SKIP TRACING: CLIENT COUNSELING AFTER THE CLIENT SKIPS George H. Thompson, Trinity University ABSTRACT Crushing disaster threatens students whose clients skip beyond the reach of the consulting team. But some valuable learning may fill the gap and make the students the better for it. Reviewing Trinity University's experience since 1973 turns up such events which profited the students. Small business failures will increase in numbers through the 1980s, seriously impacting the SBI program when assigned for consulting. Tracing owners who abscond with assets and records lays beyond the typical SBI expertise. Other choices may serve the students better. THE PROBLEM The Small Business Administration under its SBI program endeavors to furnish the student counselors with successful clients who request management assistance. From time-to-time, however, a problem client gets assigned to a team of consultants and then skips. The discontinuance of the firm or its failure or its bankruptcy darken the hopes of the student consultants that their client will succeed like the best and that they may complete their academic project on time. What educational value lies in such death? How do students learn and benefit from consulting a client who never shows up? Or worse yet, abandons the firm? What should the team do for its semester's work? Increasing Problem "The dramatic increase in the number of business bankruptcy filings in the U.S. since 1978 results from 1) the economic malaise of the economy 1980-1982 and 2) deterioration of firm liquidity..." (1, p. 41). Resurgence of high interest rates and recurring recessions (even mild ones) will spark small business failures through the rest of the 1980s. Thus, students in the SBI program may expect more problems in the future. Unemployment's Impact Unemployment also leads to business failures. In the first place, protracted high unemployment increases business formation. "As the unemployment rate increases, and relatively more people are out of work, the number of business startups increases" (17, p. 24). . . . Because unemployed individuals have no wages to give up, their cost of starting a business is lower than the cost to an individual who must give up other work on a voluntary basis (17, p. 25). Thus, unemployment leads to business formation. In the second place, more business formation heralds more business failures. As Altman (1, p. 40) points out:

. . . The rate of business formation can effect the failure rate in subsequent periods, since it is well documented that there is a greater propensity for younger firms to fail than for more mature companies. By the law of averages, then, SBI teams throughout the 1980s will confront problem cases and with some of those cases the inevitable skips. Knowledge about predicting distress and the process of tracing missing persons should help. METHOD OF STUDY U.S. Marshalls padlocked the doors of one such client and activated this present study. The owner had no further claim on his assets and no access to them. A subsequent auction by the feds cleared the premises and paid something on the long-overdue note. When the Marshalls padlocked the business, the owner skipped, and the Trinity team traced him to his mother's kitchen where they consulted for him till semester's end. The team profited in ways no textbook could provide. The owner described to his team the despair, desolation, and depreciation he suffered as his dreams dissolved. He displayed his simple lack of knowledge or experience in setting up a business and managing it. He showed how swiftly the cash flows out of a distressed firm. In the end, the owner through what pride remained would not implement the team's recommendations, and the team chipped in $10 so that he could file for bankruptcy—he was that out of cash. In subsequent semesters, occasional skips led to various responses. For this present study, the method of study consisted in reviewing the responses which student teams of consultants performed. In searching the present literature for information on tracing missing persons and detecting business failure, a number of works came to light. This present report shows the outcome of those searches. LITERATURE ASSISTANCE TO THE STUDENTS Keyword searches in contemporary literature yield little at all under "Skip Tracing." Apparently the term circulates as an idiom in the banking vernacular. The search yields more payoffs under "Missing Persons" and "Business Failures." Skip Tracing Two articles (15;18) in credit union serials focus on skip tracing as a means of delinquency control. They state that a debtor should be considered a skip when the post office returns a collection letter or notice stamped "Address Unknown." Use of "Address Correction Requested" on the envelope notifies the sender when a debtor changes addresses. Telephone calls to the homes of relatives and to the local credit bureau may lead to the debtor's whereabouts. The secretary of state may show a new address on the skip's driver's license. The articles point out that collection agencies which adhere to the Fair Debt Collection Practices Act have the expertise and time to trace skips, better than lawyers.

