WHAT TO DO WHEN A BUSINESS IS IN FINANCIAL TROUBLE

Even in good times, operating a business can feel like drinking from a fire hose. The hose gets even bigger when a business becomes distressed. There are no quick fixes, but here are the top five concerns for distressed businesses:

Assess Your Financial Position and Focus on Cash

Review your cash flow, cash reserves, and credit availability to calculate how much time you have before you must close your doors or take other drastic action. A successful turnaround comes down to one thing, stabilizing and then increasing cash and cash returns. Is the business generating cash or burning it? Can you make payroll? Which investments are generating or burning cash? Ask fundamental questions, such as, is there enough cash in the register to pay the utility bill or to pay for inventory that will arrive next week, or how much more cash can you generate by investing in new equipment? Surprises await when no one is focused on cash.

Examine Your Operations

Determine if your overhead is too high. Review staffing levels to find out if you have employees you don’t need or if your total labor costs, including benefits, are too high. An employee who is excellent in good times might not be a right fit for a turnaround. Examine accounting practices to determine if you’re not turning over your receivables promptly or are carrying too much debt.

Meet with Key Stakeholders

Meet with your important partners to let them know about your problems. Tell them your plans to turn things around and share with them what you need from them. This might include asking creditors to give you more time to make your payments, requesting that suppliers not cut you off or negotiating with your bank to continue to extend credit to you. Remind them of the benefits they will realize if your business stays open.

What Are Your Legal Options?

When a business becomes distressed, the first thought is whether bankruptcy is a realistic option. Often it is not, because many businesses do not survive bankruptcy. It can be expensive and time-consuming and is public. But sometimes bankruptcy is the best option. Good legal counsel will insist on reviewing all options with business leadership, including forbearance and out-of-court restructuring of the business.

Create a Turnaround Plan

After you’ve identified the issues that are causing your business to spiral downward, create a plan to eliminate those problems. Create a short-term plan to address your cash flow needs. For example, sell slow-moving assets at a discount or sell and lease back land, buildings, or equipment if you need cash. Identify ways you can reorganize your operations or change your marketing mix. Creating a turnaround plan you can show lenders, creditors, vendors, suppliers, and other key stakeholders can instill confidence in partners you approach for help.

For help with your distressed business, contact Dan Garfield, 720-722-0048, dgarfield@mcallistergarfield.com.