When it Makes Sense to Hire a Turnaround Consultant

By: Jeff Wright, Senior Vice President, Hennessey Capital

In my 27 years in the asset-based lending and commercial loan workout business, I have observed many companies experiencing significant problems with operating performance. In a typical scenario, these businesses endure a substantial decline in revenues and/or are dealing with costs that are increasing at a higher rate than revenues. Management is often slow to begin cutting overhead expenses. Losses and tight cash flow frequently trigger covenant violations with their lenders who, in turn, to take steps to protect their security interests. When this occurs, it may be time to consider hiring a turnaround consultant.

Many companies, however, use the excuse that they can not afford an outside consultant or they can handle the task internally. It is important to recognize that even the most talented businesspeople can benefit from the support and guidance of an experienced consultant.

Hiring a consultant can provide an unbiased, independent opinion of the company’s current position. When tough decisions need to be made to reverse downward trends in operations and changes must be implemented and monitored, consultants can analyze the business decision from a position of greater objectivity. Moreover, some of the “change” burden can be handled by the consultant so that management can focus on the day-to-day responsibilities of running the company.

The most common benefit to hiring an outside consultant is access to his or her experience. The consultant can draw on that field experience to fill gaps in the management team’s skill set and develop and implement a plan that has worked in a similar situation in another organization. Other benefits include the consultant’s ability to draw on sources in their network for advice, and to connect with potential customers, suppliers, investors, or buyers. Many consultants also have relationships with a variety of lenders and can help in negotiating favorable restructuring agreements.

The overlying take-away here is that cash is king. The ability to improve cash flow is the consultant’s primary objective, so that the company can continue as a going concern, grow the business, and take advantage of new opportunities.

The Risk of Undercapitalization

By: Toby Dahm

A horrible week came to an end with the worst moment of all - Jay had to inform his employees that he could not meet payroll that day. Instead of focusing on quoting new work, Jay had spent this week fielding calls from angry suppliers seeking payment and tracking down his company’s own balances due from customers.  His business had run out of cash.

I see this scenario played out all too often, in companies big and small across the country. The whole world watched it unfold as General Motors and Chrysler came to the brink of financial disaster. What enabled Ford to continue executing its business plan while General Motors and Chrysler endured seemingly endless scrutiny, extraordinary professional fees, and months of distraction?  In a word: CAPITAL.

Having sufficient capital enables a company to sail through rough seas and
concentrate on steering out of the storm rather than fighting the storm itself. It doesn’t matter how good your product is, how many sales opportunities are around the corner or how efficient your operations are if you can’t pay your bills. That’s right – if you can’t pay your bills, it’s all for naught.

Having capital is as important as having a keen grasp on every other of business management that inspires an entrepreneur to go into business and succeed.

Step 1
The first step in establishing capital is to know how much you will need.  A good business plan will address the capital need conservatively.  It’s important to have contingency reserves because Murphy’s Law is very real – if something bad can happen, it usually will.  There are many resources that provide assistance with a business plan including State and County Agencies that do this at no cost or low cost. You may want to check out your local SBTDC or SCORE office.

Step 2
The next step is to approach funding sources that are appropriate to your life cycle stage and industry.  Trusted advisors, such as your accountant, attorney, mentor, as well as the above mentioned government agencies can also help you with this. You may be asked to give up substantial ownership, which you will have to weigh against the risk of operating with insufficient capital, as our friend Jay did.

If you find that capital is limited, you will need to adjust your business plan to succeed on the smaller capital base.  This usually translates into slowing your growth trajectory.  If you find yourself in that position, remember that slow and steady usually wins the race.

As you build your business, keep in mind that capital is critical to making the entrepreneurial equation work.

Preparing for New Growth Opportunities in a 2010 Economy

By: Mike Semanco, President, Hennessey Capital

When we do see the light at the end of the proverbial tunnel, companies need to be prepared to handle the pent up demand which builds in challenging times.  Business owners have spent the last 18 months streamlining operations and cutting where possible.  Now is the time to begin planning for new opportunities so that when they arrive at your doorstep, you can welcome them in versus turning them away.  There are two critical needs which small business leaders are concerned about- access to capital and talent attraction. 

