The Downsides of Bankruptcy

The parent company of Reader’s Digest magazine recently filed for Chapter 11 bankruptcy the second time in less than four years. The U.S. arm of Atari, the video game maker that brought the world the classic game “Pong,” also recently filed for Chapter 11.

Even though it won an Academy Award this year for best visual effects for “Life of Pi,” the visual effects company Rhythm & Hues filed for bankruptcy.

Despite these high profile filings, the American Bankruptcy Institute recently reported that commercial Chapter 11 bankruptcies actually fell a whopping 36 percent from January 2012 to January 2013, from 749 to 479.

Although the decrease in bankruptcy filings may be partly a result of the slowly improving economy, it’s also due to the fact that companies are increasingly looking to alternatives to filing bankruptcy. It’s no longer assumed to be the leading default option for companies in financial distress.

In my work as the Turnaround Authority, I generally discourage my clients from declaring bankruptcy. While bankruptcy does offer several tools that may not otherwise be available, such as the ability to sell assets free and clear of liens and claims, and the ability to accept and reject contracts, I want companies to carefully consider the downsides to bankruptcy before making that move. Here are just a few I want them to consider.

It results in loss of control. While the client may still be running the daily operations, he is no longer in control of the major decisions. The judge approves all major decisions.

It’s expensive. High attorney fees can actually result in businesses being forced to liquidate to pay all the fees. Fees in excess of $1 million dollars are not uncommon. Companies have paid in excess of $1,000 an hour during a bankruptcy reorganization.

In addition to paying for its own lawyers and financial advisors, the company has to pay those of the creditors’ committee and the secured lenders.

The law firm Weil, Gotshal & Manges was lead counsel for the Lehman Brothers bankruptcy, raking in $389 million in fees and expenses in 3 ½ years. But that wasn’t all of it. The total paid out to all of the firms on Lehman’s tab? More than $1.4 billion.

An interim CEO or Chief Restructuring Officer, like me, may be brought in to handle the process, which adds another layer of costs.

It harms the company’s reputation and may discourage future investments. Just a rumor about the impending filing of Chapter 11 bankruptcy by American Airlines parent company AMR caused the shares of stock to plummet by a third and 67 million frequent flyer members fretted over what would happen to their miles.

Owners and stockholders may lose a great deal of money. The bankruptcy court determines the order in which creditors are paid back, with secured creditors first in line. Stockholders are always at the back of the line and generally need to invest additional funds into the restructured entity in order to maintain equity in the new company.

The actions of the firm’s leadership are closely examined and may lead to criminal charges. After Enron filed for bankruptcy, dozens of its executives were subsequently charged with criminal acts that included insider trading, money laundering and fraud.

I tell this story in my new book, “How Not to Hire a Guy Like Me: Lessons Learned from CEOS’ Mistakes.” I was brought in as an interim CEO for a company that had filed for Chapter 11. On its books was $50 million of inventory at a plant in Ireland. I decided to go take a look. Turns out the plant was actually a vacant lot, but had been claimed as inventory to inflate the value of the company so it could qualify for a larger loan than it would have.

Few companies emerge intact. Less than 10 percent of companies filing for bankruptcy protection emerge as they were when they filed. Generally, assets, divisions, or the entire company are sold to provide the funds to work out a Plan of Reorganization.

Bankruptcy is a viable and helpful alternative for some companies. I’ve worked with many over the years and was successful in bringing them out of bankruptcy.  But it’s difficult and takes time and money. It’s not the best tool for every company and alternatives should be carefully considered.

We Shouldn’t Bail Out Europe – We Should Turn It Around

I’ve been writing a lot lately about Greece, which is representative of the larger problems Europe is having right now. My interest lies in the fact that an organization (in this case a country or group of countries) is spinning out of control in crisis and has little or no idea how to fix things. I think that they need a turnaround guy’s help, or at least his attitude.

I know that there are differences between companies and countries, namely, the number of factors involved. What do I mean by that?

