll come back or not. They say they will, but you never know. I’ve had another job where it was a good job, and they cut the budget in half. So I’m a little bit leery about what’s going on, but I do have that extra time. So I’ve been digging into trying to make my business so that it’s not me owning a job. It’s me running a business.

So I made a mistake when I owned my last business. It was really just a job that paid extremely well. So now I want to make sure that, when I’m ready to step away, that I have a saleable asset—or that I can have a general manager come in, and I can still continue to own the business. So I’m working on putting those systems into place so that I can remove myself from the business at some point. And as I’m growing the business, I’ll be able to have it be more efficient and have processes and systems in place where I can hire people and have them be accountable for what their tasks are.

Jay Goltz:
How can someone cut a budget in half to, like, do a bath? I mean, what do you get, half a toilet? How can you cut a budget in half for something like that?

Lena McGuire:
They changed their mind about the scope of work, so they talked to the financial advisor, and they were going to take some money out of the stock market, or take it out of investments wherever. And they’re like, “No, I think I need to keep an eye on that and just hold onto that. So I’m just going to do the minimum to make this palatable, rather than doing the full remodel.”

Jay Goltz:
So, instead of doing new tile and everything, they replace the sink and the toilet and maybe the door. They just do less work.

Lena McGuire:
They do less work. Yeah, the homeowner has a large space. They don’t have a separate primary bathroom. So they were going to create two separate bathrooms: one for the hall and one for the primary. And you know, that’s a much more expensive undertaking than just remodeling the existing bath. So with the current situation, they decided to just keep what they have and upgrade it.

Loren Feldman:
Lena, could you tell us a little bit more about that previous business you had? You said that what you really built was a job, not a business. What was missing?

Lena McGuire:
The system. So as I look back on this business that I ran, I was a graphic designer, and I had a small studio. It was just me, but I was earning six figures. I worked 32 weeks a year, eight to 10 hours a week, except for four weeks a year when I had all of my projects coming in at the same time, and I had to work 60 to 80 hours a week. But I had contracts that I signed in October, so I knew what my 32 weeks were going to be. I knew how much money was coming in. It was a very well-run-in-my-head system.

But then when I had children, I decided I didn’t want to work anymore. I was going to take 10 years off to stay at home, be a stay-at-home mom, and it never occurred to me that I wouldn’t be able to sell my business, because everything was in my head. I didn’t know that I needed to create systems and have these things written down, or be able to train somebody so that I could sell this or have somebody run it. So I just basically shuttered the doors. And when I started this business, I’m like, “Not again. This is not going to happen.” I want a real business. When I decide to retire, I want to have this be an asset. And it will either be sellable or I can bring in a general manager, but I don’t want to shutter the doors. I have bigger plans than that.

Jay Goltz:
So when you say “real business,” that includes having some vehicle, marketing, whatever. Like in a retail thing, a real business is, you’ve got a storefront on a busy street, and customers walk in every day. So it’s going to continue doing that. In your business, I’ve got to think, when you say a real business would mean that there’s some vehicle that every week is generating phone calls and business demand that you can deal with. I mean, are you calling that a system? What are you calling that?

Lena McGuire:
Yeah, I call that a marketing system. So you make plans for forecasting what you need to do to maintain your expenses and your overhead, the salary that I’d like to have, and what my goals are for the future, so that I can make sure that business is profitable. So the marketing plan has to make sure that all the business is coming in that’s going to afford the storefront and the employees, and the salary I want, and the lifestyle I’d like to have, and the lifestyle I’d like to be able to have my employees enjoy.

Loren Feldman:
You have plans to move into a storefront, right?

Lena McGuire:
I did, and I would still love to do that, but with the downturn—I did the home show, the local home and garden show, and typically I’ll get five to 10 new clients from that. I got one, and as Jay uses the phrase, they ghosted me. So I sent them the invoice to get that in-home consultation started, and that hasn’t happened. And I don’t have any others at all. So I’m questioning: Am I going to get any business out of the effort that I put into the home show this year? So, we’ll see. I have a mailing list, and I’ve got an email campaign going out, and hopefully there’ll be something coming from it. But it’s very different than it’s been in the past.

Loren Feldman:
So did you decide not to take the space?

Lena McGuire:
I am not taking the space, no. With customers pulling back, reducing their budgets, and not getting the work that I anticipated coming in from the home show, it just didn’t seem like a wise move at this time. So I’m very disappointed. I would really love to be in a retail location, but I’m going to stay in my studio space. And what my advisor helped me decide to do was to take the money that I would have been spending on the increased rent for that lease space, I’ll just put that aside, and depending on how long it takes, I may have a nice little nest egg to buy a building in the future.

