Money mistakes Featured

9:51am EDT July 22, 2002

Granny’s Attic Communications grew out of a hobby when George Salopec started with a recording studio in his home after college. Later, he bought a video camera and began doing small productions. That’s how the business grew over its first 15 years.

But problems quickly swelled and threatened to sweep the business away when Salopec and his partner, Michael Dorfner, made some unwise financing decisions as they tried to expand.

“I ran my business by the seat of my pants,” says Salopec. “I never had a plan.”

The “glorified audio-visual company,” as Salopec describes it, does high-end production of corporate programs. The business was a part-time venture for several years while Salopec served as tour manager for Duquesne University’s Tamburitzans and later worked a day job running the audiovisual department at David L. Lawrence Convention Center.

Salopec eventually persuaded the convention center’s management to expand its services and offer a full array of audiovisual services. With that experience, Salopec ventured out on his own.

Starting at home

In 1995, Salopec and Dorfner decided that to land the level of clients the company needed and could serve, Granny’s Attic Communications would have to find a new home. That led to the first bad financial decision.

They were outgrowing Salopec’s home, and courting large clients was not practical without a dedicated location where they could demonstrate their capabilities. Besides, they had bigger ideas, figuring they could do large productions for corporate clients, providing everything from PowerPoint presentations to large-scale theme productions with live entertainment with price tags in the $100,000 range.

They found for sale a former sheet metal fabricating shop on Campbells Run Road in Robinson Township. They drew on their line of credit to finance half the property and negotiated with the owner to hold paper on the balance of the $120,000 price. So far, so good.

Salopec got valuable help from his father and other friends in retrofitting the warehouse into an office and studio facility. But it took a year to get the building in shape to move in, so while Granny’s Attic continued operating out of Salopec’s home, the mortgage payments were coming out of the business.

Meanwhile, Salopec and Dorfner got wind of a video production company for sale that was doing business at a level to which they aspired. They negotiated with the owner and bought the business with their line of credit for $100,000. But they later determined they paid a good deal more than it was worth. Most of the equipment was worn or obsolete, they say, and the list of clients was, for the most part, inactive.

To make matters worse, the distraction of buying and renovating a building and a business took a heavy toll on the principals. Sales tailed off, and Granny’s Attic found itself with liabilities and sagging income. The company’s cash crunch was threatening its existence. Salopec says he kept up with payments to the bank but slipped a few months behind on his obligation to the former property owner.

“I was one month away from locking the doors,” says Salopec. “It started looking really grim.”

Getting help

Salopec had backed into his business, transforming it from a hobby into a business doing video productions, weddings, video duplications and just about anything anyone wanted to have put on tape.

“I had the luxury of stepping into this business one toe at a time,” he says.

But neither of the partners had any formal business training, a factor that Salopec says led to a lot of their problems. At one point, their banker, apparently sensing problems, suggested Salopec might be able to get some help at the Small Business Development Center at the University of Pittsburgh. Although the business they had purchased had produced its first contract, Salopec knew they were still in deep, so he called the SBDC.

Marcia Schwab, a senior management consultant and, as it turned out, a member of Salopec’s church, turned up at Granny’s Attic Communications and reviewed the situation. About 10 days later, she gave the partners an assessment.

The business concept was sound, she said, and the problem wasn’t mismanagement. They had a realistic vision for the business that could be successful even though they didn’t have a formal business plan. Schwab recommended they put together a business plan and impose some discipline on the finances.

“The financial problems were not due to a lack of business or running the business poorly,” says Schwab.

The problem, was that they had not borrowed properly to finance the business acquisition and their building. They had used a line of credit designed to take care of short-term financial needs to bankroll long-term purchases. To survive, Schwab said, they would have to restructure their finances.

That meant getting a bank to lend them about $130,000. Salopec and Dorfner went on a year-long quest to find a banker who would make the deal work. Salopec literally went from bank to bank, knocking on doors with the business plan and a handful of documents. One loan officer showed an interest, and although he went to work at another bank, got the financing for Granny’s Attic Communications.

Selling the business

Meanwhile, sales had sagged, and Salopec and Dorfner discovered other fundamental problems while doing the business plan.

“What I was missing was someone to sell our business,” says Salopec. “We were doing nice things for people, but nobody knew who the hell we were.”

The solution was to hire a sales representative to knock on doors while Salopec and Dorfner handled the creative side.

“Don’t ever open a business unless you have someone to sell it,” Salopec advises.

Salopec believes the company finally is on the right track, thanks to Schwab’s help and its restructured finances.

“We’re starting to see results,” says Salopec. “I’m feeling a lot more confident.”

He says revenue is up 50 percent since January, and perhaps more important, income is shifting from the low-end work to the big-ticket business that comes from clients such as RPS and Armco Steel.

And there’s another bonus with the newly found sense of optimism.

Says Salopec: “Now I can sleep at night without having to worry that I’ll have to close this place down.”

How to reach: Granny’s Attic Communications, (412) 494-0350 or www.grannysattic.baweb.com; The Joseph M. Katz Graduate School of Business, (412) 648-1700 or www.katz.pitt.edu

Ray Marano (rmarano@sbnnet.com) is associate editor at SBN.