Published on February 18, 2009
You Know you are in Big Trouble if… by R. Thomas Stocker Are you aware the first stage of business area. I would like to say there are a bunch failure is denial? Could you recognize many of them that are easier to identify as of the obvious signs your company is in systemic when the economy is good. trouble? Are you trying to save your However, the current economic conditions company by doing things that may not be should not be used as an excuse. Many the best for you and your family? Are you industries are not feeling as much pain as aware owners who recognize early signs others. As a business gets deeper into they have more trouble than they can handle trouble, more of these problems will be are more likely to take the steps necessary to experienced. I’d like to say this is an successfully turn their company around? exhaustive list, but it only scratches the surface. There are many more. Signs of impending business disaster do not change, regardless of the economic cycle. Management But in our current economic environment, • You don’t have a strategic plan many more businesses are already deep in a • You and or your senior management downward spiral or may be starting to see have not faced a downturn or crisis signs of the nightmare of business failure. It before is important for you to be aware of the signs • You are on the phone with suppliers on a and ask for help if you see that you are frequent basis explaining why they falling into some or many of these patterns. haven’t been paid or are negotiating for The sooner you ask for help the less delivery expensive it will be for you. • You are making promises to suppliers or customers you know you can’t keep At the same time the business is • You are not cutting your workforce to experiencing severe stress, the owner will match sales experience several emotional stages. The • You are cutting key employees while first is denial the business is failing and the holding on to family members or friends last is acceptance, with several others in • You are delaying tough decisions with between, including anger, negotiation and the thought that next week, month or maybe depression. quarter will be better • You are making more decisions without If you are seeing many of the following in seeking others’ input or counsel your business but not yet doing anything • You are frequently making decisions about it, you are at best in the denial phase that used to be made by people lower in of your decline. This phase is the most the organization dangerous as it will cause you to delay • Your decision-making process is not making the tough decisions you need to thorough; hasty decisions are made make in order to save your company. without whole organization or future I was going to do something clever like have ramifications included in your thought a top 10 list, but there are many more than process. Worse, decisions are made with just ten. So, I will try to categorize them by 10 Larkspur Road, East Greenwich, RI 02818 401-451-9799 www.boardroomadvisorygroup.com
inaccurate or incomplete information, on • You are personally making “one time” perception or emotion. loans to meet payroll • Your communications with your • You are delaying payroll for yourself management team, employees, key and or senior management stakeholders and advisors is becoming • Using employee trust fund taxes to pay less frequent. You may be feeling vendors or bank (illegal) withdrawn or isolated. Sales • Key management and employees are feeling uneasy and out of the loop • Revenue growth has stopped or is negative • Key management and personnel are leaving the organization • New order pipeline is declining or empty • You are doing more and more task- • Customers have slowed or changed order patterns oriented things you used to delegate • More than one key customer is in trouble Finance • Profit margins are being squeezed by • You don’t operate with a P&L budget or new (unreasonable) customer incentives forecast • Customers have stopped talking or are • You don’t use cash flow projections lying to you • Your P&L and cash flow projections are • Customer satisfaction is declining not updated frequently or timely • Your forecasts are based on hope rather • Financial statements are not available than reality within 10 to 15 days of month end • You are losing share • You don’t get usable analysis and • Your industry is having a good year explanations of your financial results • You are surprised by your results Operations • Cash balances are declining • Inventory is increasing • You continue to spend based on out of • Cost of production is rising while output date forecasts is slowing • Use of your credit line is increasing or it • Not enough inventory of the right parts is maxed out • Vendors have stopped shipping to you • Receivable collection cycle growing without COD or CIA longer • You are using credit cards to purchase • You are stretching your payables further inventory than ever before • Finished goods of key products are • You are keeping checks in a drawer, or growing choosing not to pay some vendors • Cost of production is rising altogether • Cycle time is rising • You are delaying or not making tax • Not enough funds to address equipment payments breakdowns • Banks or other lenders are making more • Preventative maintenance is suspended frequent requests for information • Capital improvement plans suspended • You are distorting your numbers used • Selling inventory at discount to raise and presented for your bank borrowing cash base • Heat and or electricity are turned off • You have an adversarial or no relationship with your bank or other Owners need to understand the signs their lenders company is in big trouble early enough to • You are having trouble making payroll get expert help to do something about it.
