How do you turnaround a business?
How do you turnaround a business?
The Great Financial Crisis has been particularly brutal on some businesses, especially some businesses in some industries. The manufacturing industry has been suffering for the last ten years or so due to government policies that almost provide an incentive for manufacturers to send jobs offshore. In addition, the drastic fall in the value of real estate be it residential or commercial properties has made a very negative impact on the construction industry.
When a business struggles the owner moves into the cross hairs of lenders wanting their money, employees wondering if they have a job in the future, competitors watching closely for any missteps so they can move in and steal new customers and market share and so the concerns go on.
Bob Greeley has been the principal of Greeley Lindsay Consultant Group for the last 30 years. On Tuesday March 12, 2013, Bob was the guest on my radio show, Money 2.0 on 105.5FM and came to talk about seriously distressed businesses which has been the focus of his business as a consultant, a court receiver, and a Bankruptcy trustee. Here are some of the answers Bob shared with me.
How did you start working with distressed businesses?
My first project was working with Made Rite Meat in Sacramento. I helped them find a $3.2 million refinance when their original lender asked them to leave. Ninety days later the new lender called me one afternoon and said, “Bob, there are two ways you can darken our doorway again…with our money or never.” It was clear the new lender thought they would not get their money back. We went to work for the owners and in 90 days had the business sold to a strong competitor and the bank paid back, the 204 employees with a job and a future and just as importantly, happy owners who were now able to go and do something else.
Is your preference to liquidate a business?
My preference is to get a business that’s in trouble back on track, that is, we enjoy operating a business. For example, one of the projects we took on was the Howe ‘Bout Arden Shopping Center. We were able to manage the business for 3 years and then eventually allow new management to take over and continue the successful path we had created.
There is a misconception that the only type of businesses to either save or close are those that are performing poorly. However, that is not the case. If a business grows too fast that business can also have problems. If they are not managed quickly and carefully then it can move into a distress and so the goal is to avoid that happening.
Where do you start when the owner calls to say their business is in distress?
The starting point is cash. Cash is king. How much cash does the business have to continue trading and for how long? Does the business have enough cash for the next 7 days? If so, is it a viable company? Does the company add value and provide service to all the stakeholders which includes not only the customers but also the employees, suppliers, owners and of course, the taxman. If so, can it make a profit with its present business model or does that need to change and if so, how much and how quickly?
The economy seems to be picking up so will we see more turnarounds?
First, this is a unique California business cycle. In Silicon Valley the tech industry is doing very well. In Sacramento however, houses are selling to investors and pushing up the value of residential properties but between 2008 and 2013 we lost over 400,000 construction jobs. So that’s the old and bad news as 300,000 of those jobs have now been replaced but instead of paying $60,000 to $80,000 in the construction industry they are paying about $30,000 or less in personal services. If you do the math, that’s about a $3 billion hit. When you look at the economic impact that takes between $12 and $15 billion buying power out of the local economy and gives you one of the reasons the Sacramento Kings are struggling because there are still 100,000 fans without jobs and those that have jobs are now making less than half of what they used to make in 2008.
How do you see the next few years?
The economy is slowly getting better. Ten percent of businesses will not be saved as the growth is too slow so it is a long road ahead for many business owners. There are more ways to go out of business than just bankruptcy. Selling the business as a going concern is usually best while an orderly liquidation can be done but the owner generally requires some assistance. If this is new territory for an owner then finding the right person with the knowledge and experience to help them evaluate their options is the best way to go.
There were many other questions in my conversation with Bob. If you would like to get more information about the steps to turnaround a business by listening to our conversation, please click the following link – Bob Greeley of Greeley Lindsay Consultant Group.