Almost sunk: how a start-up recovered from a first-year disaster

Christine Khor was fed up with the difficulties of finding good marketing and communications people so she decided to set up her own recruitment agency – but she was almost sunk by her first employee.

It is one of life’s ironies that, despite a degree in psychology and criminality, Khor completely trusted the woman she hired to help with the administration of the business, now called Chorus Executive.

Khor thought she knew her. The woman had been the receptionist at Khor’s previous workplace. What Khor didn’t realise was that she also had a drug habit.

“What she was doing was taking out cheques and forging my business partner’s signature. She ended up taking $30,000,” says Khor.

“She charmed people at the bank.”

Khor and her then business partner Sacha Leagh-Murray had to decide how to handle this disaster and weighed up the options of pursuing the woman through the courts or letting it go so they could concentrate on the business.

“We did think about going legal on her, and we had a couple of lawyers. They said we could do that, but it would take a lot of energy and it would take years.

“In that two-month period, when we found out what she had done, we had to go through all our books and the rest of it and our business virtually stopped. So Sacha and I looked at each other and said: ‘Do we want – every time the phone rings or the fax machine goes – to think, oh my God, is this another thing?’

“We decided to just cut our losses and move on,” she says of the event, which occurred 14 years ago.

The woman’s mother repaid half of the stolen money and they licked their wounds and kept going.

“We treated it as a bit of a blessing. I mean $30,000 is a lot of money . . . but not a lot of money. We didn’t have a lot to lose. It could have been a few years later and she could have got a lot more.”

Khor said it took six months for her to get her “head right” again. The founders had committed to each other for two years and, at the end of it, Leagh-Murray wanted out of the Melbourne business.

“It wasn’t because of [the embezzler], but recruitment is a tough business,” says Khor.

Financial cushion

The two women had started the business with a substantial financial cushion. Each raised $50,000 and had access to a further $40,000 between the two of them.

In terms of budgeting for those two years, they halved the amount they thought they could earn and doubled the amount they thought they would spend.

“We were really conservative, so we never worried about money which is probably why we picked ourselves up so quickly [after the embezzlement] because we always had a buffer.”

But they were not able to pay themselves until the middle of the second year.

With Leagh-Murray wanting to exit, they had to work out what the business was worth so that she could be bought out.

They had invested $40,000 on a database system, had to cover the cost of the embezzlement and then there was spending on marketing. It is difficult to value a business that is so young and hasn’t established a regular cash flow.

“It came down to what the seller is willing to sell it for and what the buyer is willing to pay for it,” says Khor.

Fortunately their accountant was keen to invest and, with a bit of to-and-fro, they came to an agreement. A partner with an operational background was brought in and, after eight years under their original name (Market Partners), they merged with a Sydney company to become Carrera Partners. For about five years they operated as a national business, but then things soured and Khor demerged last July – the biggest business challenge she has faced yet.

Returning to a smaller business, taking the name Chorus Executive, has taken some readjustment, especially as the $10 million revenues she enjoyed in the bigger business has now shrunk to less than $5 million.

“I had my mid-life crisis . . . I realise when you turn up for work every day, when it is your own business, you have to love what you do – at least most of the time.

“And you have to love who you work with, especially if they are business partners.”

Her Melbourne team was supportive and some offered to take pay cuts to help.

“They did some amazing things.”

One long-term employee took up the opportunity to buy 20 per cent of the company and Khor says she is open to offering more equity in the future.

“Whatever I make, I am happy to give and share and I’d rather have a smaller piece of a bigger pie than a big piece of a little pie.”

Getting a bank loan to buy back the business required her to put her home up as security.

“We were a proven entity and we had been running for 13 years, but there was no allowance for that.”

Bouncing back

■ Be careful who you trust. “And know your numbers,” says Khor.

■ Don’t procrastinate over important decisions. “I think I probably stayed in the partnership longer than I should have. I probably stayed a year too long.”

■ Have good people around you and ask for help when you need it. “I had a number of key people from accountants, peers, clients and staff who were absolutely there for me when I was going through difficult decisions.”

■ Believe in yourself. “We had no experience in recruitment and no experience in running a business, but we just knew that we could do it, because no one told us we couldn’t.”

■ Look on the bright side. “I think anybody in business needs to be an optimist.”

*Original Article by Fiona Smith:  http://www.brw.com.au/p/entrepreneurs/almost_sunk_how_start_up_recovered_rRvO8TXdXnHkV9KBIRLa3O