The one message no business owner ever wants to hear from a lender is: “While we’d like to be supportive, we’re concerned enough about your business to advise you to engage with one of our selected turnaround consultants. A turnaround consultant can further assist you in identifying and addressing some of your operation’s critical needs.”
Let me make this clear: THIS message doesn’t just happen out of the blue. It usually comes after the business has been struggling and losses have been occurring for some time (with no signs to the lender that this will change).
A business owner may not realize their business is in crisis upon meeting with a potential lender. In many cases, several iterations of a company’s financial projections, painting a correction of these losses, have been submitted to the lender. Actual results are significantly missing these projections, and other situations are such that cash is drying up and vendor payments have been stretched.
In any case, a lender wants answers fast. They are not in a position to support a going-forward business plan unless it is prepared with the assistance of a qualified turnaround consultant.
When this message comes forward from the lender, an owner’s initial response is often predictable. Whether it is denial, fear or a combination of both. What the owner does next is important to the long-term survival of the business.
What a business owner should NOT do:
Not taking immediate action on the lender’s message may indicate decision paralysis within the business, which only heightens the lender’s concern.
the lender’s message. By this time, the business owner has lost credibility and has little leverage to change its lender’s position. The lender is convinced that the business needs third-party assistance, and the owner needs to realize this.
• Hire a consultant not on the lender’s list.
The business now needs the skills of a turnaround consultant with credibility with the lender. The company’s accounting firm or other type of consultant may not cut it with the lender for the task at hand, and may not have the skills required to rescue the business from its current state.
What a business owner should DO:
• Recognize that the business needs assistance
…and the lender is willing to support the business provided this assistance is secured. Realize that this is an opportunity to significantly advance the business quickly and avoid failure.
• Immediately call the consultants on the lender’s list and arrange interviews.
Ask about their background and experience, and be candid about your situation. Worry less about their expertise in your industry. And worry more about the consultant’s turnaround expertise to help a business out of its current state, to provide credibility in communicating with your lender.
Ensure the consulting firm can take on your situation immediately, and ensure that the people you are interviewing with are who you will be working with. Engage the consultant you feel comfortable working with, and advise your lender.
• Accept the cost associated with hiring the consultant.
Turnaround consultants charge an hourly and require partial payment up front. They spend a lot of time on site during the beginning phase of their engagement. Believe this cost is a necessary investment to ensure the long-term survival of your business. The financial benefits of a turnaround consultant to the company may far exceed the cost.
• Be prepared to take the consultant’s advice and act quickly to follow through on recommendations.
This can be a difficult and uncomfortable process, but a business owner’s initial reactions to a lender’s message are important in securing the lender’s support through a turnaround effort.
Cedar Croft is a management consulting firm established to assist mid-market clients in the manufacturing, distribution, retail and service provider industry sectors located throughout North America.
Our value-added services include due diligence, performance enhancement, strategic planning, financial restructuring, and all aspects of corporate renewal, including reorganization and interim management.
Please contact us for further information on how to deal more effectively with business lenders.
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