Carolyn Langenohl wanted Litigation Solutions Inc. to stand out from the pack, so she invested heavily in technology and top-shelf personnel.
The company’s GPS tracking system verifies where field personnel are, and its workers are salaried instead of contract workers, both rarities among similarly sized firms in the investigative services and record procurement industry. Those two factors, says Langenohl, have provided a competitive advantage that has allowed the company to grow at a brisk pace.
But Litigation Solutions almost failed before it had a chance to prove itself. Long on experience in their field but short on business experience, Langenohl, president, and her partner, Steve Mazefsky, hit a cash flow shortfall six months after they launched the venture in 1999. Despite a sound concept, Litigation Solutions Inc. was virtually broke.
The business ultimately escaped what looked like certain failure, and the experience taught both partners a lesson about running their business. Litigation Solutions now employs about 100 people during its peak periods, and more than doubled its employment and sales growth between 2002 and 2004. Last year, it posted $7.25 million in sales.
Smart Business spoke with Langenohl about how she overcame cash flow problems and how she deals with the challenges of rapid growth.
What was the greatest challenge posed by rapid growth?
We underestimated our cash needs to run the business. We went into business in June of 1999, and two days before Christmas, we believed we were bankrupt. We literally had no cash.
We underestimated our cash needs at that point in time, and it was nightmarish to us. The standard story around here is I went to Mass the next morning and prayed for cash, which is probably the worst thing to admit, but it was the truth.
What caused the cash flow troubles?
In medical records, we are fronting the cash to a records custodian to get the records, so you’re not only in delay from your salaried expenses, you’re actually fronting the money on about 70 percent of the records you’re asked by the client to get.
We’ve been pretty fortunate. We’ve arranged some pretty good payment plans with our clients, but say you’re 30 days out from getting the record and 30 days out from there to get paid, you’re 60 days out from your salary obligations as well as the cash you fronted to get the records in. When we grew as fast as we did, we weren’t prepared for that kind of cash outlay.
How did you solve your cash flow problem?
We sold two small portions of our business to raise cash, and then two years ago, we bought that back, so we kept all the ownership. At that point, we were probably at 12 or 13 people, plus us. We ended up clearing that payroll.
There were some very grim moments there for us, but we never missed a payroll from that point forward. We missed a couple of paychecks as owners, but we never missed a payroll.
How did a lack of business experience hurt you at the beginning?
We bootstrapped it ourselves. We have great accountants and great lawyers who have helped us along the way now, but back then, we were just figuring it out as we went.
We only knew that we thought we could do better, and we knew we were ready for a change; that’s all we knew. Neither one of us came from a business school background. We learned along the way from our mistakes, and we were fortunate enough to survive that two-year window where a lot of companies would have gone under.
What did that experience teach you?
Now, we’re a fully cash functioning business, we have no debt and we run fully on our cash.
We run on a budget and we stick very closely to a budget and we project cash and we live within our needs, using very basic techniques to manage cash flow. We don’t buy what we can’t afford.
That lesson stays very clear with us, and I think it helped point out the need for more long-range planning and more understanding of the cash needs of our business as we grew, because growing like that at that speed brings the cash issues to the forefront on many, many occasions.
How has technology helped you run your business from a management perspective?
It’s really streamlined our operations and expenses. Look at GPS. Not only was it a sales tool that opened some doors, it also took some expenses out of our business.
Internally, we developed two other software packages that made huge changes operationally. We were able to cut our administrative staff, went entirely paperless and all our reporting is redundant, in that we’re reporting to the client and internally at the same time. We’re using the system to manage cash flow, to manage operations, our staffing needs, everything comes from that internal system.
How to reach: Litigation Solutions Inc., www.litsol.com
