Featured Article – 2014 October

When your bank says you need help

By Jeff Thommes

Whether it’s delivered by phone or mail, the message from the bank no business owner wants to hear is: We are concerned enough about our business with you that you need to work with one of our selected consultants to demonstrate everything is in order.

The bank may give the owner three names to choose from and its stopwatch has certainly started ticking. The bank wants answers fast.

The owner’s response is often predictable: denial, fear or a combination of both.

Nearly all companies faced with this situation do not recognize the depth of their difficulties, but denial is not an option. And there is good reason for fear: typically a business in this state cannot operate on its own. If they lose (or have lost) the ability to borrow, the business will continue to struggle to meet day-to-day obligations and its long-term future will be bleak.

But some owners — the ones whose businesses have the best chance for recovery — see the situation differently. These owners grasp that the bank prefers to see their business succeed but within limits that require immediate improvement if they are to control their destiny. They understand that they will experience discomfort but recognize it as an opportunity to accelerate moving their business in a new direction.

Unfortunately, many owners do not recognize this need for their business. To understand its compelling nature, consider a medical analogy. The banker is your primary care physician, and he’s looked at your financials, your lab results, and is uncomfortable enough to say you require the attention of a specialist. Ignoring or discounting this advice puts the patient more at risk, while immediately seeking expert help from a specialist exponentially increases the odds for successful diagnosis and recovery.

As specialists, bankers, turnaround consultants and turnaround attorneys have heard all the rationalizations of owners in denial or unaware of the severity of their situation. “This problem is temporary, just like the ones we’ve gotten through in the past” or “we don’t need any help because we’ve already made or tried the necessary changes.” And, they say, “If the bank thinks we’re strapped for cash, why are they forcing us to spend more money on a consultant?”

Those thoughts are understandable, but your banker knows better. They see these types of situations day after day. They have developed the experience and data-driven metrics that help them identify troubled businesses and have heard nearly every rationale more than many times. Add to this the tightened regulatory changes over the past five years and they are even more diligent in heeding the early warning signs of a business in trouble.

Sometimes the bank’s alarms go off because the business has not been communicating well (that’s a problem that is relatively easy to fix) but far more likely, the business also has ongoing underlying problems that require immediate attention.  What business doesn’t?

What, then, should the business owner do when the banker calls with the ominous message?

First, do not delay.  The bank’s early warning sign comes well after the bells and whistles that should have been sounding in the business. Call the consultants the banker recommends and choose one immediately. Ask about their background and experience and be candid about your issues and plans. Worry less about their expertise in your industry and more about their turnaround expertise to help deliver you from your current state and to strengthen your credibility communicating with the bank.

Smart business owners take advantage of engaging a turnaround consultant. They realize that addressing the threat of failure is a tremendous opportunity to get better faster. They understand that a skilled and objective third party can dig into their business, give them a fresh look, and identify not only their shortcomings and opportunities but, more importantly, which ones to focus on for immediate results. They recognize their business does not possess the perfect combination of organizational structure, skill and discipline to address the current scenario. They know that trying to learn on their own what a turnaround professional practices every day and already knows will cost precious time and cash they cannot afford to squander.

Sometimes, as I’ve indicated, the issue is largely a communications problem and the bank is simply uncertain about the company’s projections.  A turnaround professional can come in and quickly examine the plan and financials to address the bank’s concerns and let them know your company is on track.  Most of the time, however, the work is more complex. 

Regardless, great leaders differentiate themselves from good leaders by turning a threat into an opportunity that significantly advances their business.  That is why it pays to work with a specialist who can not only work with the business to develop an aggressive plan to restore credibility with the bank, but who ultimately leaves the business with the tools, insight and experienced suggestions to maintain its  fitness.

The immediate goal is to show the bank a clear set of milestones in a business plan that improves the company’s financials in the next 30, 60 and 90 days while assuring them that  the worst scenarios for the bank and the business are in the rear view mirror.  Obviously, there is financial emphasis here but success in turnaround is much deeper than a financial endeavor.  Every business leader knows the difficulty of managing near-term cash restrictions with the challenge of preserving long-term success.  Likewise, in a worst case scenario great leaders understand they must know quickly if their current plan is throwing good money and effort into a plan that ultimately will fail from factors outside the business’s control.  This type of problem is extremely difficult to identify from within.

Turnaround analysis and support requires significant real-world business experience combined with the expertise of regular practice.  The relationship should combine the holistic business perspective of an excellent turnaround consultant with great business leadership to achieve what could not have been imagined before the company was struggling.

It is true that when the bank makes the call to choose one of three consultants it is their hope that you succeed, but hope is not their plan. For the great business leader, the plan starts with the confidence to act quickly and engage a turnaround consultant to turn threats into opportunity.