Missing Persons Begg (4) accounts for the dramatic disappearance of persons who vanish into thin air. Clinkscales (8) narrates the forcefully effective search for missing persons. Colander (9) pictures heroic efforts to trace the mysterious disappearance of a celebrated character. Gallagher (10) confirms the phenomenon which many persons separately observe of adult dropouts. Nash (12) adds historical perspective to the missing persons events from 1800 to now. Williams (20) examines the trauma experienced by persons close to those now missing and the Salvation Army's response. Zoglio (21) details techniques and resources to utilize in tracing missing persons. Business Failures Altman (1, p. 40) proposes systematic business failure prediction. "Collapse of firms occurs not suddenly but with clear signposts of impending disaster. Many of these indicators are management oriented." Altman (1, pp. 147-149) details Beavers' 1967 analysis to distress prediction and Edmister's 1972 analysis of predicting the failure of small businesses. Altman (1, pp. 266, 307) catalogs early warning studies for selected industries. Selected authors (2; 3; 5; 6; 7; 11; 14; 16) discuss causes for business failures and steps to follow through bankruptcy or to reduce the high incidence of failures among small businesses. Newton (13, pp. 34-36) depicts stages of financial failure. He specifies The Failing Company Model with its 12 measures (p. 40). The author discusses the rigorous process of discovering irregularities such as concealment of assets--"Trucks had been seen loading up at the door of the bankrupt's store within a few days preceding the bankruptcy" (p. 405). Wiener and Christian (19, pp. 67-87) detail the desperate measures to which a businessman in distress will resort. TRACING THE MISSING The Missing Persons literature taken together portray a strange profession of serious not trivial pursuit. SBI students do not have the time nor the expertise generally to perform detective work for bettering the economic life of the community. Therefore, one good try to trace an absconded owner must suffice. Skip tracing takes a lot and students don't have a lot. The team may have to leave it to the bank to skip trace and then get on with other work. If the trace works and the team locates the owner, two options arise.

Choices When Trace Works 1. Provide management and/or technical assistance as in all other SBI cases, focusing in this case on the firm's financial straits with an insolvency audit, discovering irregularities, identifying management considerations to cope with discontinuing the business, and profiling the client's other strengths and options. OR 2. Return the case to the SBA and work on a second case. Public disgrace of skipping or the cause for the business failure which resulted in skipping in the first place may leave emotional scars too hurtful for the SBI team to treat. The financial straits may leave no assets (including good credit) for turning the firm into a profitable venture. If the trace does not locate the owner, the SBI team has three options. Choices When Trace Fails 1. Refer skip tracing to the bank, return the case to the SBA, and work on a second case. Allot additional time for catchup. OR 2. Perform a marketing study: competition; customer profiles; detailed promotional program including cost-benefit analysis of various media, sample broadsides, and direct mailings; demand forecasts; demographic trends in market territory; trends of products and substitutes in the industry; national trade association prognoses; business survey to test awareness of client's firm; store location analysis. File the finished report with the SBA as though to rejuvenate the firm if and when the skip returns. The absence of accounting and financial records seriously dampens the complete analysis which the owner deserves and which the SBI team aspires to deliver. SBI teams every semester face the recurring problem of owner reluctance and refusal to turn over the books for analysis, despite the owner's prior agreement to provide the books. A comprehensive marketing study may have to suffice. In proper cases, building rapport with the owner 1. strengthens the students skills in relating to adults, 2. elicits information from the owner about the business essential to proper analysis, and 3. prepares the owner to hear and accept the team's eventual recommendation for improving the firm. In the owner's absence, the case takes on the educational properties of a textbook case except that it involves a nearby site which the students visit, examine, visualize, and analyze at to locational advantages and chances for success. OR