At a company, you can quite often say, If I do x, y will occur. The reason is that there are a limited number of factors involved. I can look at the numbers on a Balance Sheet; I can comb over a P&L. I can say, if we stop spending in these places, the cash saved can pay for the following. With those payments made (generally debt and required expenses), the business can stay afloat, avoid further crisis, ultimately pay its debt down, and emerge to become profitable again. It’s not that easy and requires a lot of creativity and negotiation, but there’s rarely a case I can’t figure out.

Unlike in a country, in a private company you can sell off assets, which is a great way to generate cash you don’t have (in contrast, countries tend to just print money, which is creating an asset they don’t have and that devalues the other assets they do have). Greece, for instance, can’t sell off Thessaloniki. Well, maybe it could, but I don’t know that Romania would pay the asking price (Turkey might).

In addition, in a private company, you don’t have to worry (as much) about gauging people’s reactions. Of course you want buy-in and for the people to be on your side, but at the end of the day, whatever must be done to survive must be done. If it’s not, and the business collapses, the people are laid off and must go elsewhere. If the people in a country disagree with the decision makers, riots can ensue alongside, potentially, political mayhem and anarchy. After all, the people are assumed to comprise the country and therefore be responsible for the debt. If the government dissolves, the people are still there, the country is still there and the debt still, arguably, exists. In business, there’s bankruptcy. In governments, not so much.

As a turnaround professional, I look at all of these country-based crises, and I see the opportunity to turn them around. It would certainly be exceedingly complex and involve unpredictable elements at that level, the likes of which we don’t usually see in companies, but it’s the attitude that’s needed – an attitude that doesn’t seek to make more money out of no money, but one that embraces austerity and survival at all costs.

So without further ado, I’d like to show you a great animated video that does a delightful job summing up the European debt crisis and the proposed solutions. Watch it and tell me we don’t need a turnaround guy in there:

http://www.guardian.co.uk/business/blog/2011/oct/28/euro-debt-crisis-animated-explanation

What did you think?

Dr. Freud Says, “You’re Distracted!”

Life is distracting. I know it, and you know it. Hey, it’s life, and we have to relish the distractions. Life isn’t business, after all. Business is a part of life.

When the distractions include the marriages of our children, moving to new homes, graduations, holidays and everything else that comes with life, that’s great – and we probably shouldn’t call those distractions. We should call them life.

But in my line of work I don’t find that it’s this part of life that either results in or compounds the troubles of a turnaround.

I Give Up

I got a call the other day from a client who said, “Lee, I think I’m just going to file for bankruptcy tomorrow. I can’t keep up with this, and I don’t know what to do. It’s too overwhelming, and I’m done.”

It was at that point that I lit my  cigar (not really, I don’t smoke) and asked my client to lay down on his couch (we were, after all, on the phone, and I couldn’t very well have him laying on my couch).

I’ve learned over the years that my job is – in large part – the job of a psychoanalyst. I have to break through what a client is telling me is bothering him and get down to what the real problems are.

Let’s Go Deeper

As I asked my client to tell me what was really going on and what was really overwhelming him, he said that the business was the problem: payroll wasn’t going to get paid, creditors were barking at the door and everyone seemed despondent. Those are pretty standard problems in a turnaround – after all, it’s what I was doing there in the first place.

But why all of a sudden could he not handle the pressure and the issues? Why did he want to give up and file for bankruptcy when I’d told him that we would get through this turnaround without the need?

As it turns out, the issues weren’t really about the business. I pushed a little more and learned that this client’s father’s health had just taken a bad turn and that he was having other problems at home.

He was prepared to handle the issues the business was facing because he knew I was there at his side to take care of them, but what he wasn’t prepared for was handling the business and the rest of life’s more challenging distractions at the same time.

He didn’t realize that I was there to support him through those issues, too.

Have Someone to Turn to

No – I didn’t become his drinking buddy or commiseration pal, but I did use my Dr. Freud skills to listen to his issues and show him that whatever else was happening, he could place the burden of his business on me. It would be my problem to bear in the meantime because that’s what I do best.

When you find that work has become too overwhelming – especially when things are going wrong – consider the fact that you may be distracted by a lot of life’s other challenges. Maybe you should talk to someone and maybe you should lean on some of the key people in your life to take the burden off of you.

How do you deal with distractions and focus when you really need to?

