Tweet

Advising a Troubled Company

Written by: Dennis Gerschick

Article Overview: Many businesses get into trouble and many others go out of business. There are many reasons for this. This article is the first in a series explaining what business owners and executives can and should do.

Advising a Troubled Company

Many companies, large and small, are in trouble or are heading for it fast. One only has to read the headlines to learn of multi-billion dollar write-offs and new bankruptcy filings. Economists may debate whether we are currently in a recession or not, but virtually all agree – economic conditions in early 2008 are a big concern.

Over the years, I’ve spoken with many bankruptcy lawyers and turnaround experts. Their number one complaint is that their clients waited too long to contact them. They would have been able to help even more if they had been contacted sooner. Why do clients wait? For a number of reasons. Men, in particular, are known for not going immediately to their doctor. Many assume or hope the problem will go away. Others think they can diagnose the problem and fix it themselves. Business owners and executives are the same. To seek help or advice is to admit there is a problem. Many think this will reflect poorly on them. Egos get in the way – they don’t need help, they’re smart and know what they are doing, etc.

Most people understand that the first step in solving a problem is to acknowledge there is a problem. Unfortunately, to get people to acknowledge problems is a major obstacle. I speak throughout the country to CPAs. Many CPAs do not advise their business clients that their business is getting into trouble or that the trends do not look good. Why? Because many CPAs are afraid their clients will shoot the messenger – fire them. If the business owner or executive won’t acknowledge the problems and the company’s CPA won’t discuss the problems, who will? This is a major problem, especially for closely-held companies who are not monitored by sophisticated directors, shareholders, analysts, or bond rating companies.

Lawyers could play a constructive role. However, many don’t for three reasons. One, many lawyers do not have a strong business background and do not think of themselves as business advisors. Instead, they only focus on the legal issues they have been asked to address. Two, like CPAs, they are afraid of offending their client and losing business. Three, many lawyers do not receive their client’s financial statements and cannot see the trends in the numbers. What is the answer? I tell clients I am there to help them succeed. Not just because I’m a nice guy, but because successful clients can pay my invoice! Also, successful clients tend to need more services! They get involved in more deals and one thing leads to another. I’m a big believer in the idea that asking the right question is 90% of the solution. In law school, lawyers are trained to “spot the issue.”

© 2008 Dennis J. Gerschick All Rights Reserved

The same should be true for business. Unfortunately, many business people do not spot the issue because they don’t even stop to think about it. I’ve had many people tell me they don’t have time to think about their business because they are too busy putting out fires. I respond that they would not have so many fires to put out if they would execute a well thought-out plan. “Plan your work and work your plan.” Sounds simple doesn’t it? Unfortunately, many businesses do not have a plan; they are simply reacting to the day’s events. The advantages of having a business plan will be explored in another article.

How can you help your business clients? Encourage them to get a “check-up.” People go to doctors for medical check-ups, even when they are feeling well. Similarly business owners or executives should get a “business check-up.” Preventative medicine strives to prevent larger problems from occurring in the future. Preventative maintenance on a car has the same goal. Let a competent individual get under the hood, poke around, and ask questions. The same concept applies to businesses. They may see things the owner or executive will never see or can better diagnose the problem based upon the symptoms that are present. A fresh perspective is often invaluable. An outsider can challenge conventional thinking, bring their own experience and knowledge learned from working with other companies, and apply it for the benefit of your client’s business. A “business check-up” is often not that expensive and the benefits often far exceed the cost.

Time really is of the essence here because perception is reality. When customers and/or suppliers get the feeling that a business is in trouble they often do not want to do business with that business. Suppliers may be concerned that they will not get paid, so they supply only on a COD basis. In short, perception may create a self-fulfilling prophecy. Problems need to be nipped in the bud, when the company’s options are the greatest. As a problem grows, the options for dealing with it often tend to narrow. Executives wait and watch and then they claim they have to file a bankruptcy petition to stop creditors in their tracks. It has been reported that only 12% of companies that file a Chapter 11 petition actually emerge and go on to success. In short, if a company files a bankruptcy petition, the end is in sight the majority of the time. The goal is to never get there.

