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Quick Lessons from Unfortunate Signs

 

Today’s quick lesson comes to you from the sign you see above, which I spotted on a recent weekend get-away. I’m sure it didn’t take you long to spot the mistake, did it?

That’s right. It’s not a “collard shirt” like collard greens, the delicious veggie dish enjoyed in many a southern restaurant. It’s collared shirt, as in, my shirt has a collar so I look more professional.

This sign, on the other hand, does not look professional.

Everybody makes typos (myself included), but my hunch is that this isn’t a meer typo. If it were a typo, my presumption is that it would have been fixed by now since this sign was just printed on a piece of regular paper and hasn’t been laminated or anything.

So there are a few lessons to be derived from this sign, the most basic among them being, edit your work and get someone else to edit your work, too.

On a larger business scale, don’t do things poorly or half way. You don’t look professional and people don’t want to do business with you. Perhaps you recall my white board story about the company that wanted to move across the country and be operational again in a weekend. When someone isn’t “editing” your work, you end up with sloppy results, like error-filled signs and factories that don’t run properly. Neither gives other people the confidence to do business with you.

A shoddy sign implies shoddy workmanship for your products which implies shoddy management. That may not be the reality – you might be a great manager – but that doesn’t keep the public from feeling that way about you when you put things into the public sphere that are riddled with errors.

Don’t do half-baked work. It undermines your credibility and public perception.

Have you ever gone half-in and looked unprofessional? What would you have done differently?

 

 

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De Nile – A River in Egypt or a CEO’s Final Resting Place?

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.

In my post a few weeks ago about how to treat your bankers, creditors and vendors, I advocated telling the truth. As important as it is to tell all of these people the truth, it is even more important to tell yourself the truth.

I recently came across a company whose bankers have expressed some discomfort in their situation (no names here obviously). The loan balance has declined, and the bank wants to continue to reduce its exposure. In recent memory, the company has not satisfied its debt service coverage covenants, but the loan document has been extended on a short term basis. Since the principal owner describes his industry as “declining” the only growth will be through consolidation. Moreover, the company has exhausted its balance sheet reserves, even to the extent of taking some tax positions that will improve its book equity, but cost it millions of dollars in CASH over the next several years.

See the warning signs?

  1. Declining industry
  2. Nervous bank
  3. Bad operating performance
  4. No focus on Cash, which we all know is king

The principal owner/CEO stated that he had made some significant spending cuts, and that this year will be better than last. His projections show a slight decline in revenue with increasing EBITDA, but still not enough to cover its interest expense.

When I looked through the financial statements I noticed that payroll in some operating areas had indeed fallen by about the amount revenues had fallen, but payroll in the sales and executive departments had increased. I also noticed a monthly payment for a luxury sports car’s financing company that matched the make in the CEO’s reserved parking spot. The CEO said he had a new, more expensive model on order for summer delivery. The CEO said everything was fine; he had his business under control, and he had a wonderful, long-term relationship with his lender, even though his new loan officer needed some more time to understand his business.

I contend that the CEO is in denial about the true state of his business. As my favorite coffee mug is fond of saying, “De Nile is Not Just a River in Egypt.”

Without significant changes in his mindset and the business’s operations, the bank will continue to ratchet down its exposure. There will be fewer operating accommodations, more reporting requirements, more onerous covenants and certainly no financing for acquisitions. He will be the acquiree, not the acquirer. It’s quite likely that he will find himself out of the business and out of a job within 18 months.

While it is important to maintain a positive attitude for your family, employees, vendors and creditors – after all, hope is extremely important – it is also important to face your reality, especially when the chips are down.

You can talk to your trusted advisors — lawyer, accountant, even a banker — to share your concerns and fears and more importantly to chart a course of action to rehabilitate your business. But when your advisors can’t help, call us, and face the harsh reality rather than board De Nial River Boat Cruise to self-destruction.

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Lessons from a Burning House: Saving a Company in Crisis, Part I

When there’s a fire, call the fireman.

The Crisis

A few years ago, a popular chain of restaurants found itself at a defining point in its history.