Not Keeping It in Your Pants can be Very Expensive

Here’s something stupid that CEOs, presidents and business owners do: they fail to keep it in their pants.

The biggest case in recent memory concerned the dear old president of these United States, William Jefferson Clinton – or Ol’ Willy as the stories will one day be told.

His failure to keep it locked down had to do with so many issues: his ego, his self esteem, his power, and the simple urges of simple men – or for short, men. Interestingly enough, it’s these same forces – ego, esteem, power and manly urges – that drive men to start companies and become presidents in the first place (money could be added to the list, too), but that’s no reason to get led around by your lesser brain.

If for no other reason (and when I’m talking about neglecting reasons I include things like the sanctity of marriage, practical morality, metaphysical morality, putting your family or business first, etc.) than to avoid getting caught, do not cheat on your wife or spouse while running a company.

Don’t cheat on them anyway but especially if you’re running a company it’s a bad idea. You will get caught – especially if your company is facing a crisis.

It always comes out . . . and not in the way to which you may have grown accustomed.

What’s worse is that these issues always have a way of arising when things are already headed south . . . and not in the way to which you may have grown accustomed.

I was dealing with a guy who was originally in the business of manufacturing apparel. He couldn’t keep focused on his core business, however, because he had a dream of designing the perfect yacht.

Lucky for him, he succeeded in making such a great yacht that he ended up on the cover of a major yachting magazine for his unbelievable hull design.

Unlucky for him, when he and his yacht were photographed for the cover shoot his scantily clad girlfriend, simply busting with joy and enthusiasm, ended up on the yacht in the background of the photo.

When his wife saw the cover of the magazine, she filed for divorce and took the company with her. After all, the business was started with her daddy’s money.

Another quickie, so to speak. The CEO and Chairman of the Board of a retail establishment – in the middle of his company’s bankruptcy – got caught with his kids’ babysitter. The messiness that ensued caused him to lose focus on the company’s issues, which ultimately had to be sold off in pieces.

Both of these men (and I’ve got 20 more of these stories) lost everything – businesses, money, families, and the lives they had built – because they couldn’t keep it in their pants.

Not keeping it in your pants can be very expensive.

Know anything about this and want to share a story?

Avoid America’s Bankruptcy by Bringing a Turnaround Guy to Washington and Treating the Country Like a Business

This article was published in its original form in the Atlanta Business Chronicle here.

The United States is a capitalistic society, so I often wonder why the government isn’t run like a business. We had a surplus 12 years ago, but now our debt is astronomical: nearly 14 and a half trillion dollars. This isn’t a political issue. It’s a business one – or at least it should be.

When a business finds itself in this much debt relative to its capacity to repay, the bank, Board of Directors or shareholders say, “No more!” and send in a turnaround professional. We are the shareholders, and it’s time to send a turnaround guy to D.C.

When my clients have problems with cash flow they don’t print money. They raise money, close plants, layoff people or cut spending; they tighten their belts to survive.

Despite insurmountable debt, the U.S. government isn’t doing those things. Businesses with negative cash flow would have been bought, liquidated, merged or otherwise gone at this point, and I don’t want to see us become like Greece or Iceland in five years. Worse still, I don’t want to be a part of the United States of China, since in the business world a company with increasing debt is subject to acquisition or dissolution by a larger and wealthier business.

I always say that 100% of spreadsheets and projections don’t work because the assumptions are wrong, yet people rarely revisit and alter the assumptions regularly to produce more positive results. Even today, the Office of Management and Budget, which hasn’t made an accurate P&L projection in years, thinks that our revenue is going to increase by x if we do a, b and c. But x is an assumption that’s based on the unlikely actualization of a, b and c, possible only if we overcome party politics. And as the deficit skyrockets, the assumptions are increasingly wrong and the parties are increasingly polarized.

The only way we’re going to resolve our financial crisis is by treating the government like a business.

As we repeatedly hear, a balanced budget is the first step. The second step, however, is a repayment plan of our foreign debt. Next, raise taxes. No one likes tax increases – especially me – but it’s part of the solution.

