Restructuring your Corporate Credit with a Business Turnaround

Have you bitten of more that you can chew?

Restructuring your Corporate Credit with a Business Turnaround

Debt and its management are at the core of a financial restructuring process for your business.

In a typical business turnaround, it is the debt to suppliers, landlords and the government that has become unmanageable.

Some of the symptoms are:

• collectors are calling daily
• credit accounts are frozen awaiting payment
• threats are being made
• bailiffs and court documents arrive
• bank accounts are seized.

In our experience, the business owner has already unsuccessfully sought solutions. The visit to the bank, sweaty palms clutching the company financials, ended badly with the bank saying no to a refinance, consolidation, further loans or extensions.

The owner’s house was mortgaged to the hilt in the last few years. Personal credit has been used up and the credit cards are now maxed out. Friends and family have already been tapped on the shoulder for a loan. Factoring of the receivables yielded enough cash to continue for another 2 months. A lease back of the company equipment produced enough to buy materials for another month.

There is nowhere else to turn.

At this point the company is hollowed out. A glance at the balance sheet would show no value. The owner’s credit and company credit are in the tank. The company is technically bankrupt. Even at the Fiscal Cliff there is still hope.

Dire situation: What do you do?

A circumstance like this requires a third party intervention to solve the problems. Caught early enough, the issues can be worked around. Caught too late, it is painful and expensive because the courts might get involved.

Canada is blessed with probably the most enlightened legislation on the planet to allow companies to seek a dignified exit or to buy the time to get back on track.

At Floodlight we have the 50 years of experience and know how to use all available tools to salvage the company and pull it back from the brink. Floodlight will help to illuminate the dark corners of your business and to expose things that the business owners don’t always look at closely enough. Our goal is to help the business owner maximize results and achieve a business turnaround.

Floodlight first assesses the situation: which creditors are most dangerous; who owns the debt; which debt is secured and which not secured. Then we move to protect all possible assets.

Then Floodlight assembles a written and detailed plan. This plan is built to convince the creditors that working with the company instead of torpedoing it is in their best interests.

Not all creditors can be convinced but the presence of third party of professionals is often enough to persuade them to give it a try.

Floodlight deploys a 3 pronged approach to the plan: create a time out with the creditors, re focus the marketing of the company to increase sales and work with the owners to build strategic plans for growth.

On the financial side the plan is first to work on cash only which usually involves teaching the company and owners to operate on C.O.D.   Then a deal is struck with the creditors whereby the debt is repaid in a structured way over a period of time according to the capacity of the company to pay. In this way the debt is reduced to manageable levels.

Meanwhile the marketing arm of Floodlight raises the profile of the company to increase sales, often re-defining the target markets and finding new strategic partners.

At the same time we meet with the business owner’s weekly working on the business to refine management goals and apply new business strategies.

This process can take from 90 to 180 days to develop and 12 to 18 months to see through to a successful conclusion.

What our clients like best is that they have regained their self esteem and with a new confidence can begin to build their business with a strong foundation for growth.

Testimonial

When we first met Floodlight we were floundering in a financial quagmire, not knowing which way to turn or who to call on for help. 

We had approached one financial institution after another in an attempt to secure debt amalgamation but we were refused. 

Floodlight has extensive back ground in financial and business matters.  Upon meeting with Floodlight we immediately felt at ease with their approachable and helpful manner. 

Although we met with them several times, they never once made us feel ill at ease regarding our financial situation.  They showed empathy and were very pragmatic in outlining a financial path for our consideration. 

We feel very comfortable in recommending Andrew Gregson and Donald Robichaud to anyone who is seeking sound, well thought-out, financial and business advice. 

Neil and Sandra 

Article written by Andrew Gregson and Donald Robichaud

Growth and Succession Planning - The Big Decision

What is your Big Decision?

CBC is now broadcasting Season 2 of its new show The Big Decision which is a spin off from The Dragon’s Den.

The candidate’s on CBC’s The Big Decision programs have, to date; been well vetted and weekly they bring the different struggles of running a business in Canada to the forefront.

The present format has Arlene Dickinson and Jim Treliving alternate weekly, with both having the opportunity to invest in the companies that they are examining. All companies are given specific direction and have approximately 2 to 3 weeks to accomplish the tasks.

This is the second of our analyses of the programme to highlight what Canadian business owners can learn.

So let’s examine week 4 episode of season 2:

In this episode, Arlene finds 2 companies that have lost their way. Both companies are looking for cash investment to allow for a business turnaround. But interestingly, this episode illuminates the sticky problem of succession and the inner struggles between family members and their lack of knowledge to actually make the proper decisions for running the business.