The company filed for protection under Chapter 11 of the Bankruptcy Code following a detrimental legal judgment and the termination of its President. These, in addition to a feuding board, were the final pushes that landed the company in a crisis, but fortunately there were still members of senior management who were committed to seeing all or part of the company survive.

Thus, GGG was brought in to see the chain through the crisis and evaluate alternative restructuring solutions.

First Put Out the Fire, No Matter the Cost

If, God forbid, there’s a fire in your house, you don’t finish the laundry and the dishes before grabbing the dog, the baby and the family jewels and getting the heck out. You either put out the fire or call the fireman and get the heck out!

As the firemen at this conflagration, it was our job to stop the fire and save whatever we could. By working with the company to secure a Debtor-in-Possession loan, which is a line of credit in bankruptcy, we were able to make some tough moves to put out the fire and allow some of the company to survive.

We advised the chain regarding the closing of unprofitable locations that were burning cash. We needed to squash those fires in order to get the best bang for the few bucks the company had left. In a town fire, this is like letting part of the town get eaten by flames in order to effectively protect the main square from the inferno. Although this was difficult for everyone, letting go of parts of the company allowed the core to survive.

Assume the Worst to Protect Yourself

In any restaurant or bar business, you need to focus on the costs of your food and alcohol. This not only applies to sourcing from your supplier at the lowest fair price but also locking the back door to your establishment.

No matter your business, always watch the back door.

It seemed that this restaurant’s managers thought the best about their teams, but too many employees proved them wrong. When we investigated, we found food and liquor in dumpsters behind numerous locations. Employees were putting things outside during their shifts and coming back later to pick them up.

“Glad that doesn’t apply to me,” you might be saying if you’re not in the restaurant business. But it does!

No matter your business, always watch the back door.

People in all professions find creative ways of draining the company’s resources for personal gain. Be proactive in protecting yourself before harm comes to your business.

It’s never fun but you have to assume the worst. No one wants to imagine that his house could burn down, and theft was hardly the only reason why (though the theft at the corporate level was even more grandiose!) – but that doesn’t stop you from having a fire extinguisher, knowing where the valuables are, and, if you’re wise, running a family fire drill bi-annually.

Think about how people may take advantage of you and put policies and practices in place that minimize the possibility of abuse to your organization.

The second and third parts of this series, available in upcoming weeks, will explore the creative process of solving major problems and how to do so in a crisis situation.

Have you ever caught theft happening at your establishment or somewhere you worked? What was happening and what did you do?

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5 Warning Signs That It’s Time to Call the Turnaround Expert

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.
In business, it can be hard to see the forest through the trees, especially when it’s night time and you have no flashlight, the only supplies you have left are bubble-gum and a rubberband but your wife always tells you you’re no MacGyver, and the forest creatures are attacking you with cries of “blood!”
If you just said, “That sounds about right,” or “What the heck is this guy talking about” then you may want to read these 5 warning signs and see if it’s time to bring in some professional help.
  1. Fatigue – yours and your creditors. One late Friday afternoon, you’re beat, and you realize that you’ve spent the entire week talking to your vendors. You’re not placing orders or negotiating terms. You’re not swapping stories; you’re begging for extended credit terms. You’re pleading for deliveries without knowing how you’ll pay the over-90-day balances. You’re talking to the credit manager, not the sales manager.  And you have a new bank officer visiting Monday morning from some new department called “special assets.” This is creditor fatigue.
  2. You’re out of new ideas, and the old ones don’t work. You used to be able to cajole deliveries from vendors based on a promise, and you could make your promise reality. Not so anymore. Your product collateral looks old and tired. Your website’s most recent news refers to a 2008 press release about a new salesman (who you fired in 2009). And worst of all, you haven’t anything new to add that you want to share.
  3. A different look in your employees’ eyes. The old-timers wonder where your magic went. The newbies wonder how you ever got anywhere.
  4. Longer hours, less progress. You haven’t had a vacation in three years.  The lake/mountain/beach house is just a pile of cancelled checks and fond, but fading, memories. You’re missing ballgames and ballet recitals with your children. You haven’t had a nice dinner with your spouse since your anniversary; but maybe it was the anniversary two years ago. And the inventory in the warehouse seems to be growing in size and dust.
  5. Less cash, more debt, fewer receivables, more payables. You’re calling customers and finding they aren’t paying because your shipments are late/wrong/incomplete. Bankers’ reference letters refer to your account as “low five figure” as opposed to “high six figure.” You ask your CPA /attorney/friends for some advice on a new banker “who understands this terrible economy/insane competition/horrible cost pressures” better than the banker you’ve been with for ten years.