4. Conduct a comprehensive study of the small business owner's various options when faced with financial failure. In Trinity University's experience, only one team in hundreds conducted such a study. By phone conversations the owner put off meeting with his team until well into the semester and then he skipped. The team agreed to investigate the conditions besieging the sole proprietor with unlimited liability for all the debts of the business. The team interviewed a federal bankruptcy court judge and staff and attended a bankruptcy hearing of a creditors committee as a private company. Their study serves subsequent teams as a resource on the procedures, rights, and obligations of the failed firm. But once completed this comprehensive study does not constitute a recurring option for the SBI program at the school. SUMMARY Though business deaths pain the observer, still they constitute considerable learning value for the SBI team. Though problem cases occasionally confront the SBI team with an owner who skips during the semester, still the construction of a realistic view of the firm's distress challenges an SBI team to select reliable external sources for documenting the firm's chances for future success. For Trinity's students and for other schools as well, client counseling after the client skips constitutes one possible extension of painful but profitable learning experience. What else can the students do? REFERENCES (1) Altman, Edward I., Corporate Financial Distress: A Complete Guide to Predicting, Avoiding, and Dealing with Bankruptcy. New York: John Wiley & sons, Inc., 1983. (2) Ault, T.J. and Mabry Miller, "Eliminate Small Business Failures: Twelve Basic Rules," Small Business Institute Directors' Association Proceedings, pp. 302-308, 1985. (3) Barrickman, Ray E., Business Failures: Causes, Remedies, Cures. Washington: University Press of America, 1979. (4) Begg, Paul, Into Thin Air; People Who Disappear. Devon, England: David & Charles, 1979. (5) Bradley, Don B. and Homer L. Saunders, "Profile of Small Business Bankruptcy in the Little Rock- Central Arkansas Standard Metropolitan Statistical Area During 1981 and 1982," Southwestern Small Business Institute Association Proceedings, 1984, pp. 90106. (6) ____________, "Bankruptcy: A Management and Marketing Problem," Small Business Institute Directors' Association Proceedings, 1985, pp. 296-301. (7) Burger, Robert E. and John J. Slavicek, The Simplified Guide to Personal Bankruptcy. New York: Crown Publishers, 1975.

(8) Clinkscales, John Dixon, Kyles Story, Friday Never Came: The Search for Missing People. New York: Vantage Press, Inc., 1981. (9) Colander, Pat, Thin Air: The Life and Mysterious Disappearance of Helen Brach. Chicago: Contemporary Books, 1982. (10) Gallagher, Robert S., If I had it to do over again ... America's Adult Dropouts. New York: Dutton, 1969. (11) Mancuso, Joseph R., Bankruptcy: How to Survive Chapter 11, Worcester, Mass: Center for Entrepreneurial Management, 1979. (12) Nash, Jay Robert, Among the Missing: An Anecdotal History of Missing Persons from 1800 to the Present. New York: Simon & Schuster, 1978. (13) Newton, Grant W., Bankruptcy and Insolvency Accounting: Practice and Procedure, 2nd ed. New York: John Wiley & Sons, Inc., 1981. (14) Rutberg, Sidney, Ten Cents on the Dollar: The Bankruptcy Game. New York: Macmillan, 1968. (15) "Skip-Tracing," Credit Union Magazine, Vol. 48, No. 9, September 1982, pp. 17-18. (16) Sullivan, George Edward, Boom in Going Bust, New York: Macmillan, 1968. (17) The State of Small Business: A Report of the President. Washington: United States Government Printing Office, 1985. (18) "Tracking the Skip," Credit Union Magazine, Vol. 51, No. 3, March 1985, pp. 6668. (19) Wiener, Robert A. and Roger W. Christian, Insolvency Accounting. New York: McGraw-Hill Book Company, 1977. (20) Williams, Richard, Missing. London: Hodder & Stoughton, 1969. (21) Zoglio, Michael J., Tracing Missing Persons: A Professionals Guide to Techniques and Resources. Doylestown, Pa: Tower Hill Press, 1980.