Sometimes people ask me what prompts a business to hire me as a Turnaround Authority. At what point does a business decide it needs some outside person to come in and tell them how to run their own company?

Sometimes I am hired by a bank to assess a company’s viability prior to it making a loan. However, the primary way I am hired is at a bank’s request when a company is in default. Generally there are provisions in the loan documents from banks or bondholders that upon a default, a financial advisor will be retained by the borrower.

In the absence of such provisions in the loan documents, the bank can still “strongly suggest” that the borrower hire someone either in the case of default or because the bankers have become concerned that the company has lost money over the past few years. They are worried about its long-term survivability.

The Board of Directors may also be concerned about whether management has been evolving and changing in response to its customers and market trends. Senior management may be starting to worry whether their jobs are secure.

As the situation becomes more unstable, all this negativism starts to infect the entire company and flows through other key employees. They in turn then become less efficient and the downward spiral starts.

Everyone is feeling under pressure and often the CEO or business owner has become so overwhelmed he or she doesn’t know where to start and sometimes has pretty much given up on making any decisions at all.

That’s often when I am called in and am hired as a consultant or interim CEO. Now their problems become my problems. So how I do I get started to turn this business around?

For the next few posts, I’ll discuss the initial steps I take when I am hired to turnaround a company. Let’s start with what I look at.

Everything.

I want to look at everything that happens in that company, between the front door and the back. I want to look at all their vendor relationships. I was to see an organization chart of all the people at the top. I want to see all contracts, personal guarantees of senior personnel and loan docs.

I want to know about all the assets the company owns, information about all its products lines or services, what distribution channels are set up and how much is spent on shipping and freight. If the business generates scrap, where does that scrap go?

I always ask to see the current business plan. I’ve long since given up being surprised when I find out that when the “current” business plan was last reviewed, we were all listening to “Thriller” on cassette tapes, talking about Reaganomics and trying to solve Rubik’s Cubes. (I’ll write more on the necessity of having an updated business plan later.)

I tell the senior management that nothing that is in place is sacred. Nothing is untouchable, not even the idiot son with the big corner office whose interest in the company doesn’t extend past the big numbers on his paycheck. I will be looking at every aspect of the company.

We may need to shut down product lines. I don’t care if Grandpa Joe invented that rocking widget when he was down to his last dime and there’s a bronze cast of it proudly displayed in the lobby. It hasn’t made money since the Carter administration. It’s going to be retired.

We may need to change facilities, order inventory differently and collect receivables faster.

The point is to throw away all the old assumptions so we can begin to look at operations in a new, fresh way that may generate ideas to cut out the fat to operate more efficiently and discover ways to become profitable.

Next week I’ll write about how I determine which key personnel will stay in the new company, and which ones will go.