Loren Feldman:
I think when a lot of business owners think about implementing systems, they’re thinking about creating a record of something that they can use to improve the efficiency, to train employees, to prepare for turnover, and movement among employees. I haven’t heard it discussed a lot at the kind of solopreneur or very small business like I have and like you have. Can you give us an example of the kind of system you have in mind that you feel the need to create?

Lena McGuire:
There are a bunch of systems you have to have: obviously, lead generation, which is marketing, and lead conversion, which is sales, and customer retention, which is basically your customer journey or customer experience. You need your operations, financing, your employee experience, which most people are going to call HR. You need IT, a communication and accountability department, that kind of thing.

But you know, even like, let’s, for instance, talk about your employees. If you’re going to hire an employee, you need to have some systems in place for hiring. You need a system for: How are you going to recruit? How are you going to screen? What kind of interview questions are you going to do? How will you make your selections? How do you onboard them? What kind of training do they need? How are you going to develop them as they are staying with you? And that’s just the hiring part.

Then you have to manage your employees. You have the day-to-day management techniques, the performance and feedback of reviews, the evaluations. How are you going to compensate them? What’s your compensation plan? What’s your incentive plan, bonus plans? Are you going to offer any kind of incentives if they bring in referrals? What kind of accountability are you going to put on them? What are your performance standards? What kind of measurements are you going to use?

That’s just in hiring somebody and making sure that that whole bring on a new team member works. So you have the umbrella of, “Okay, this is my HR department, or my employee experience department.” And then you have these subsystems of hiring and managing and performance reviews. It just boggles my mind how much you have to do when that’s just one little area.

Jay Goltz:
Do you know what you’ve just described? It’s 21 Hats.

Lena McGuire:
I love 21 Hats.

Jay Goltz:
No, I mean it. You’ve just described 21 Hats, which is hiring, management, training, finance. It’s all the pieces of the puzzle. And unfortunately, of the 21 hats, you can’t get three of them wrong, because it all works together.

Lena McGuire:
No, it’s like a machine with gears, and they all have to work. And if a gear breaks, you have to fix that gear.

Loren Feldman:
Jay, did you go through a period early on where you kind of hit a wall because you hadn’t implemented systems and you were just relying on—

Jay Goltz:
It’s not that I hit a wall. I just was getting ground down. I always was growing a lot, and I couldn’t keep up with it. And the reason was, the secret sauce, which wasn’t obvious to me at the time, I always took care of customers. I always worshiped customers and did everything I could to take care of customers, and had a good design sense and brought better stuff in.

And all of the stuff you’re talking about, it’s not that I hit a wall. I had serious problems because of it. I wasn’t good at the hiring in the beginning, so I had constant management problems, and I had no mentor. I’ve never had a job somewhere. I’ve never had anyone say, “Jay, wait, you’re doing this wrong.” So I reinvented the wheel for 20 years, and it was painful. So it kept growing, though, because I was taking care of customers, but the financial—every one of the 21 Hats pieces I had to struggle with till I figured out what the story was.

Loren Feldman:
Lena, are you doing this more because you have the time to do it now, or because you’re feeling the kind of pain that Jay is describing?

Lena McGuire:
I’m doing it more because I have the time right now. I don’t have the pain. I’ve had the pain before, where my business was growing, and that’s when I hired my administrative assistant because I just couldn’t juggle any of the plates anymore. But now all the plates have crashed to the floor, and I feel like I’m starting from square one. So I’m trying to use my time wisely. I have maybe 20-25 hours a week that I can devote to working on the business, because I can complete the work that I need to do in the 20 hours for my clients. So it’s not that I don’t have any work to do. It’s just that I don’t have enough work to fill my time. So I’m trying to better the business, better myself.

One of the shocking things—I don’t know if this is shocking to everybody—one of the bottlenecks is myself. I’ve had many, many customers who were, I thought, happy in the past, but if I’m not getting repeat business from them after a few years, it’s not because they weren’t happy. It’s because I’m not staying in touch with them. So not having that marketing arm working well has been a real problem. Because when I’ve done jobs for customers, if I did a bathroom, they’d call me back and do a kitchen. If I did a kitchen, they’d call me back and I’d do a couple of bathrooms for them. But they’d forget after a few years when they don’t need me, because their house is good, but now their children have moved out, or their neighbor needs a designer, they don’t refer me. And it’s because I’m not top of mind to them, because I haven’t been marketing. So that’s a lesson learned.