If any of these describe what you’re seeing, it’s time to call your friendly neighborhood turnaround professional.

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Rest and Reflection Breed Solutions

 

When in crisis mode, it’s very easy to neglect any kind of rest and reflection – there simply isn’t time for them.

But if your company is doing well, I encourage you to take days like Memorial Day, when many places close and workers are given breaks, to take a little rest yourself. I know what it is to be an entrepreneur, a CEO, a businessman, etc. and to feel like the cessation of movement is the cessation of life. But it’s not.

What Was It Again

When you take time to rest a little, turning your mind off or at least slowing the chatter, your mind opens to a host of new ideas, thoughts and solutions.

Think about it like this. Have you ever been talking to someone and found yourself desperately trying to come up with a particular word or the name of an actor in a movie or the name of some author you enjoyed a while back, but you just couldn’t place it? I have to believe this universally common experience has happened to all of us many times. No matter how hard you try and wrack your brain, you just can’t remember that darn word or name.

Fine, you acquiesce, as you continue along the conversation, insuring your interlocutor that the perfect word or some person really does exist. And then, 30 seconds later like a flash of lightening – BHAM! – the word comes right into your head and out your mouth before you can finish the sentence you’re on.

Ah! What a relief. You remembered the word and your previous thought could be completed – your problem solved.

Application to Business

This works a lot for me with work. My wife and I enjoy vacationing in Hilton Head, an island off the coast of South Carolina. The beaches are deep and wide, the ocean calm and hypnotic, and there are tons of trails on which to bike and enjoy nature.

And as I settle down in a beach chair and stare out at the ocean, letting my mind wonder rather than staring at a computer screen in deep contemplation, the challenges I’d been having seem to break down and coalesce back into solutions. It’s wonderful, and it only works because I sit back and stop trying so hard to think of solutions.

That’s what it’s like when we stop concentrating on things for a little while and take a, say, Memorial Day rest. I don’t expect you to just go splash around mindlessly in the pool for 8 hours, but I do encourage you to do whatever it is that takes your mind off of the central issues in your life and business so that you can become more open to the solutions that do exist.

Consider These Options:

  • Go for a long drive
  • Go to the driving range
  • Sit somewhere with a nice view (restaurant overlooking a park, balcony near a beach, etc.)
  • Get out of the whatever city you’re in, even if just for a few hours
  • Go on a nice walk or bike ride, preferably in or around nature
  • Go swim some laps
  • If you’re a runner/jogger, go for a run/jog

Notice, too, how many of these activities involve movement, which is a great way to turn your mind to something else entirely, get your blood pumping (which stimulates your brain, by the way) and get the rest from work you need to become better able to do your job.

Those who regularly incorporate these elements or something similar into their lives often find more solutions, in my experience.

What do you like to do to take a break and turn your mind down a bit?

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It’s Always the President’s Fault, 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.


No, I’m not talking about Mr. Obama.

Twenty-five years ago I got my first CFO job with a $50 million manufacturer/distributor of electrical products. Howard, the company’s president, had enjoyed over 15 years of success with two shareholders. A public company based in California owned 20%, and a family-controlled equity fund owned the remaining 80%.

Things Went South

But the last year had been difficult for Howard. A large competitor had awakened from his slumber and began aggressively competing in Howard’s market. Another competitor had fine-tuned his operation and began capturing Howard’s business.

Howard’s management team, three sales/marketing types, the old CFO and the VP of operations were in conflict. The company was running out of stock and missing delivery dates.