Summary of Key Points

1. Many owners and executives do not like to acknowledge that their business is in trouble.

2. CPAs and lawyers often do not alert their clients to current or coming trouble.

3. Having an independent third party do a “business check-up” can provide many benefits.

4. It is critical to spot and fix the problems as quickly as possible, before they grow into major problems.

Related Articles
  Jobs, Activities & Policies in HRM
  Leadership in Troubled Times
  Suffering From Bank Lines of Credit Amnesia ? Canadian ABL Asset Finance Business Lines Facilities Could Be Your Cure !
  Buying damaged goods How to evaluate a distressed companys potential
  Graphic Design Goal

Article Tags: bankruptcy filings, bankruptcy lawyers, bond rating, business advisors, business background, business clients, business owner, business owners, constructive role, cpa, cpas, economic conditions, economists, egos, headlines, obstacle, recession, shareholders, sophisticated directors, turnaround experts



Related Forum Posts
How to valuate a business - Hi Garth - here is how we did it at Northern Crown Capital when I was helping them raise venture capital for Toronto-based entrepreneurs. Assume the start date is 2003 so 2008 projections are 5 years out: How Northern Crown Capital Valuates a Business 2008 Financial Projections Earnings Before Tax $5,865,000 Tax Rate 42% Taxes $2,463,300 Net Earnings $3,401,700 Amount Seeking to Raise Today $3,500,000 Discounted Value of Future Opportunity, 5 Years Out 2008 P/E Ratio 15 Value of Company in 2008 $51,025,500 Discount Rate Applied 30% Year 2008 $51,025,500 Year 2007 $35,717,850 Year 2006 $25,002,495 Year 2005 $17,501,747 Year 2004 $12,251,223 Value of Company at Investment in 2003 $12,251,223 Less: Investment Amount $3,500,000 Present Value $8,751,223 Discount for Risk & Private Company 40% Less: Discount for Risk & Private Company $3,500,489 Private Company Value $5,250,734 Present Value (What the Owner Keeps) $5,250,734 60.00% Financing (What the Investor Gets) $3,500,000 40.00% Total $8,750,734 100.00% I hope this helps!
Hi everyone - Hi everyone.I am Alex,SEO Analyst on XSEO Company.Nice forum.
Protect yourself from Hackers - I received this from a newsletter from FXpro that I subscribed to. Please read and apply In the 21st Century internet is widely used for everyday job. Despite the "ease" and free time offered from internet use, one should be aware of the dangers and be prepared to avoid and safeguard him/herself from any attacks his/her computer may accept or even from the "unwanted" e-mails received. Golden Rules of Protection When using the internet make sure you have an antivirus program installed in order to avoid intrusions in your Computer, If you are using wireless internet connection make sure you have your connection locked, Do not save any official documents on your Computer, such as Copy of Passport, ID, Bank account numbers, copy of cards in case your Computer is hacked or even stolen, Keep all access codes/passwords in a safe place, Do not share an e-mail address with any person, Do not reveal any access codes, passwords to any person, If you are using a public Computer, ie in an internet cafe, make sure you log out any internet sites you have visited before leaving and deleting the cookies in order to minimize the risk of someone following your tracks, Regularly change your passwords on your e-mail accounts, or any other account that requires passwords, Be careful of e-mails received. Always check the e-mail address and in case you believe that this does not come from a person, Company, Organization you might be dealing with always send an e-mail to an e-mail address stated on the person's business card, Company's, Organization website requesting them to confirm that the e-mail address on the e-mail received belongs to them, before you reveal any information, Always have in mind that an established Company/Organization never uses an e-mail address such as g-mail, yahoo, hotmail etc thus always be careful when you are receiving such e-mails, even if it appears to be from a Company/Organization you are dealing with, Always remember that a Company or Organization will never require you to send them your login/password/access codes, When using a website that requires an access code, do not allow the browser to remember your passwords
Business magazines - Fast Company is pretty good if you're into technology although it can be very on the edge. Entrepreneur has become one giant advertisement and I cancelled my subscription. Selling Power also has some useful content if you're looking at improving your sales skills / presentations.
Hi Everyone!! - My name is kumar and owner of an SEO Company . I started my business in 2007 and now doing business with 300 websites and recently added a new services for video creation/ seo . I love to to share and gain knowlege with people and discuss about business .


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

You Have A Website What Now

Emotional Intelligence in Business

Your Local Small Business Online Marketing Funnel

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.