Jay Goltz:
There is a natural cycle. 20 percent of your potential customers are leaving every year simply because they’ve aged out, they moved, they died, they’re not spending money anymore. So you do need to have a constant flow of new customers coming in. And to your point, if you don’t have any marketing and you don’t have a storefront, that is a problem, because you’ve got a leaky bucket and there’s no faucet at the top refilling it. You’re right, they all have relatives and friends that are looking for someone, but you obviously are not top of mind to them at that point.

Lena McGuire:
Right, so that’s my priority right now. I did hire a marketing agency, and I’ve gotta tell you, the amount of time you spend working on putting all these materials together and lead magnets and brochures and processes, it’s quite time consuming. So I’m a little bit grateful that I have this time to devote to it.

Loren Feldman:
All right, so I want to run kind of a case study by you, something I took from a post on Reddit, the small business subreddit. It’s a post from a married couple that bought a restaurant in Oregon and had a difficult experience. Let me read it:

“My spouse and I purchased a restaurant in Oregon in July, 2023. We used our life savings to chase a dream to run our small business and build something meaningful in our community. When we took over, the previous owner had fired the entire staff. Even though we were new to the industry, we chose to rehire the original employees. We didn’t want to leave people jobless, especially folks who had families to support and knew how to do the job well. It felt like the right thing to do. Fast forward several months, and now we’re being penalized for it. We just found out we’re being charged back unemployment taxes because we rehired the previous staff. According to someone from the employment department, if we had hired all new employees instead, we likely would have been eligible for a lower tax rate as a new business. But because we bought back the original team, we inherited the prior tax rate and now owe nearly $10,000 in back taxes.

“The compliance specialist even told us that appealing probably wouldn’t help, though she wasn’t a lawyer. The way it was framed, it felt like we had no choice or voice in the matter. We were just stuck with it. That amount may not sound like much to some, but for a small business like ours, it’s huge. We haven’t been paying ourselves. We’re living off savings to keep our staff working and the doors open. Now we’re being told that choosing to rehire and support our team was a costly mistake. We’re not asking for handouts, just fairness. It’s frustrating to feel the system punches small business owners for doing the right thing. And if this is what people face for trying to preserve jobs, it’s no wonder small businesses are disappearing. Has anyone here dealt with something similar? Did you fight it? Appeal it? Talk to lawmakers? I’d really appreciate any advice, insight, or even just validation that we’re not crazy for feeling this way.”

Jay, I know you’ve thought a lot about the way the unemployment tax situation works. Thoughts?

Jay Goltz:
I want to scream. That is so upsetting to me to hear, and I don’t think they got it right. I’ve done speeches to, I don’t know, 200 or 300 entrepreneurs, usually in smaller groups of 20, 30, 40, people. And I say, “All right, who here knows how unemployment insurance works?” And then maybe one or two hands go up. And then I ask—I’m not exaggerating when I tell you not one of them really understood it. Okay, that’s number one.

Loren Feldman:
Stop there. Tell us, fundamentally, how it works, because some people think the money just comes from the government, and they don’t realize—

Jay Goltz:
No, I want to qualify this. I’m in Illinois. This is the way Illinois works. But I think most states are, if not the same, similar. Okay, I went to a seminar brought by the Illinois Department of—you know, the people who do this. And I’m sitting through the seminar, and some guy in the back raised his hand. He goes, “I didn’t fire him. They quit. And I can’t believe it, they got unemployment. And blah, blah, blah.” And the lawyer in charge, he was a lawyer working for Illinois, he goes, “Well, it’s not like you’re actually paying the unemployment. It’s kind of like a car accident.” And I had to raise my hand and go, “Excuse me, you’ve got that wrong.” This is exactly how it works. They go for unemployment, and they get their whatever the number is, $500 a week. And then, see, you don’t have to guess. You get a form once a year. It’s all right there in black and white. They take how much you paid out, then they add on another 30-40 percent.

Loren Feldman:
Wait, how much you paid out?

Jay Goltz:
You paid out in unemployment. So the person that got the $500 a week, say they got it for 26 weeks.

Loren Feldman:
Not from you. You didn’t pay that out.

Jay Goltz:
No, they got it from unemployment. Okay, get this. They got it from unemployment. Let’s say they got their 15 grand. Now, they take that number and they add on like 30 to 40 percent onto that. The point is, it goes into a rate, and then they charge you back over the next three years. So the point of the story is, you are absolutely paying the unemployment plus 30 or 40 percent. It goes back into your rate.

And the reason why no one understands this is—trust me, if you got a bill in the mail that said, “Oh, you fired Bill Smith. Here’s your bill for $20,000,” you would jump out the window. But no, that’s not what happens. A year after they get the unemployment, it gets put into your unemployment rate. And your unemployment rate goes from 2.3 percent to 2.9 percent.