Overview: Redwood Apparel

Faced with cutthroat competition, Scarborough, Ontario-based Redwood could see their "100% Made in Canada" clothing line shut down. With a history spanning three generations, owner Kathy Cheng will need Arlene to keep her family legacy alive.

Redwood feels that they must find a niche market in corporate apparel in order to survive the competition from low cost producers outside Canada. Dad has built his business without marketing aids and is reluctant to let his daughter chase her dream even when she gets a fat preliminary order from Sears.

At Redwood, the daughter is poorly equipped to run a business. She has no grasp of the numbers and is given a failing grade in marketing.

The Test

At Redwood, the two tests were to revamp the amateurish sales brochures and to move the company to the retail apparel market.

Arlene brought in a top notch retail executive to mentor Kathy Cheng. The executive recommends going after the retail sector but Kathy snubbed her nose at her recommendations. She never revamped the corporate brochure or the direction of her marketing focus.

The executive secured a presentation to Sears but Kathy’s presentation was pitiful at best but; Sears did place a trial order for the Heritage line of 3000 units in both men and women’s as Sears recognized in the sales pitch that price was secondary to being nimble in the marketplace.

Dad withheld support and funds for new marketing material and they snubbed the recommendations by industry expert to move into the retail market.  Redwood Apparel did not complete any of Arlene’s tests and she pulled the plug and did not invest.

Overview: Viberg Boots

Across the country in Victoria, BC, a footwear company attempts to get a grip on their evolving product line. Once known strictly for their tough men's footwear, Viberg Boots has expanded to offer more fashionable products, leaving owners scrambling to keep up with demand. Will the owners reshape their business and rise to Arlene's challenge? Or will they be given the boot?

Redwood Apparel  of Victoria faces the challenge of go big or go home. The eighty year old boot manufacturer’s market for logging boots has collapsed with slowing demand in the forest industry. The son wants to chase the fashion market but Dad is squeamish about a market he does not know.

Arlene recognises that there are leadership problems with the son in Viberg who stares at the ground while talking to his Dad or Arlene especially when people disagree with his ideas. He has strong character but lacks confidence and this shows up in many situations of the episode.

The Test

At Viberg, the three tests were to prove firstly that they could manufacture a high quality but feminine boot – a complete departure from the thoroughly masculine, working market being served. The first efforts were pronounced a failure by the footwear consultant hired by Arlene and the son responded to the criticism by sulking and walking out of a meeting.

A second effort was better, sufficient to convince Arlene. But Viberg failed miserably in the 2nd test – to get out of their comfort zone and demonstrate their products to new markets. They were invited to a party to feature their product at an upper scale shoe store in Vancouver to possibly get their boots on a celebrity and get a photograph. They decided not show up and did not even call to advise that they were not coming.

Arlene did try on a new pair of ladies boots and  because Viberg regrouped and built a secondary pair of boots  as suggested by the expert Arlene decided to invest.

Conclusion

Quickly Arlene established the root of the problem; that both Dads discounted the views of their children but don’t see an alternative to the driving of the business over a cliff.

The other side is that in either instance the family members: the children did not have the skill set to behave like business people and in both instances looked more like spoiled children not getting their way.

At Redwood they continued doing business in the same old way while at Viberg they were willing to regroup after their initial mistake and create a more feminine product.

In both scenarios this week the experts were brought in but the kids in both situations literally thumbed their nose at the recommendations. They did not seem to grasp that the experts recommended by Arlene would actually help the business grow.  But of course that would mean they would have to accept that they cannot know all the key areas of their business themselves and must look for outside support.

I am happy that this theme has been examined on The Big Decision. Too many companies face the dilemma of growth tied into succession planning. Many business owners are nearing retirement age but the children are ill equipped to run any business or have no interest in replacing the long hours endured by previous family members.

In their present state neither Viberg nor Redwood could have been sold on the market for anything like their real worth without changes. And to have worked an entire career building something to see it sold for next to little profit would be the ultimate slap in the face.

Bringing in outside assistance to help turnaround the business and address the issues highlighted in this episode could have improved value; or give the much needed stimulus for change to the owners; and in both scenarios with the right business coach could have educated the children to run the business.

I highly recommend this programme for any business that is looking to expand their knowledge and get great insight into what will help you Build Your Business or begin the first step of a business turnaround.

All episodes can be viewed on line – Click here

Article written by Andrew Gregson and Donald Robichaud