Today, the US economy is struggling, with housing prices seeing the steepest drop in 20 years, foreclosures at record levels, and unemployment rate at 9.7% in March 2010 (up from 6% just 23 months ago and nearly as bad as October's 10.2%).

This recession has now lasted 27 months. Clearly, we are in the worst recession in our lifetimes. It's especially bad for small and medium-sized businesses.

Before discussing how to recognize that your company needs to be fixed, and how to fix it while maintaining control, let’s review some information on business bankruptcies and failures published in a U.S. Small Business Administration Office of Advocacy, September 2009 report (available at www.sba.gov) and American Bankruptcy Institute, March 2010 report (available at www.abiworld.org):

According to the Small Business Administration, business failures are up 18.2 percent year over year for 2008 and 24.2 percent year over year for 2009. Business bankruptcies increased by staggering 209 percent from 2006 to 2009, by 40 percent during 2009 alone, rising from 43,546 in 2008 to 60,837 in 2009. In fact, business bankruptcies have been rising by a quarterly average of 13.25 percent from the second quarter of 2008 to the third quarter of 2009, when numbers have finally and mercifully leveled off.

Why did we share this information? First, to let you know that if your business is in trouble, you aren’t alone. Second, we hope those numbers will scare you into taking a positive action.

Fortunately, there is a glimmer of hope for troubled small- and medium-sized businesses. Consumer confidence rebounded strongly in March from February's unexpected low. Also, the US economy generated over 162,000 jobs in March. Even better, we are starting to see banks lending again, although it's still just a trickle.

From the indications we get from our clients, the economy is beginning to pick up for most small- and medium-sized businesses. This is the good news. Now the bad news.

We still have another problem.

Over the past 3 years, many medium to small businesses have seen a dramatic slowdown, as consumers and business customers are buying less, or not buying anything at all. This, of course, put these businesses into financial trouble during the recession. Now that demand is beginning to rise, these businesses are having difficulty getting the additional financing they need to survive and compete.

These factors are causing many small business owners and mid-size company CEOs to file for bankruptcy protection. Unfortunately, declaring bankruptcy, though a reasonable solution that should be carefully considered, does not by itself solve the core problem of profitability. We are about to explain why.

If you’re… (Check all that apply)

Worrying about where to get the money to pay your company’s bills, taxes, and employees
Considering a business bankruptcy filing
Meeting soon with your banker because you are in default, you can’t make the loan payments or must         stop foreclosure
Searching the web for business turnaround, bankruptcy, receivership and insolvency information to         help your company, but you can’t find anything helpful

...you are about to discover the information you need to make an informed choice and take the necessary steps towards solving your problems.

There are 3 vital factors that any person leading a failing company must consider. These are:
 

• Stress And Worry May Keep You From Saving Your Company
• Lawyers Don’t Have All The Answers
• Innocent Mistakes Often Kill Troubled Companies

As you read this section of our site, you'll gain a basic understanding of how you can get rid of these problems and discover how to help yourself and your failing company.

Factor #1: Stress and Worry May Keep You From Saving Your Company

Here are some common worries associated with a failing company:

• You can’t pay the employees on time. What can you do about it?
• Is bankruptcy the right answer? Will this save your company or kill it? Is your attorney giving you good advice or is he just trying to make a big score?
• Should you pay your taxes? What happens when the IRS or some other taxing authority padlocks your door?
• Can you make your loan payment? Should you ask your banker for help? Will you screw up talking to your banker causing the bank to foreclose?
• You’ve made personal guarantees. What happens when the business fails? Will you be working the rest of your life to pay these debts? Could they take your house?
• A family member is dragging the business down. What do you do? Can you fire the family member without causing a major rift in the family? Or should you keep the family member and pray he or she stops causing problems?

Here’s the problem. Worrying is taking valuable time away from you… time that you should be using to save your company. And it’s a vicious cycle. Because your worries are stopping you, your business declines further. And this causes even more worry and less action.

