October 2014    


As a consultant who works regularly with businesses in distress, I'm accustomed to meeting with owners suffering from the feelings of fear and denial that almost inevitably accompanies that troubling slide from success to unprofitability.

Their reluctance to face reality is understandable, but such feelings can only increase the strain on their business.

In this newsletter, associate Jeff Thommes describes the circumstances that prompt banks to tell their customers that they need the services of a turnaround consultant and he explains why prudent business owners recognize that engaging a consultant is often the first step in redirecting the business to achieve more positive outcomes.

We hope you find this discussion helpful, and we encourage you to forward this newsletter to anyone you think might find this information valuable.

As always, your comments are welcome, and we look forward to hearing from you.

Tom Beane
President CMC CIRA


Tip Sheet

If your banker suggests a turnaround consultant for your business:

Do not delay. Contact the consultants your banker recommends as soon as possible.

Communicate your issues clearly to the consultant that you choose to engage.

Work aggressively with your consultant to prepare a plan that responds to your bank's concerns.

View your engagement with the consultant as an opportunity to examine the strengths and weaknesses of your business and to plot a course aimed at producing more favorable long-term outcomes.



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. READ MORE

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Commercial Roofer: Advisory

Situation: A second-generation commercial roofer ran the entity with an eye toward minimizing taxes. Because of large distributions to family members, there was little equity to rely upon and one year of losses landed this company with the workout group with a $1 million line of credit and no chance of a short-term paydown.

Result: Beane Associates interviewed ownership and learned of efforts to return to profitability, including salary and overhead reductions under reduced revenue levels. Beane Associates also coordinated an auctioneer to appraise the machinery, equipment and inventory and prepared an accompanying liquidation analysis that demonstrated a minimal recovery multiple. As a result, a 12-month plan was established to reduce debt and restore new worth to an acceptable level.


Metal Fabricator and Installer: Advisory

Situation: A 60-year-old metal fabricator defaulted during its forbearance period and was at first unaware of, and then disputed, the default. The secured creditor retained Beane Associates to assess the company's financial status and recommend an appropriate reporting system to keep them apprised of the latest developments while the company searched for exit financing.

Result: Beane Associates validated various financial statement assertions of the borrower and utilized existing internal reporting to develop future-looking financial modeling. With a new controller on board at the borrower, the accounting department also immediately adopted our 13-week cash flow projection model and used it until it found takeout financing within six months.

Construction Financier: Advisory

Situation: Beane Associates was retained by bankruptcy counsel of a regional bank to offer its opinion on a borrower's calculation of an intercompany loan value between affiliated companies that had filed Chapter 11 bankruptcy.

Result: Beane Associates reviewed the books and records of the entity and opined upon the granted motion. Based on the expert testimony from Beane Associates, the judge ruled the ledgers were unreliable and appointed a consultant to oversee the books, under supervision of the court trustee.

Hotel Management: Advisory

Situation: Beane Associates was retained by a hotel franchisee to assist in cash planning through its annual seasonal slowdown.  The franchisee had recently completed a $4.8 million renovation to convert a dated, less-than-desirable hotel property into a Holiday Inn. The project, however, left the franchisee with far more debt than it could service.

Result: Beane Associates developed a 13-week rolling cash flow based upon dynamic industry metrics that revealed that seasonal survival was possible only with a shareholder infusion and an interest-only arrangement on debt. Based on Beane Associates' recommendations, the lender agreed to a long-term forbearance agreement and the borrower survived the seasonal slowdown with payments met as projected.

Grading and Excavation: Advisory

Situation: A highly leveraged, family-owned grading and excavating company had been struggling since 2009 in the very competitive, capital-intensive construction industry. Its secured creditor sought Beane Associates' advice about whether to augment its lending position.

Result: Beane Associates analyzed operations and operating processes and recommended recapitalization only if our reporting mechanisms were put in place. The lender ignored our advice and funded anyway based on collateral values. Within 60 days Beane Associates provided additional reporting recommendations to help manage the heightened interim-period risk.

About Beane Associates, Inc.

Founded in 1984, Beane Associates, Inc. continues to build an impressive track record in helping private and publicly owned companies improve operational effectiveness and profitability during a time of financial challenge. The company has offices in Wilmington, DE, and Atlanta, GA.

22 The Commons, 3518 Silverside Road, Wilmington, DE 19810-4907
Phone: 302.479.5438 Fax: 302.479.5434