The operations staff blamed the sales and marketing team for bad forecasts, and the sales and marketing team blamed operations for not manufacturing to the plan – and each other for bad marketing or bad sales.  The VP of operations was hit by a rental car bus at the airport and was unable to work. The CFO quit.  Howard’s strength was sales, and he treated the VP marketing as the heir apparent who could do no wrong.

After my first week on the job, the California company declared it wanted to sell its share of the business. The family fund responded that it would encourage a management-led leveraged buyout (none of these folks thought to mention any of this during my recruitment, of course.)  Howard saw this potential liquidity event as an opportunity to control his company.

No One to Blame But the Boss

Unfortunately, recent events and management turmoil precluded the finding of necessary financing. After three months of searching for financing, the family fund terminated Howard. I asked the company’s chairman why he let Howard go after 15 successful years and one not-so-good year. He replied that his only regret was that he didn’t fire Howard earlier.

He explained that a company’s president is responsible for everything at the company. Howard should have been prepared for the big competitor’s attacking the market. He should have anticipated the smaller competitor getting better.  He should never have played favorites.

I asked how it could be Howard’s fault that the VP of operations was hit by a bus. He said Howard should have ensured that there was adequate staff at lower levels.

In all successful organizations, leaders who do not deliver the results are fired. Baseball managers who lose games, generals who lose battles, captains who lose boats and business managers who lose money are all fired.

Or at least they should be.

In World War II, it was expected that American generals who lost battles lost their commands. What you saw in movies, such as Patton and Twelve O’clock High, was based in truth. There were no lucky or unlucky generals, only winners and losers. And the losers were relieved and sent home.

When your business is in trouble, you need to replace management.  If you don’t, the next owner will.

Want to learn about good management so you can avoid being like Howard. Then click HERE.

What are your experiences with failing management?

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Cash is King (III), Fine Tuning your Cash Control, 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.

After the crisis, here’s how to improve your cash control (if you’re like, what is this guy talking about, catch up with Part I and Part II).

Identify excess assets. What can you sell for cash? And remember: the quicker, the better. Do you have any extra cars, boats, planes, construction equipment, drill presses, injection molding presses, etc.? Go down the balance sheet, look at the equipment list, and examine the insurance policies. What don’t you need to survive? What can you rent instead of own?

There are markets beyond Craig’s List and eBay. Construction equipment goes to auction all the time. List that extra piece of real estate on MLS. Offer the broker a bonus for a quick sale. Tell him you’ll auction it (without him) if he doesn’t bring an offer soon. Find the most active internet sites that cater to what you’re selling.

What old inventory can you convert to cash? Can you sell it to a foreign customer? Is there an alternative market channel? Don’t be embarrassed to accept the accounting loss.  Everyone but you has already recognized the lower value. Your goal is to get cash and survive.

Remember that the first mark down is the best mark down. This is true for inventory, land, equipment and most other excess stuff.  Get rid of the old stuff, get the cash and move on.

I suspect you already sold any marketable securities and cashed in your life insurance policies, but did you sell your interests in other businesses? What about your time share? Your hunting camp lease? The second home? The boat? The sports car? The wife’s company car? The girlfriend’s company car? (Yes, we’ve seen these and more.)

Cancel the company credit cards. This will improve your control over spending since you are now signing for all spending (you already sign all the checks and have the bank statements sent to your home, right?) Canceling the credit cards might also improve your standing at the bank since their credit card exposure is now limited. It also sends a message that you’re serious about the business problem. Bankers love serious debtors taking serious steps to fix their money problems. And it won’t hurt your employees to note you are now a serious crisis manager.

Finally, look at the payroll register. Since you sold the boat, you don’t need the captain. Since your purchases are dependent on who will ship to you, maybe you don’t need as many people in the vendor qualification department. Maybe your brother-in-law really should begin his long-sought career change.

Letting people go stinks, but your business is struggling for survival, and you may not be able to save everyone. But if you don’t save the business, you won’t save anyone.

That concludes our three part series on how Cash is King. Check out Part I and Part II to learn more about the importance of cash and how to manage it in a crisis.