The corporate amnesty program allowed businesses to return profits from foreign soil to the U.S. at lower tax rates, which created more jobs in America. This was a wonderful and creative idea, but it equates to peeing in an ocean: it doesn’t change the levels. While thousands of these ideas will amount to an aggregated long-tail effect, we need to begin with more drastic measures.

Turnaround 101 dictates that we start by slashing all spending by at least 15%. We must tell every division, department and agency that it needs to cut its cash needs – no exceptions. The pain will be shared across the whole country as it would be across an entire business. This kind of mandatory budget cut provides time to fine tune operational requirements based on the improved results.

Before you ask, this 15% cut would affect entitlements, social security, health care, the military, and education – everything.

It’s easy to buck and cry, What about the children? Shouldn’t they be exempt from budgetary cuts? What about the sick and the poor? What about defense?

Here’s what I ask every department at a business: “Do you want your company to survive until tomorrow or do you want to quibble about who’s more deserving of money that doesn’t exist? I don’t care how you do it. Just do it.”

Internal politics kill companies in the private sector because politics and business don’t mix. Similarly, politics has no place in America’s budgetary discussions, and our issues must be addressed by those who can truly set aside political or personal biases and run this country like a turnaround professional in the private sector.

As a turnaround guy, I act like an ER doctor; my first step is to stabilize the patient and prevent shock. As a country, we’re already in shock. Nobody wants to lose an arm or a leg, but if there’s only enough blood for the torso and the leg is gangrenous, you better believe I’ll lop it off to save the body. In five years, the prosthetic surgeon can make us pretty again. I’m in a unique business, but it’s the business of making sure we’re still alive in 2025 with or without a leg.

In addition to the 15% cut, we must freeze all raises and expansions. That means no more foreign aid increases (also subject to the 15% cut), and we put a reasonable mandatory repayment plan in place for foreign aid. We can’t continue to write off receivables and survive. It doesn’t work that way in business, and it can’t work that way in government.

This also means no cost of living increases for government employees, social security beneficiaries and pensioners. In addition, congressmen can enjoy normal health care services – not VIP lifetime benefits for two years of service.

Unfortunately, tenured positions can’t be affected, but we can stop giving tenure. All rules for entitlements (e.g. pensions) must be reviewed. The private sector has largely eliminated pensions because it can’t afford them, and government needs to do the same. In capitalism when you can’t afford something you stop doing it.

I don’t have every last answer for how to save the trillions we need, but by making – and enforcing – these tough moves we can save America from bankruptcy, collapse and ruin. We must empower people to save money, and punish them for spending it needlessly in order to get a line item the following year.

Legislators keep asking that we have faith. Our economic stability has been built on faith: full faith and credit in the U.S. We can’t retain faith after twelve years of increasing debt. We need to deal with hard facts and run America like a business. Business is not about faith. It’s about trusting what works, and what works in business is what I know. Treat America like a business, and we’ll all live to buy another day.

I’m the Turnaround Authority and my bags are packed. Washington D.C., please call!

5 Benefits to Calling an Insolvency Attorney

As managing partner of GGG and the Turnaround Authority, I get the pleasure of providing guest posts by our other partners. The following post is by our newest Partner, Vic Taglia.

We wrote a few weeks ago about when to hire a turnaround consultant.  The same answer applies here:  Sooner, rather than later – and there are good reasons for this.

First of all, a good insolvency attorney has seen it all. In some ways seeing him is like going to confession. You tell him your problems, he says it’s okay, he’s seen this before and he can help you. This only works if you see your financial advisor before your business is dead. You will be surprised how much better you sleep after engaging these experts, just like sleeping with a clear conscience.

On the other hand, if you wait too long, all you will see is St. Peter at the gate directing you to the lower floor.

Here are some key benefits of calling:

1. If you wait too long to see an insolvency attorney, you will only find the bankruptcy judge converting your case to a liquidation. Like St. Peter, bankruptcy judges have a sense of equity, can make quick judgments based on their extensive experience, and are rarely overturned.

2. If you see an insolvency attorney soon enough, he can help you find a financial advisor who can help restructure your business before the situation becomes deadly.  (Of course, I recommend you find a turnaround consultant even earlier than the attorney so you can avoid this problem entirely.)

