In 1998, Harden Wiedemann's Assurance Medical, Inc., a company that outsourced drug-testing services, was on the fast-growth track with clients such as Frito-Lay and Southwest Airlines.
By January 2001, unable to keep up with the capital requirements, Wiedemann was forced to sell Dallas-based Assurance Medical to First Hospital Corporation, based in Norfolk, Virginia.
Today, Wiedemann shakes his head at the irony of the situation. "It wasn't that the company went out of business. The problem was that we had too much business to service with the resources we had! We had more contracts and demands for services than we could fund out of cash flow.
"We needed several million dollars in working capital to take on AT&T and several other large companies as clients," Wiedemann said. "We had to ramp up the telephone service center, hire more employees -- lots of things that required upfront cash.
"I tried everything," he said. "I even looked at factoring. I could not get funding." The company had entered territory known as "No Man's Land," the transitional period when a company is too big to be small, and too small to be big.
"We needed $2 million to $3 million. That was too much for early-stage investors and incubators, and not enough for the venture capitalists," Wiedemann said. "We really beat the bushes. For a full year, that was pretty much all I was spending my time on."
Wiedemann laments that lost year. "It takes you away from the operational aspects of the businesss. Customer service is the reason we got those companies -- that started to slide when I couldn't keep my eye on the ball because I was spending all my time trying to find funding."
Wiedemann believes that legislation such as the proposed BRIDGE Act, which would allow entrepreneurial, rapidly growing companies to defer up to $250,000 in federal taxes, might have saved his business if it were in force at the time. "It would have allowed me to ramp up my operation enough to bring those contracts on line, so we could have continued to grow out of internal cash flow. We could have closed the deal with AT&T and several other pending contracts."
He considers the BRIDGE Act solution superior to alternatives such as obtaining a loan through the Small Business Investment Company program. He found that process slow, exasperating and ultimately unsuccessful. "It's unfathomably complicated and bureaucratic," he said.
Frustrated at every turn, Wiedemann decided to re-create the company and transform Assurance Medical into a Web-based application service provider, rather than an outsourcing partner. "We actually had a commitment from a venture capital group. If the migration had panned out, we had a commitment to merge with two other companies and get $5 million. Then the e-commerce market started to erode, the venture capital company pulled out -- and I went into high gear trying to sell the business."
The sale cost 20 employees their jobs. But more than that, Assurance Medical lost the opportunity to hire more workers and continue growing. "We could have been as big as 50 to 100 employees and $20 million in sales if we had been able to get interim financing. We were on track to do that," Wiedemann said.
"When times are tough, small business creates the jobs," he concluded. "When you cut off their air supply, it has an economic impact."
"The BRIDGE Act could help businesses survive so they can continue to create jobs."
A Tax Plan to Help Small Businesses Keep Growing
Revised: April 28, 2003 TAF
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