Do you have any questions? What have you had to sell off in the past that you didn’t want to? What ways do you free up cash in your business?

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The Wonderful Ways of the White Board in Business, part 2

Last week we discussed the advantages of using a whiteboard in business timelines, and after the positive feedback I got, I wanted to share another anecdote.

The Set-up

Company A is in Orlando. Company B is in Minnesota.

Company A buys Company B.

The Plan

Company A decides to close down the factory of Company B and move its operations to Orlando – you know, to consolidate things.

Their plan was to shut down a factory in Minnesota, drive its equipment and operations to Orlando, set it back up in an inadequate space, train all the personnel in the new manufacturing process and be fully operational – without disrupting their supply line, output, customer service or other operations – over the course of a three day holiday weekend. I repeat: a three day holiday weekend.

As you can imagine, I told them they were crazy. Loony. Bonkers. No way. Oh, goodness.

The Problems

1. The most glaring problem (among many) that I saw was that Company A had no inventory built up to handle orders if the production line didn’t come up Monday morning. And as far as I was concerned there was no way that the production line was going to be up on Monday morning.

2. There was also no mind being paid to the fact that the assembly line personnel in Orlando couldn’t assemble what was being done in Minnesota. It wasn’t so far from their core competency, but it certainly required training and oversight. Their plan was to send one guy from MN to FL to teach people how to put the widget together in three hours. What if something happened to this guy? What if the entire crew didn’t pick this up in 3 hours?

3. The capacity in the Florida location was full! Where were they going to put all of their new equipment? There was no time to find a new location

The Solutions

My solution to this insanity was mapping out the process of moving and consolidating this business on the whiteboard as a 2 month timeline. By doing this, I could not only identify all of the steps necessary and include everyone’s responsibilities to make this happen efficiently and effectively but also I could show them why and how their initial 3-day plan was asinine.

1. I built them a 45-60 day plan during which time their primary goal was to build up inventory, running overtime at the Minnesota plant, so that when they closed the production line they had a full 30 days to get operational in Florida.

2. The Orlando crew needed to be properly trained. I suggested that they send the factory workers in Orlando to Minnesota to watch the process there for a few days. Company A complained about not having the $5000 to do this, but if their plan didn’t work they would lose millions! Penny wise and pound foolish, if there were ever an example.

3. With two months for this process to take place, there was now adequate time to find a suitable location at a reasonable price for the Minnesota factory to be relocated in Florida. Three days, I fear, would not have sufficed.

I’m pleased to say that ultimately Company A listened to me, and they were successful. Without the whiteboard, though, I would never have been able to make my case. I literally saw the aha-ing happen all over the faces of Company A’s execs when I drew up their plan and my plan on a whiteboard.

One thing I always do with my whiteboard is take a high resolution picture; I blow that up, print and study it so that I can re-explore my logic and see what I may have gotten wrong. I would love one of those white boards that digitizes your notes, but I guess that’s the next step!

What kinds of tools do you find most effective in allowing you to successfully manage your business responsibilities?

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Cash is King (II), A Fact in Three Parts and 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.


After last week’s post emphasizing the importance of cash and making sure your business is still breathing, let’s use this post to add some detail to your cash picture.

Start by listing all your bank accounts and their balances. If you’re starting with book balances, add back all those checks you’ve been holding until you get the money to send them. It’s best to void the checks in your accounting system and have corrected cash and payable balances to work with.

Next, examine your list of customer receivables. An aging may help, but you will need to list who will pay you and when. Call the past due customers. Threaten them with shipment halts if they don’t pay. Offer discounts for prompt or early payment. A 1% per month early pay discount is worth 12% on an annual basis, a great rate in today’s interest market.  Offer more if you must, but get the cash in the door.

Add the first week’s receipts to the beginning cash balance to get your “Cash Available.”

Now identify what you have to pay this first week. I recommend you start with those items whose payment will keep you out of jail.  That is, payroll taxes, sales taxes and other government trust funds. In most places, failure to pay these trust fund taxes is a felony. I suspect defending yourself from felony prosecution will distract you from your business.