Loren Feldman:
Of what? Your total payroll?

Jay Goltz:
No, whatever the number is, the first $13,000 of each employee. You are paying every dollar of it, is the point. Now, if you got that bill, you’d pay attention. The question is, if you ask the typical entrepreneur, “What’s your unemployment rate?” trust me when I tell you, they don’t know. They didn’t even notice it went up because the accountant calls, “Oh, your rate. Here’s how much you owe.” They don’t even know they’re paying it.

So the problem with the person who you’re talking about, did they have a lawyer when they bought this business? This idea that you hired the same people back is ridiculous. No, you should have started a new LLC, a new corporation. Done. Instead, they took over the business, so of course they’re responsible for the unemployment. All they would have had to do was start a new corporation. And if they had a lawyer involved, or an accountant, I would have thought they would have said to them, “Rather than buy the business, you probably should do an asset sale,” which means you won’t be responsible for any—you can have a vendor show up in three months and go, “Hey, you owe me $80,000. You never paid your bill.” You’re on the hook for it.

Loren Feldman:
You said that this made you want to scream, your scream was prompted by the fact that these people didn’t get very good advice.

Jay Goltz:
That the person advising them, whoever that was, “Oh, well, if you hire the same people back …” I’m not a lawyer, but I think that’s preposterous. It’s not that they hired the same people back. It’s that they took over the business using all of the registration numbers. They took over the business instead of doing an asset sale where you pay them dollars, and you’re buying the equipment. You didn’t buy the business, you bought the assets, and then you start a new LLC under another number, and then there’s no unemployment. There’s nothing.

It’s like they got bad advice. And the person telling them this, I don’t think that’s right, that, “Oh, if you would have hired new people back …,”— I don’t think that’s right at all. They’re getting stuck for the unemployment expenses that were paid out before they showed up. Whether they would have hired new people or old people, that number would have followed them around because they bought the business. They should have bought the assets and started a new LLC. I don’t think I’m wrong with that.

Loren Feldman:
Lena, more reason to start hiring employees?

Lena McGuire:
When I expand, there’s a really good possibility that I would buy a retiring kitchen showroom. You know, the owner would want to sell out. So, I want to buy the building. I would want to buy the assets. And I may even want to hire the employees, but I don’t need to buy their business. That’s a huge thing.

Jay Goltz:
There’s liability. Somebody could sue you from something that happened two years before, and you own the business now. It’s your problem.

Lena McGuire:
Yeah, that makes perfect sense to not do that.

Jay Goltz:
And I think if you were to talk to the person who wrote that thing and ask him, “Did you have a lawyer?” I have a hard time believing that an accountant or a lawyer, one of them, wouldn’t have advised them on this.

Lena McGuire:
Do you think it’s better to use a lawyer or a business broker? How do you go about it when you’re looking at—this person obviously wanted to start a restaurant. And they saw this location and this business name and everything, they wanted to use that. So do you start with a broker? Do you start with an attorney? Do you use both?

Jay Goltz:
Oh, you absolutely have to have both. I mean, a broker is certainly not an attorney, and they just want to sell the business. And then the lawyer, on the other hand, doesn’t know how to buy a business. No, you need both. And it was a good idea to buy this existing name and fix yours. I’m not arguing with that at all.

Loren Feldman:
Although, you have to wonder, why did the previous owners fire all the employees? Perhaps that business wasn’t doing that well. It might just make your argument about buying the assets, and not the business, all the stronger.

Jay Goltz:
The question is, there must have been a gap in between them firing all the employees and this person buying the business, or why would they have been paying unemployment? So it sounds to me like the restaurant owner threw in the towel, was done. And then this person found the restaurant three months later and called, “Hey, can I buy it?” “Oh, yeah, I’ll sell you the restaurant.” They were already done. There was no reason to buy it. And then the question is, did the owner own—I’m not sure they should have paid the owner or anything. Maybe the building was owned by a landlord, and the person could have just come in, taken over the space and not paid them anything.

There’s lots of questions here that we don’t know. Why did they buy the business, unless the guy owned the building, which we don’t know if they did or not? This story doesn’t make any sense. Why did they fire all the people? And then, obviously, if there was unemployment paid out, there was a gap between that and then buying the business. What was happening in between that? They’re trying to sell a business with no employees? That doesn’t make any sense. There’s something missing from the story.

Loren Feldman:
I think you might have figured it out. I mean, I think there’s got to be a reason why all those employees were fired, and it’s very possible that the business had been shut down for a period of time.

