In industrialized nations, particularly the USA, the prevailing attitude is in either 1) the instant success or in 2) the disposable item. That disposable item can be a small to medium-sized business which is experiencing some financial turmoil and might well be on the road to Reorganization pursuant to Chapter 13, and more often than not, to a Chapter 7 liquidation proceeding.
The terms and notions associated with business “repairs,” or outright cures such as turnarounds (i.e., turnarounds leading to sustainable solvency with a healthy and consistent positive cash flow), restructurings, negotiations, workouts, re-amortizations, debt-equity conversions, debt-service coverage increases, re-budgeting, a Re-Emergence Plan, creditor settlements, investor arrangements, employee buy-in /buyout plans, and management buy-in/buyout plans. [Please feel free to look under the DEFINITIONS Section in this blog’s navigation bar if any or all of the foregoing terms seem or seems unfamiliar to you.]
The calculus of this focus on start-ups to the extent that troubled businesses have become neglected or stigmatized as “corporate raider targets (Dell Computer, anyone?) or “extinct” simply because they are not genesis centers for new technologies, or because they do not have venture capital curb appeal (anyone interested in saving a ball bearing or paper clip manufacturing business? – I can hear your deafening silence as I watch [I can’t literally look at you through your computer or device, but I like to be as fearsome and awe-inspiring as possible] you look down in shame at the floor).
You don’t have to be a calculus superstar to visualize that a small start up entity might create five jobs this year, and fifteen next year, and perhaps a number more (if they are not bought up by Google, in which case, some of those jobs will likely evaporate into a consolidation), while saving the Cruddleston Corrugated Packaging business [fictitious, but which would possibly be located in in the “Rust Belt” of the USA or near Newark, New Jersey] might conserve 80 existing and productive jobs, and might create new employment (perhaps another 10 – 20 permanent full-time positions as well as some precious student internship training.
Perhaps the bloom is off of the proverbial rose when it comes to manufacturing and industrial businesses in the small ($1 million up to $100 million in sales revenues) to medium-sized ($100 million up to $500 million per year in sales revenues) sectors. Part of the difficulty is that these businesses cannot necessarily be fixed and set on the right trajectory without investing some serious analytic, planning and implementation time. Negotiations, correspondence, restructuring and a multitude of changes, some of which will be painful but which are necessary, will have to be implemented and monitored. This usually requires the retention of an outside specialist, in additional to legal counsel — there are a plethora of law firms, but very, very few positive-minded, tough turnaround advisors (or business leaders of this age in general) who understand that 1) not every business problem can be cured by throwing bundles of cash at it, and 2) that it is not pre-ordained by any “Higher Authority” that because a business has problems that they must be fatal.
If these prospectively viable turnaround clients fail (and it isn’t a failure which is based upon technological obsolescence or a colossal and uninsured legal judgment or settlement) it is because they were convinced that they could never recover, and that the path most frequently taken is either directly to Chapter 7 or being on Chapter 13 “life support” – with the expectation of a fatality so no restructuring and Re-Emergence Plan is even hinted at. Working to save the company and its jobs is definitely the road less traveled. Death of the entire mid-section of America — which is not the true subject addressed by the JOBS Act or anyone’s legislative, regulatory or professional menu — has been occurring at an increasing rate, and is perceived as a self-fulfilling prophesy.
In my professional capacity, I am keenly aware that most company owners, management, directors or even legal counsel do not know who to turn to to perform this type of special precision surgery.
The problem is one of epic proportions. The following statistics for court bankruptcy filings of businesses were provided by The American Bankruptcy Institute for the entire United States, based upon data accumulated from judicial records:
Quarterly Business Filings by Year (1994-2012)
|Year||1st Quarter||2nd Quarter||3rd Quarter||4th Quarter||Total|
You’ll note that the highest number of filings was in 2009, one year following the central banking system and capital markets meltdown that decimated this country’s economy, with the rest of the Global Economy to follow soon thereafter.
One insidious implication, referring again to the above table, is that businesses in the United States (as well as their clients and consumers) were so dependent upon access to credit and the expectation of serial refinancing to prop up cash flow, that they had no cushion of equity in the form of cash reserves, and the other implication was that these companies were taking some liberties with what they considered to be collateral assets, profits and earnings.
These companies, and their legal representatives where virtually running to the courthouses to throw their businesses away. They were collapsing like dominoes, and the overwhelming negativity in the emotional drivers of the economy accelerated this flight to the express route. Many of these companies were unaware that possibilities existed for a reversal of their fortunes — and those who actually thought of the possibility of a means of saving the business by bringing an outside expert inside simply did not know where to find an expert.
Applying some simple and strictly hypothetical assumptions to the numbers set forth in the above table for the second calendar quarter of 2012, let us say that :
- 10% of the companies (that’s 1,037) could have been saved;
- That each company, while operating at full capacity, had on average of 75 full-time employees;
- That if all of those existing jobs could have been saved, the total of persons seeking unemployment assistance or very low-paying jobs would have been reduced [just for that quarter!] by 77,779.
I believe these numbers to be reasonable.
In sum, companies do not have to die for their mistakes, transgressions and lack of adequate stewardship. There is help for them. It shouldn’t be a secret.
Thank you for reading me and for sharing my articles with your colleagues, connections and contacts over your numerous social networks.
- Mich. gov. says bankruptcy the right choice (news.yahoo.com)
- Private-Equity Buyouts Shortchange Shareholders (blogs.wsj.com)
- Big change may not be change enough for Microsoft (tech.fortune.cnn.com)
- New York & Co. – Turnaround Firing On All Cylinders (seekingalpha.com)
- IBM Begins Global Job Reductions (technorati.com)
- Energy Dept. prepares restructuring plan for SRS employees (smartbrief.com)
- Top News: Analysis: Glimmer of hope for cash-starved Pakistan economy as Sharif takes over (reuters.com)
- Top News: In Detroit’s ruin, law firms see land of new opportunity (reuters.com)
- After Acquisitions Aplenty, Yahoo Q2 Beats Forecasts (dailyfinance.com)
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