3. A respected insolvency attorney can help you with your creditors, particularly if the creditors’ lawyers are calling, writing, or threatening you.  The other side recognizes that you have faced the severity of your problems and called in an expert.

A respected turnaround financial consultant can help you here, too. The other side (the bank’s special asset department or the creditors’ lawyer) are specialists, and they recognize your hiring a specialist as a good sign. This can save time, because both sides talk the same talk. Saving time in this situation can help save your business.

4. Engaging an insolvency attorney and financial consultant sooner rather than later can also speed you through a “prepackaged” bankruptcy filing. The Wall Street Journal recently reported that prepackaged filings have become more common in the past few years because they enable the various stakeholders—unsecured lenders, senior lenders, employees, equity holders and other parties—to negotiate early and to see what they will receive. The Bankruptcy Court then applies its imprimatur to the reorganization plan and business goes on, avoiding the significant delay and cost which would stem from settling contested matters in court.

5. Early consultation with expert insolvency counsel can put your mind at ease. Insolvency attorneys can tell you what your creditors can and, just as importantly, cannot do. They might be able to minimize your personal liability to your creditors and help structure your affairs to maximize your control of the future.

Insolvency, bankruptcy and debtor rights form a specialized part of business and law. The most effective lawyers and financial advisors here have become expert in these matters. The people who specialize in this high pressure, high stakes part of American business are generally smart, hard working and relentless. Isn’t that who you want on your team when your very survival is at stake?

Have you ever been through insolvency filings or consulted an insolvency attorney? What were your experiences?

The Lessons I Learned from Bull Sperm

Did you know that top notch bull sperm is worth in excess of $75,000 a gallon?

This is something I know personally thanks to Fred, the CEO of a refrigerator warehouse company in Texas, who, instead of grabbing the bull by the horns, kept his eye on the ball a little too much.

Fred’s hobby was breeding the perfect bull. He wanted the black spots on one side and the white spots on the other side, but he got it backwards and had to keep working. Thinking that breeding the perfect bull would be the next step in his career, Fred put all of his time and energy into this hobby and none into the “no-ball” endeavor of actually saving his family’s struggling refrigeration business.

Fred bet the ranch.

If Fred had been more concerned about getting busy with his business rather than his bull, he may have saved the company. Unfortunately, though, the core competency of his company was not bull sperm. It was refrigeration.

Thus, Fred’s hobby got in the way, and he stopped paying attention to refrigeration. When the bank realized that Fred was distracted, they defaulted him on his loans and brought me in.

I had a mismanaged and neglected refrigeration company to deal with that was over $500,000 behind in debt to the bank, had maintenance issues that created spoiled product for its clients, and that had a CEO who was focusing on bull balls rather than the family jewels.

Since the company was already being forced into bankruptcy and on the path to being sold, it was my job to recover as many assets for the bank as I could. I fired his 85 year old mother who was on the payroll, and even though the bank thought the bull seed was worthless, I held a little auction at which I sold off bull sperm by the gallon at anywhere from $75,000 – $100,000.

When your company is having difficulties, put your hobbies aside and keep your eye on the prize – not your eye on the ball.

The Regrets of “Too Late,” Managing a Company in Crisis, Part III

Similar to last time, I’ll happily wait while you read and enjoy parts One and Two of this series.

Consider All Your Options Before Making a Decision

I find that in a crisis, some leaders often accept bad advice without thinking through their options (I’ll address the issue of mistakes leaders make in crisis more thoroughly in my upcoming White Paper).

In the case of our bankrupt restaurant, the Board of Directors got bad advice to file for Chapter 11 Bankruptcy. It’s not that they shouldn’t have filed at some point, but their timing was terrible.

To survive a Chapter 11 you have to prepare properly, and by filing without making the appropriate preparations, the company created more problems than they already had. With more time, we could have found a better DIP lender and/or located a purchaser for the entire company.

But what can you learn from this?

Don’t Wait Too Long to Ask for Help

It can be difficult to know when you need professional, outside help. For 5 signs on when it’s time to call a turnaround professional, read Vic’s guest post.

Generally, when you’re either panicking or deferring to unqualified people for advice, it’s wise to consult an outside professional. Don’t worry too much about whether or not you think you don’t need help, as turnaround managers with integrity will tell you honestly if you don’t need their help. Better safe than sorry.