Jay Goltz:
It had to have been, or there would have been no unemployment paid out. And then part of it, which—I don’t mean to beat up on them, because they’ve never been in business. You know, they wanted to be in the restaurant business and do a good thing. I fully respect and appreciate all that, but this whole notion of, “Oh, we’re doing a good thing. We’re giving people jobs.” Like, that’s not why you start a business. You start a business because you think there’s a need for it out there, and you think you can make money. It’s great that you’re giving people jobs, but that shouldn’t be the primary reason you’re buying a business, for God’s sake. That’s how you end up in this situation. Like I said, there’s more to this story.

Loren Feldman:
Well, whatever holes and questions there are in the story, that’s a good moral, a good lesson for anyone thinking about taking the leap.

Jay Goltz:
How does this happen? “Oh, I’m going to use my lawyer. He’s been my lawyer for 30 years.” Yeah, he did your will. And is the lawyer going to go, “Bob, I got to be honest with you. I do wills. You really need to get a business lawyer”? Maybe they’ll do that. Maybe they won’t, but you’ve got to get a business lawyer who does this for a living.

Lena McGuire:
And it sounds like you need to plan ahead, too, with your finances. I’m thinking of it like when you buy a house for the first time, and you’re not aware that you have to have all these funds to go into escrow. So you get into the closing and it’s like, “Oh, it’s going to be $10,000 or $20,000 more than you anticipated.” So you don’t have that contingency fund. So you really should have been looking for a house that cost a little less.

Whereas with the business, if you’re not factoring in that you’re going to be paying a broker’s fee, and you’re going to be hiring an attorney, and you need to have an accountant look at the books, I mean, these are expenses that go along with purchasing a business. And you need to factor that in. So maybe what you’re offering isn’t going to be the full value there, because of all the due diligence you have to do.

Jay Goltz:
The business broker is an advisor. They’re a business broker. They’re not an advisor. They’re looking to make the sale. And frankly, even if they were honest, they don’t necessarily know much about buying. They’re business brokers.

Loren Feldman:
But also, just to tie this up, the issue of understanding the way unemployment insurance works isn’t just important when you’re buying a business. It’s also important just for operating a business.

Jay Goltz:
Absolutely. So the three ways to keep your unemployment insurance down is, one, be extremely careful who you hire. That’s for sure. The most important part. Two, after 30 days in Illinois, you’re responsible for all the unemployment. On the 28th day, do a soul-searching and go, “Is this person going to work out?”

Loren Feldman:
Wait, explain what you mean by responsible for unemployment.

Jay Goltz:
At 30 days, you own all their unemployment. If you fire them in 33 days, they could have worked at U.S. Steel for the last 30 years. You’re paying all the unemployment. That’s how it works. You bought the farm. Which means—

Loren Feldman:
They don’t go back to the previous employer.

Jay Goltz:
No, no, it’s going on your number. Yeah, you hired them. They’re going back on yours. They’re not going to go, “Oh, well, they only worked for you for two months, but they worked at U.S. Steel for 15 years.” They changed that rule 20 or 30 years ago because they realized that a lot of times the older employer went out of business. So they want to get their money, the state. So they hook it onto the new guy. I mean, it’s not right. It’s just not right. But that’s how it works. So the point is, at 28 days, make a decision: Is this person everything we thought they were going to be? And unhire them then. That’s two.

And three is, have a policy book, follow it, and if you’re going to fire them, it should be for cause, meaning they violated your company policies. That is the least effective of getting your number down. The first one is, be careful hiring. The second one is the 28 days, because you’re going to lose half the time on those.

Loren Feldman:
That 28-day thing probably varies by state, I’m guessing.

Jay Goltz:
For sure. No, that’s the other part that stinks. Illinois is 30 days. I think Florida is 90. It should be 90, for God’s sake. Why should we be buying the farm after 30? It’s not right, but that’s the way it is.

Lena McGuire:
You can’t even train them in 30 days.

Jay Goltz:
Sometimes you can tell, but lots of times you can’t. It should be 90 days everywhere. That would be reasonable. But it is 30 in Illinois. That’s for sure.

Lena McGuire:
Ninety seems much more reasonable.

Jay Goltz:
Yeah, for sure. And after 90 days, my guess is, you gotta have a good feel for whether they’re working out or not.

Lena McGuire:
Well, in my industry, we can do interns, so that helps alleviate that situation a little bit. But you can bet when I’m hiring somebody, I’m going to make sure I know what that time frame is, put that on my calendar so that I make sure my review is scheduled.

Loren Feldman:
All right. My thanks to Jay Goltz and Lena McGuire. Thanks for sharing, everybody.