All signs indicate that credit markets will remain tight throughout 2010 so entrepreneurs need to be prepared to consider multiple sources that can work in tandem to meet their funding needs.  This means your working capital lender will probably not handle your real estate loan or equipment loan.  It may also mean that the cost of capital may be higher than in the past but with new opportunities in hand; the cost of saying “no” will be greater than the new cost of capital.  In regards to talent, the key will be finding individuals with the right skill set.  Candidates will need to be multi-dimensional and be required to take on new projects outside their comfort zone.  Companies will want to maximize their hires and accept the fact that overstaffed businesses are a thing of the past.  Consult with your professional advisors to get the most out of new opportunities.  Survivors will thrive if they are prepared.

A look at the annual Commercial Finance Association conference

By: Jeff Wright, Senior Vice President, Hennessey Capital

 

I recently attended the CFA Annual Conference held in Las Vegas. The theme throughout the conference was “Opportunities. With the current lending environment being what it is and access to capital tougher to acquire, plenty of opportunities exist for asset based lenders to help both small and mid-sized companies finance their working capital needs.

 

The event was highlighted by the key note speaker, Condoleezza Rice, sharing her experiences as the Secretary of State. She stressed that free trade is critical and that the U.S will be led out of the recession by the private sector investment and their willingness to take risk. Ron Shapiro, author of “Power of Nice” discussed how to be prepared. His eight-step methodical approach to being prepared and out performing the competition is

1. Understand your objectives
2. Plan with precedents
3. Know of alternatives
4. Define the interests
5.  Set your strategy
6. Do a timeline
7. Pick your team
8. Write a script

SBA Lending: Down But Not Out

Although SBA lending is down sharply in 2009 compared to 2008, the movement of new activity as of late, is a positive sign of good things to come.  Even a slight increase in activity will give entrepreneurs some level of hope that a bigger credit thaw will happen in 2010.  In the meantime, entrepreneurs need to be creative and think outside the bank box for financing solutions.  Asset-based lending, factoring, PO financing and equipment leasing will continue to be viable solutions to today’s financing challenges.

Small Business Credit Sees Thaw

A recent Wall Stree Journal article indicated that lending to small businesses is slowly increasing - a glimmer of hope. This news that access to the secondary market for the sell off of SBA backed loans is encouraging.  This piece of the legislation will have a much greater impact than the proposal of lowering interest rates and cutting fees.  If we can start with SBA transactions and work our way back to underwriting traditional loans for credit worthy clients, then we will see a true thaw of the credit market.

Small Business Loans Criticized

Monday President Obama released a plan to increase the federal guarantee of small business loans to 90% and decrease fees associated with the loans. However, the action is being met with significant criticism. Read the Wall Street Journal article: Small Business Loans Criticized

Access to Capital Webinar

Entrepreneurs throughout the country are encountering challenges in gaining access to capital. With credit markets dried up and few banks lending to small businesses, it’s become increasingly difficult for small enterprises to get the working capital they need to grow their business. If you are interested in learning more about the financial spectrum and where to turn when your credit line shrinks, register for the upcoming “Access to Capital” webinar.

Thursday, March 18
9 a.m. EDT

E-mail name and company to: Nicole@macombcountychamber.com.

CFA Asset-Based Lending Index Reinforces Important Role of Altenative Lenders

An article released yesterday, “Commercial Finance Association Releases 4th Quarter Asset-Based Lending Index” reinforces the important place asset-based lenders hold in the current economic climate. Alternative sources of lending like factoring and asset-based lending, discussed further in episode #1 of Capital Conversations, is becoming an increasingly viable options for entrepreneurs who are still growing their business in turbulent times. Read the article: http://biz.yahoo.com/prnews/090218/ne72275.html?.v=1

Welcome to the Conversation!

This is the first post of capital conversations, a podcast and blog about making sure small busineses find the financing they need to succeed.