I have many meetings with business leaders who, being proactive, invite me in to discuss how GGG can help them and their businesses, but at which I tell people that they can solve their problems on their own. Knowing that I’ll tell it to them straight establishes trust, a key to success in this business, and ensures that I’ll hear from them (or their friends) when there really is a matter that requires my involvement.

Whether or not GGG is hired, CEOs who speak with me early are confident in their abilities to face their companies’ challenges. It is always better to know that you are okay than to ask for help too late.

If Only

In the case of this malfunctioning restaurant, we were needed – but sooner than when we were called.

If we had . . . 

. . .  arrived when emergency mode kicked in, we would have advised against filing for bankruptcy when they did and salvaged more of the business as a result.

. . . been involved before the large judgement against this company, I could have negotiated their crippling settlement down and mitigated its demoralizing impact on the team.

. . . been brought in at the beginning of the crisis we could have saved the whole company. In fact, the bankruptcy could have been avoided altogether, but it was done before we were consulted.

Let this echo the lesson that you ought to bring in the professionals before it’s too late.

Our Expertise is Fixing Problems

There are a lot of talented people in the midst of a crisis like this, but they’re not looking at the big picture the way a turnaround professional worth his salt is. Lawyers are looking one way. Accountants are looking another. But we have an overall grasp of all the legal, accounting and business angles, and we’re the perfect catalysts to see a turnaround through. After all, that’s why they call us turnaround professionals.

One of our key objectives in crisis situations is to empower the company leader by acting as his sounding board and instilling a sense of confidence while recommending creative and unique solutions based on our experience saving companies. This works no matter the company’s widget and ensures future potential crises are managed with greater success and poise.

Lesson Learned

The probability of successfully reorganizing in a Chapter 11 is statistically less than 25%. Without proper planning, reasonable terms for a DIP loan, and a focused Board and management, the probability of a successful reorganization is NIL.

Have you ever waited until it was too late to take action? What happened and how will you behave differently next time?

Liquidity versus Solvency: A Lesson in Lacking Money, a guest post by Vic Taglia

As managing partner of GGG and the Turnaround Authority, I get the pleasure of providing guest posts by our other partners. The following post is by our newest Partner, Vic Taglia.

Lehman: From Illiquidity to Insolvency to Bankruptcy to Liquidation

You’re likely familiar with the Lehman failure of 2008. The business model of Lehman and other investment banks relied on leverage of up to 50 to 1 (a 2% capital ratio) and its creditors’ belief that the collateral pledged for these borrowings would maintain its value.

The investment bank business model relies on the market to provide liquidity to allow the investment bank to carry billions of dollars of securities. When Lehman’s creditors began to doubt the value of the securities already pledged, they demanded more collateral.

This led to a liquidity problem; Lehman couldn’t get the cash it needed to operate. When Lehman ran out of collateral to pledge, it had a solvency problem. Bankruptcy and liquidation followed.

Game over.

Understanding the Path to Illiquidity or Insolvency

An industrial business frequently relies on its bankers and other creditors to provide liquidity to operate through open accounts payable and lines of credit. That’s normal.

So long as the business cycle from purchases of raw material through production, distribution and collection remains on schedule, a business can continue to operate. If the schedule is disrupted however, a liquidity problem emerges. Now the business needs to find cash.

Working capital fixes include lengthening payment terms to vendors, offering prompt payment discounts to customers and finding external financing from a friend, a bank or a partner.

This will work until someone loses faith in the business and decides to stop participating in the extended payment terms, the prompt payment discount or the rolling over of bank debt. At this juncture, a new plan becomes critical.

What asset can the business convert to cash? What can it sell for cash now? Equipment, vehicles and real estate are all illiquid assets, but they all have value today—probably much less today than if you had six months to sell, but if you need cash now, you become a very motivated seller.

The end game starts when you discover that these illiquid assets are really illiquid.

Surviving Illiquidity or Insolvency

You can’t sell them fast enough or for enough money to save your business, for instance. If you collect all your receivables, sell all your equipment, all your real estate, all your inventory and still can’t cover your debts, you are now insolvent.

