The Rotten Ratio: Sales = Debt

Every industry and business has interesting ratios and rates that are relevant to it. For e-commerce, returns are around 8%; the average conversion rate on a Google Adwords advertisement is 2%, and so forth. I’m sure you can think of some in your business.

In my business, we have a ratio, too: one I call the Rotten Ratio.

The Rotten Ratio is when sales equal debt.

Take a second to think about that: sales equal debt. Believe it or not, I have a number of companies in this situation.

But how does something like that happen? Why do I keep getting hired at this rotten sweet spot?

Well, when business is good and sales are going up, companies decide to buy a new factory, or purchase new equipment -or Ferraris – you know, whatever the necessities are. In order to do this, they borrow money, which at the time makes sense when they look at their sales and growth.

However, as they tend to do, especially when companies and their leaders get distracted, sales slow down, yet that debt is still there. In efforts to sustain their perceived growth, companies take ill-advised steps, which sometimes include more borrowing. At the very least, they don’t pay their debt down, and with sales continuing to slow, they don’t get any closer to doing so.

Numerous warning signs should likely have tipped off CEOs, owners and boards off to the impending crisis that’s coming their way, but as I often say, no one calls me and says, “Lee, I’m going to have a crisis three weeks from Thursday.”

By the time sales and debt meet, it’s become clear to many CEOs that they need to bring in a professional, so when I arrive and start looking over financials, I notice time and time again that sales do indeed equal debt: the Rotten Ratio.

Though you should know that things are turning sour before your sales and your debt numbers meet, by the time they do it’s a pretty good indicator that you’re going to need to change the way you’re doing something and take some drastic steps to resolve your company’s problems. When that happens, seek professional help. Oftentimes it takes a professional to make the truly huge and hard decisions that will save a company.

Remember, turnaround isn’t pretty. We often have to amputate a leg to save a company, and when you’ve just moved into a shiny new factory, selling it off seems like the biggest backwards step and the one thing you’re not willing to do. But that’s why, as a CEO, you have to check your ego at the door, admit you’ve made a mistake (or multiple mistakes) and do whatever needs doing to save your company and the jobs of those who depend on it.

When you’re moving towards the Rotten Ratio, get proactive.

Have you ever seen the Rotten Ratio? What other reasons do you think a company might find itself in this position?

I’m Lee N. Katz and It’s Nice to Meet You

Allow Me to Introduce Myself

My name is Lee N. Katz, and I’ve specialized in turning companies around for more than 25 years. In 1986, I joined Grisanti, Galef & Goldress (GGG), one of the oldest turnaround consulting firms in the United States. In 1997, I became the managing partner.

Throughout my career in crisis management, I’ve served as an interim executive officer and reorganization director for both large and small companies, public and private, with annual revenues from $5 million up to $3 billion. In addition to offering expert-witness testimony regarding business valuations, turnarounds, and plan feasibilities, and I’ve served on court-appointed federal and state receiverships.

I love using my skills to help owners, CEOs and boards of directors prevent crises from happening, but no one ever seems to know a crisis is happening before the roof gets blown off the barn. And that’s when I step in.

In the 70s I worked for First National Bank of Atlanta, eventually directing their asset-based lending in the Atlanta area. I’ve also spent quite a bit of time developing and managing commercial real estate for end users like Wal-Mart, John Wieland Homes, and other private investor groups.  I’ve renegotiated more than $1 billion in real estate leases and handled numerous environmental issues for real estate and corporate manufacturing clients. Sometimes I do this in cooperation with state and national Environmental Protection Agency authorities.

I often serve as a financial advisor to individuals and trusts.


People often ask me what I specialize in, so I thought I’d toss the short list your way:

  • Financial Restructuring
  • Bankruptcy and Bankruptcy Restructuring
  • Real Estate Receiverships, both Federal and State
  • Operating Company Receiverships, both Federal and State
  • Restructuring Bank Debt with the FDIC and Successor Banks
  • Asset Liquidations
  • Alternative Restructures to Bankruptcy
  • FDIC Negotiations
  • Corporate Due Diligence
  • Bond Restructuring
  • Financial Advising to Bond Funds
  • Corporate Downsizing

Some Public Recognition

For those of you who are kind enough to be interested, my firm, GGG, has been recognized by the Turnaround Management Association’s (TMA) Atlanta Chapter:

• 2008 Small Company Turnaround of the Year Benton-Ga, Inc. Learn More
• 2004 Non-Profit Company Turnaround of the Year – Life University Inc. Learn More
• 2003 Large Company Turnaround of the Year – P.S. Energy Corp.
• 2002 Large Company Turnaround of the Year – Wyncom Inc. Learn More

So, that’s a bit about me.

Now you know who’s writing this blog. If you have any questions about these things or if there’s anything general that I can answer for you, please don’t hesitate to ask in the comments.