Factor #2: Lawyers Don’t Have All The Answers

Of the companies that use Chapter 11 bankruptcy as a stand-alone reorganization solution, only 1 in 10 survives the procedure. And the one lucky company only survives because it has a ton of cash when it files.

(As you may know, Chapter 11 is a form of bankruptcy that lets your company continue to run with protection from your creditors, but with the oversight of a bankruptcy judge. Chapter 7 bankruptcy on the other hand is a liquidation of your company).

Now, as you might guess, most failing companies don’t have much cash when they file for Chapter 11. Here’s what typically happens to most cash-poor companies filing a Chapter 11 bankruptcy. The CEO or business owner becomes tired of fighting the creditors every day. He or she thinks that Chapter 11 will make their debts go away (it will) and save their business (it won’t).

Then, within the next few months, while still doing business as usual, but now under bankruptcy law protection, the company runs out of cash completely because of paying the high legal fees and not addressing the core problems that brought the company there in the first place. Since there’s no cash remaining, the creditors’ attorney (which the bankrupt company is also paying for) files a motion to convert the Chapter 11 into a Chapter 7 liquidation bankruptcy. Without cash in the bank, the judge has no choice, but to order a liquidation of the company.

Game over for your business. But that’s not all…

Do you have personal guarantees on debts that your bankrupt company can’t pay? Will angry creditors and investors sue you anyway? The hits just keep coming for you. Once again, bankruptcy is a viable solution that should be considered, but only as an integral part of a total business turnaround. For more information see When to Reorganize Under Protection of Bankruptcy Laws page of our site.

Factor #3: Innocent Mistakes Often Kill Troubled Companies

Because you’re not an expert in business crisis management, you’re certain to make serious, but honest mistakes right now.

Let’s see how easy you can make a mistake. Do you know what to do when…

• The sheriff seizes your equipment for the leasing company?
• The bank calls your loan?
• You can’t make the rent payment?
• The IRS padlocks your door?
• You’re out of cash and your big customer’s check is lost in the mail?
• A creditor is asking you to make good on your personal guarantee?

The list could be much longer. You can imagine all the problems for which you don’t have an answer. And when you decide wrong, you could be shutting your doors shortly and paying your creditors out of your own pocket.

Remember when you were in school. Leading a failing business is like having a pop quiz the day after you were sick. It’s not your fault you missed yesterday’s lesson, but now you must have the right answers or you’ll fail. What you need in a situation like this is an expert. You need someone who can step in and take over, or at the very least analyze the situation, triage, and guide you through the process of saving your company by turning your company around. You need someone with integrity, resources, and know-how to be there for you every step of the way. You need the turnaround experts of Commercial Debt Solutions!

The majority of corporate turnarounds today are performed by consultants and executives who are charged with fixing Fortune 500 companies. These individuals have the ability to cut large numbers of employees, tap pension funds and banks for infusions of capital, and sell off enormous assets to raise cash and decrease debt.

Although not demeaning the accomplishments of these people, few small and midsize companies can make such dramatic changes. These businesses can have a difficult time getting a line of credit from a bank, typically don’t have meaningful assets to sell to increase the company’s cash position, and can’t afford to lay off large numbers of people.

It cannot be emphasized enough that restoring credibility and actual profit turnaround are key to achieving success in most wealth restoration cases, and practically in all difficult ones. For instance, creditors are more likely to agree to debt restructuring if they believe the debtor company will make profits necessary to repay the debts (wholly or in an acceptable part), in installments and / or that it will receive an investment with which it will pay its creditors. Even before overall debt restructuring is undertaken, vendors, lenders, and taxation authorities will grant forbearances (initially often piecemeal) if they really buy into what the debtor tells them. To establish such trust, written disclosure is often required as part of an overall workout plan. However, most operating business executives instinctively shy away from disclosing their company’s weaknesses. What they do not realize is that frank bad news is a very effective tool for dealing with creditors, because at the foundation of a good restructuring plan is a meeting of minds of the debtor and its creditors concerning their alternatives.