A liquidity problem can lead you to a reorganization filing in the bankruptcy court. Your business can survive a reorganization, perhaps with different owners, employees, and strategies, but insolvency will lead to liquidation.

Illiquidity can be temporary and fixed with relatively simple steps – but you must act quickly. First, identify what can be sold now, for cash.

Insolvency is more difficult; you need more capital, debt relief (forgiveness, payment holiday, etc.) or other more drastic help, and you don’t have a compelling story to attract this help.

Obviously you want to avoid both of these situations. Remember, though, you can survive illiquidity, but rarely insolvency.

What are your experiences with illiquidity and insolvency? Please ask any questions about these differences or what to do if they arise in the comments section below.

Making Your Own Puzzle Pieces: Saving a Company in Crisis, Part II

If you want to check out Part 1 of this series in order to get up to date on the situation and lessons thus far, I’ll be happy to wait for you. Just come back when you’re ready.

Cooperation is Key

In order to effectively implement proactive growth strategies, your company needs a management team that cooperates and openly communicates internally and externally. As CEO, think broadly about your team, which may include management, the Board of Directors, your bank or vendors and your team of turnaround professionals.

In the case of our bankrupt restaurant, the Board of Directors and the CEO were not pulling together effectively to expedite what should have been their common goal: helping the company survive. There needed to be buy-in earlier from these key stakeholders, but instead they were tearing each other and their company apart.

This proved challenging for our GGG team, whose first job is always to get everyone aligned. No matter how good we are at workouts, it’s tough to succeed when your C-Level executives and your board disagree and refuse to set a common goal. In crisis situations, more so than any other time, people need to focus on the higher level goal of the company.

As a result of this discord, we had to assist the company in a ‘363’ auction sale of pieces of the business rather than do a traditional restructuring.

Solve Puzzles Creatively

This was a complex and interesting case to work on due to the variety of challenges we faced, one of which was the frequency with which we were required to come up with creative solutions on the spot.

The puzzle pieces of our restaurant were all scattered, some of them on the table before us and others on the floor (and the dog probably ate a couple). As a workout guy my task is to put these pieces together, but recognizing that the pieces don’t always fit properly and that there isn’t time to put everything in its proper place is important to prioritizing problems – and their solutions.

When solving problems in this fashion, you have to cut the pieces to make them fit and make game-time calls. This approach allowed us to keep up with the pace of a rapidly changing crisis.

One example that comes to mind is the memorabilia. They have memorabilia all over these places, and I found myself sitting in the corporate offices admiring what was on the walls and wondering how I could sell off these valuables in order to create cash to fund the business. As I looked around, I noticed that the “t” in a lot of the signatures looked weirdly similar. I’m no handwriting expert, but I couldn’t shake this weird feeling.

Acting on my feet, I made a phone call and got someone to assess the value of the memorabilia, all of which was purchased from one of the board members for a quarter million dollars. Turns out it was all fake. Though we didn’t have the money to sue this board member we took certain actions to coerce him into refunding our money.

We also had to act on our feet when we noticed the board self-dealing. The board had to be reminded of the change in its fiduciary responsibility once the company had become insolvent. Their interests were legally required to change from themselves to their creditors. We had to protect the board members legally by making sure they kept their fiduciary responsibility in mind and quickly curbing actions that went against this premise.

Taking Smart Risks

At GGG we always think long-term. We don’t want our clients just to survive; we strive to implement strategies that will make them successful in the long-run. And we don’t make compromises on this point.

Part of long-term success involves risk taking. But never bet the ranch – take smart risks. On this project, we were challenged by the disparate goals of the Board of Directors, yet we consistently managed to get their approval in order to take smart risks and solve major problems.

Our risk was evaluating and cutting unprofitable locations fast enough to allow the rest of the company to survive with a core group of profitable bars. The subsequent auction of the company resulted in several competing bids and the completion of the ‘363’ auction sale. Today, a few years after the bankruptcy and in a much tougher economic climate, the client continues to operate several locations profitably.

Join me next time for Part 3 to discuss why it’s important not to make rash decisions about the fate of your company and the tools you can use to make better decisions.