Sadly, far too many wait too long before your bank covenants, or worse your bank asking for professional help, usually at the has asked you to find another bank, read my tail end of their emotional cycle, in the article “I’m out of compliance…now acceptance stage. Unfortunately, in many what?!?” You can find it on my website; www.boardroomadvisorygroup.com. You cases this is too late to make a difference. Many may not have had to go down the path need the advice from that article. of a distressed sale, bankruptcy or Now more than ever, you need your team in liquidation had they asked advisors for help the loop. If you are spending all your time during or soon after their denial phase. I expediting parts, making every decision big can’t say why they don’t ask us for help; the or small, talking and negotiating with three reasons I hear most frequently are vendors, stop. You need others to do that. pride, denial and not wanting to make the Instead, you need to be leading your team investment (many look at it as a cost) and communicating your restructure strategy needed to increase their chance of survival. to all of your stakeholders including There are many things that can be done if employees, creditors, bankers and the process is started early enough. The first customers. Without their support and trust step is to admit you need help. After you you probably have little chance of success. admit you are in trouble, step two is to hire a An in-depth and brutally honest situation turnaround advisor. We will bring an analysis needs to be done for all parts of the unbiased view of the situation. We don’t business. This will include an assessment of have a political agenda and can therefore all the resources you have and should have, make the tough decisions needed. We also separating all essential from the non- bring a valuable outside perspective to your essential. When you finish this step you will business. We see problems (obvious to us) have produced a formal action plan with the that you and your team as insiders accept as key milestones and accountabilities needed normal. Now more than ever you are going to execute the strategy. This includes the to find the true value of an outside advisor. emergency triage plan and ultimately the We’ve done this before. return to normalcy plan. There also needs to Google and read everything you can about be contingency plans and proper metrics to turnarounds. You will find many articles understand progress or needs to implement like this one with how-to advice, triage ideas countermeasures when things aren’t going and checklists. (All that I read recommend according to plan. your hiring an advisor… this is not a This is only a small piece of identifying “turnarounds for dummies” exercise). trouble and returning a company to good Start using a cash flow forecast. Do it now. health. Every situation is different and no Make sure it is accurate. Update it at least two plans are alike. There are too many weekly and make sure you (and your dynamics to cover everything in an article accountant) understand it. such as this. At the same time you need to develop a The key to remember is this: if you think restructure plan based on a sound business you may be in or heading toward trouble, plan. You, your advisor and all key you probably are. If you are doing things employees need to be part of this. There are just to stay afloat for another day you need many decisions that need to be made to stop to ask for help. If you think hiring an the bleeding now. As usual, communication advisor to help you save your business is not will be a very large part of this to keep a good investment, what is your business stakeholders engaged. If you can’t certify worth if it is closed?
To comment on this or other topics important to private business owners, visit my company website at www.boardroomadvisorygroup.com. About the author; Tom is a Principal of Boardroom Advisory Group, LLC, an owner advisory and consulting firm. Tom serves on the Board of Directors for the RI Economic Development Corp’s Small Business Loan Fund Corporation (SBLFC), the finance arm of the RI EDC. He writes a monthly article for the RI EDC’s Every Company Counts initiative. His articles focus on areas that can add significant value for business owners. Contact Tom directly at 401-451-9799 or firstname.lastname@example.org. Boardroom Advisory Group, LLC is a business advisory and consulting firm specializing in helping business owners resolve day-to-day systemic issues that interfere with cash flow and profitability attainment. The Firm works with both growing and underperforming small to mid-market private companies. The Firm’s team of hands-on senior professionals find and implement solutions to improve top-line and bottom-line growth, increase cash flow, reduce costs, improve process, structure, and use world-class metrics to keep the business on track. The team also has extensive experience working with troubled companies through business restructures and recapitalization. Boardroom Advisory Group’s core focus on developing strategies to drive and measure performance has resulted in a history of sustainable top and bottom line growth, healthy cash flow and increased company value for their clients. For more information about how we can help you build a more valuable business visit our website at www.boardroomadvisorygroup.com. ©2008-09 Boardroom Advisory Group, LLC All Rights Reserved. No part of this document may be reproduced without the express permission of the author. All registered trademarks mentioned in this document are the property of their respective owners. Additional articles written by Mr. Stocker include: Start Forecasting Now! Do You Have Contingency Plans? I’m Out of Compliance. Now What? Have You Thought About Your Future Lately? Are you in a Foxhole? Metrics Should Be Everywhere (Part I) Are You an Octopus? Metrics Should Be Everywhere (Part II) What is Value? It’s All About Growth These articles can be accessed at www.boardroomadvisorygroup.com/pages/pubs.php. You can also request to be added to his email list to receive his latest articles on a monthly basis on the Company website. Contact Tom at email@example.com.
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