Of course, these alternatives need to be presented properly, and important nuances must be observed in the manner in which confidential information is disclosed, and in laying out said alternatives, e.g. concerning the expected realization by creditors in the event of informal restructuring as compared with Chapter 11 or other legal reorganization mechanisms. In these matters, restructuring expertise is essential.

Debt restructuring may be achieved informally (or for that matter under Chapter 11) by a skillful negotiation of one or more proposals that would – for instance – reduce the principal owed, or payments previously fixed, and / or delay said payments, and / or modify or reduce creditors’ security.

But holding off disappointed and irate creditors and getting them to restructure the debts is only part of the solution. All major ills that have gotten a company or a group of companies into trouble must still be cured – if the future is to be profitable. Usually, several such ills are present simultaneously. Some of these problems mask others, and therefore operating management is often aware of only some of these ills. Yet all key problems must be diagnosed quickly, and practical and credible cures must be applied, or at least devised, early on in a turnaround.

Moreover, some turnarounds and restructurings require an injection of cash by third-parties, and the rules that govern the obtaining of debt and equity investment are different for healthy and for distressed enterprises. In fact, the sources of their financing are often different. Today in the USA there is a whole industry dedicated to the financing of distressed and under-performing businesses. In recent years, more money in this industry has been “chasing deals” than there are eligible debtors asking for funds. At the same time, most troubled companies that require funding fail to obtain it. This dichotomy is explained by the fact that for the most part, distressed companies do not know where to seek funds, investor firms do not know where to find the smaller distressed companies, and most of the latter fail to make the preparations that are required to make them attractive to investors. Notably, the work involved in making a distressed company attractive to investors, in most cases, requires both restructuring and turnaround expertise, including specialized research, planning, and negotiation skills.

On reflection, it is not surprising that most companies who get into serious trouble and need a turnaround know very little about the above matters and about the nature of turnarounds in general. Sometimes, the problem is compounded by the egos of formerly successful business operators that further prevent them from taking the necessary steps, such as hiring a turnaround specialist. Furthermore, they do not realize how cooperative the business world can be towards a business operator, whose distressed company retains an enterprise value despite its bad financial statements. Of course, the pre-condition for obtaining such a Second Chance is the restoration of credibility, as already mentioned.

To assist interested parties, the turnaround section of the site is also a comprehensive management presentation on the subject of turnarounds and corporate restructuring – including some projects performed or directed by Commercial Debt Solutions, its predecessor, Business Financial Negotiators, or its corporate parent, Gryphon Investments and Holdings.

It should be noted that many cases described herein required a multi-disciplinary approach in order to solve concurrent and diverse business problems, including the following:

Case #3: Discovered and eliminated ongoing theft of hundreds of thousands of dollars annually in a large machining house – through "walk around management", material control and financial analysis; also changed job descriptions to prevent recurrence of similar problems.

Case #5: Crisis management and cost reduction in a troubled industrial company: negotiated loan extensions from a difficult banker; rapidly increased productivity in a large machine shop (technical-management); obtained concessions from vendors and taxation authorities; and refinanced a loan of several million dollars.

Case #7: Restored profitability and eliminated a financing problem for a distressed manufacturer of audio amplifiers – through strategic repositioning; also obtained concessions from taxation authorities.

Commercial Debt Solutions guarantees the utmost in professionalism in all projects. Moreover, in some cases, generally on a hands-on basis, i.e. with our top people as your interim CEO or your CRO, we can accept overall responsibility for results. In addition, in certain cases, we agree to partly or wholly success-based fees – for further information see An Offer on Responsibility and Success Basis on Our Services page of this site.

Commercial Debt Solutions has the knowledge, experience, resources, and credentials to assist any small to medium business and their principals in returning to profitability. If after going through materials on this site you like what you see, we encourage you in the strongest possible terms, to take immediate, decisive action and start helping yourself and your company by filling out our contact form. Your future and that of your enterprise is in your hands!

To help you navigate this section of our site, a table of contents is available at any time by pointing your cursor at “Turnaround Consulting” link in the Site Map at the bottom of each page, but if you want a tutorial in corporate renewal, then go through our entire presentation in the reader / printer-friendly PDF format by clicking here.