Today, as a business owner, it’s easy to believe that your company may never recover from this crisis. The search rate for “bankruptcy” and “bankruptcy attorneys” has skyrocketed in the past few weeks. Despite bailout packages and promises from government agencies, many business owners are still fearful and are preparing themselves for the worst economic situation possible.
I have spent 25 years as an operational turnaround expert, working with companies in deep crisis and facing complete financial ruin. After working with hundreds of companies in 45 different industries, I can tell you with great certainty: there is more value and more resilience in your company than you can imagine. There’s always a way to avoid bankruptcy and complete liquidation. It’s just a matter of teamwork, creativity, and speed.
A Rough Road
Take this example of a client that was scheduled for a bankruptcy filing in 2009, at the height of the Great Recession.
It was a $150 million international metal stamper that supplied the auto industry. Every person who looked at this company concluded it was dead and should be buried immediately. The owner had hired two other consulting firms, three attorneys, and two investment bankers before he spoke with me. All of them concluded the company should file for bankruptcy — and all of them were fired on the spot.
The owner was desperate not to file for bankruptcy. He and other investors would have lost more than $60 million if they filed or liquidated. I told him I would conduct an assessment with my team and then get back to him.
The company was in a terrible place; the senior lender was owed $22 million and was over-secured with assets. It was ready to call the loan and begin liquidation within a week. The investors had accrued more than $60 million in sub-debt, and the trade suppliers were owed more than $14 million. The auto industry had declined approximately 40%, taking the company’s revenue on a downward spiral. Fixed costs were high and the company was out of cash. Lawsuits were rapidly amassing on the CEO’s desk.
Despite all of these obstacles and being completely out of time and money, we still were able to come up with a viable turnaround plan to save the company. We had the plan on paper, but we could not execute it without the help of others. In fact, we needed the help of many people — almost everyone who touched the company in one way or another.
Identify a Path, Rally Your Team
We developed a plan where we isolated the best-selling and most profitable products to one division. The other product lines and divisions would be closed and sold to pay the debt. However, we needed to move very quickly and we would need all major stakeholders to agree to the plan. Everyone held a critical piece of the puzzle. If one person or group didn’t participate, the company would have to file for bankruptcy.
Where did we start? At the top: the bank.
We had to make a strong case for the bank not to foreclose on the company the next day. We showed them a plan where we required no additional credit from them and that we would pay down the loan each week. At first they let out a giant belly laugh, believing this was an impossible task. I then told them that if we didn’t meet our paydown projections each week, they could close us down immediately. They agreed and then had us sign on the dotted line. Next stop? Biggest suppliers.
Be Prepared for Less Than Perfect
These were not happy meetings. Unlike the bank meeting, we did not have a pay-down schedule for our creditors. Why? We didn’t know how much cash we would generate from the partial liquidation. We had estimates, but there were too many variables for us to agree to a specific dollar amount for each supplier. In a crisis, never promise what you don’t know you can deliver. It’s difficult, but it’s all about trying to re-establish trust with people. The last thing you want to do is break that bond with an exaggeration or an empty promise.
So, what could be promised? Only that we would try really hard to get them their money as soon as possible. Many of them threatened bankruptcy, but I explained to them that a filing would only make lawyers and consultants rich. They would likely end up with no recovery after all of the bankruptcy administrative costs were factored into the plan. I then showed them that the best way out of this mess was to keep part of the company alive. By isolating the best products in one division, we would create a strong and profitable company that could grow and generate cash to eventually pay down past debt.
I went from supplier to supplier. Many I met in person; others were reached by phone. There were more than 400 of them. To each, we explained our turnaround plan and asked for patience and help. In some cases, we still needed product to be shipped. In others, we just needed patience. It was difficult, but we were able to manage through the entire process because everyone was able to bend and give, even if in the smallest of ways.
Engage and Respect Everyone
We also needed help from the customers. The automotive industry has seasoned and tough managers. Many of them are survivors of horrible economic changes. In a liquidation, or if they sense a bankruptcy coming, sometimes they short-pay or slow-pay. They’re not eager to part with their cash and pay invoices early when there is a possibility that they might not receive all of their parts. Like the suppliers, we had one-on-one meetings with them. Fortunately, we were able to demonstrate to them that they would receive all their parts on time, and that there would be no interruption to their business.
Then, we moved like lightning to sell assets and relocate product lines and employees to one location. Many employees lost jobs, but an equal amount were saved. In the end, we were able to save 160 jobs out of 320.
Speed and Creativity will Bring Success
The bank was paid in full in six months. Then, based on the cash flows from the new and stable division, we developed a repayment schedule for all of the suppliers. They were repaid in full in 18 months. The company continued to steadily grow, hiring more employees along the way. Four years after the restructuring, the value of the company returned to a level where the investors could fully recoup their $60 million investment. This was a tremendous success for many people. Most importantly, all of this happened without a bankruptcy filing or a complete liquidation.
A business is a living entity. When a company dies, an entire community dies. Sometimes, you may not be able to save everyone and everything in that moment of a terrible crisis. However, if there is a willingness to be creative, work quickly and, most importantly, work inclusively — drawing on help from lenders, suppliers, employees, and customers collectively — I promise that you will find life in the business. There’s always a way to find something you can build upon and regrow — often to a bigger and stronger place than before the crisis.
You, your team, and your entire sphere of influence are stronger than you can imagine. Find a way to come together. Focus on saving as much as you can for the most amount of people. It’s not easy, but it is absolutely possible. You don’t need lawyers and liquidators; you have each other.
About: Domenic Aversa has worked as a crisis manager and corporate restructuring professional for more than 25 years. He has advised and operated small and middle-market companies in 45 different industries and worked through every possible extreme with his clients, including coup attempts in developing countries, the dot com bust, 9/11, Ponzi schemes, corrupt bankers, and the Great Recession. In his book, “Corporate Undertaker: Business Lessons from the Dead and Dying,” he shares his best advice for dealing with adversity and crisis. Learn more at www.CorporateUndertaker.com.