After the payroll taxes and other government trust fund obligations, list your gross payroll.  You probably need your employees to sell, make and ship your product, so keep them paid.  They know that the business is in trouble, so paying them on time helps preserve morale.

Next up are the vendors and suppliers who require payment in order to make or ship your product. Be bold and call them. Ask for help. See how little they will take to keep shipping. Reduce your orders to the minimum needed to ship product. Shop around for other sources before you’re cut off.

Add a line for payments to your lender, but DO NOT enter a specific number – at least not yet. We need to see how much we have to operate the business before we can pay the Bank.

Subtract the subtotal of these “have to pay now” obligations from the Cash Available to get “Cash Over or (Short).”

If Cash is Over (a positive number), use this as the first line of week 2 and repeat the above process for the next 13 weeks. This should be long enough to cover all your existing receivables and give you an opportunity to use the cash receipts for the next six weeks’ sales.

After the end of the first week, compare your actual cash receipts and disbursements to your estimates. Change the next weeks’ estimates to reflect what you learned.

Maintain this process until your Cash Over number grows every week for six weeks and your calls to customers, vendors and the Bank are more pleasant and less frequent.

On the other hand, if Cash is (Short), which is to say that number is negative, revisit your collections and payment amounts. Your business depends on driving cash to positive levels. If Cash remains (Short), after several attempts, call GGG immediately and add a line for “Crisis Manager Retainer.”

Next week we’ll continue this conversation by fine tuning our cash control. For now, check out last week’s post to learn why Cash is King.

Have you ever gone through a process like this? What were the results and how did it go? Do you have any questions about what to look for?

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The Wonderful Ways of the Whiteboard in Business, Part 1

I love my white board, and quite frankly, I don’t think I could do business as successfully without it. A white board lends clarity to complex situations and helps viewers logically analyze the many issues surrounding a case or problem.

The white board also allows you to see the holes in your logic – and therefore solidify your case by dealing with those holes.

Other white board fleshings reveal that you had the wrong fact in place. Many times I find that people are operating under the pretense of erroneous information, but by sharing their thoughts on a white board, they allow others to see their wrong facts and correct them.

In short, white boards get everyone on the same page.

Whiteboard Timelines

I find that timelines are one of the most useful ways to employ a white board. With one client we strategized a Chapter 11 case and created a timeline that included everything from the details of the date of filing to the date of exiting, thinking the whole process would take 9 months (ambitious, I know).

As we made the timeline we assigned specific tasks and responsibilities to people, and we also added our goals. By placing our goals at appropriate time intervals and getting buy-in from everyone involved, we could see how missed deadlines would affect our actual timing throughout the process.

And timelines aren’t just for bankruptcies. They work with any task: moving production lines, BK plans, relocating your offices, planning a wedding or whatever else.

With a timeline visualized on a white board you can get buy in, understand milestones and see how adjustments need to be made. This also reinforces people doing their jobs on time because their screw ups or lapses are tied into everyone else’s success and the overall feasibility of the timeline and the plan. This creates a great deal of personal responsibility and the consequences become very palpable.

This can all be especially effective if you add a budget to your whiteboard timeline.

An Example – With Horses!

Rotama Park, which I’ll discuss more thoroughly another time, was a race track that took 100 million dollars to build over 18 months – and 30 days to run out of cash.

I wanted to get them out of bankruptcy in 12 months. With my initial filing I also needed marketing plans, PR and other “why we’ll survive” materials. There was an opening period to fine-tune operations for profitability and positive cash flow, restructure debt equity and maintain a line of credit – and by day 300 we needed the disclosure statement hearing and approval so that by day 360 we were out of bankruptcy.

People said it couldn’t be done, but after putting the timeline on the whiteboard so that they could visualize the process, we were able to get buy in by asking each person involved what he needed to complete his responsibilities on time.

Without a whiteboard workout this turnaround never would have happened. Only by mapping everything out for all involved was I able to get buy-in and approval.

Use the whiteboard to your advantage and see where it can take you.

Do you use white boards? How do they help you?