Accept the gravity of the situation.  Too often in distressed situations, ownership cannot acknowledge what is happening.  It is said that people cannot see a problem because they are actually too close it.  Without acceptance that major changes are required, it is unlikely the company can or will make progress.

Avoid the “just one thing” approach.  In 31 years of working with small and medium sized businesses, I have noticed an interesting phenomena. When businesses go into decline, management teams adopt the belief that one simple issue will fix the problem. 

“If we only had new equipment then everything would fall into place.”  That is quite common.  “The weather really set us back so if we can just make it through one more year.”  This only works in farming if it works at all.  “If only we had better computers and software.”  Computers will never replace the human mind.

It takes years for a company to decline to the point of distress.  It is rarely one single factor that brings events to a head.  The sooner management accepts that simple solutions will not work, the faster they can work on a comprehensive solution.

Nero fiddled while Rome burned.  While there are varying accounts of the origin of the story, even as a fable it is true in business.  Nothing has surprised me more in the last 31 years than individual preoccupations while a company collapses.  I have seen clients worried about Packer season tickets, duck hunting, and the color of their next pickup truck while the company sits in default.  It is almost surreal.

As a member of ownership or senior management, it is crucial you deal with the matters at hand.  It reinforces that the problems in the business are being taken seriously and will motivate your team to act.

Get past the personal slights and go to work.  If there is one trap individuals fall into, it is the personalization of issues.  A turnaround by nature is the most stressful circumstance a business can face.  It is very common that things may be said that set off one group of people or another.  As an owner, you need to stay calm and disciplined.  You do not have time for revenge and personal attacks.

I had the opportunity to work with a company with over $65 million in revenue.  The company was literally on the verge of collapsing in bankruptcy.  This was not just any business in Wisconsin.  This bankruptcy would have made the largest state newspapers.

The CEO attended a meeting with the largest trade creditor and refused to engage in a room full of people.  He felt he had been personally slighted and was owed an apology by some of the people in the room.  Never mind millions in losses or the crushing debt load.
 
Late in the day, I literally begged the creditor for 90 days.  We got it.  The company survived and prospered.  The CEO was sacked within a few months of the meeting.  Good man that just could not put the personal issues aside.

You want to teach someone a lesson?  Rescue your company and prove a naysayer wrong.

Never push a bad position.  When I was 21, I attended a course for the U.S. Army.  It was about leadership in combat conditions.  I had a great instructor.  He had served in Vietnam and was shot down in three different helicopters.  I saw the pictures of this skinny kid in front of the wreckage.  Not a scratch on the guy.  Amazing.

He was the exact opposite of the John Wayne type.  He was intelligent and caring.  He pounded into our heads the simple adage.  Do not push bad positions, all you will do is get your people killed.

In turnarounds, the company is on the verge of collapse.  To ignore the circumstances and go out looking for clashes with customers, lenders, and suppliers is just asking for it.  You might not get anybody killed, but you might kill your company in the process.

Be realistic with creditors.  You are going to need to draft a plan for restructuring your business and gain the support of lenders.  Take time and do it right.  If you go into a room full of bankers and offer a plan based on sales rising 30% and margins doubling, you are a dead duck.  You will not only demonstrate you do not understand your situation, you will in all likelihood infuriate the lenders for wasting time.

Develop a realistic and achievable plan.  Get critical stakeholders to buy into the plan.  Execute the plan.

That is a turnaround, plain and simple.

Cure the debt and you cure the equity.  In most turnaround situations, the company is overleveraged and the creditors are afraid of losing the debt capital they have provided.  The capital structure of virtually every company in America puts the equity holders at the back of the line for recovery.  Be smart and work to solve the debt issues and you might retain the long-term equity value in the process.

Payroll.  Payroll.  Payroll.  Nothing spooks people like a missed payroll.  I have seen it at a distance (a project I did not take) and it is just plain ugly.  The employees gathered in the parking lot, the media showed up, and suddenly the circus was in town.

Most employees live paycheck to paycheck.  They cannot afford to go without even a week of pay.  Word of a failed payroll spreads like wildfire.  Do not make this mistake.  It can be a virtual death sentence.

The lenders just want their money back.  Too often business owners develop a sense of paranoia regarding their lenders.  Be careful with this approach.  It is very likely the individual banker dealing with your account is actually in your corner.  He or she has a boss and a home mortgage just like you.  The individual banker does not want a disaster on his or her hands any more than you do.

Every bank is different.  Some larger banks are very cold and impersonal in their approach to workouts.  Smaller banks tend to take a more hands on approach.  Remember their end goal is getting their funds back. 

Fix the business.  The lender will be in your corner if they see a diligent approach.

Beware the master dealmaker.  It might be your brother in law.  It might be your sales manager.  It might be your investment advisor.  The turnaround landscape is littered with the carnage of businesses that based their approach on some book from Barnes and Noble. 

“First one to call loses…”

How about waiting days for a creditor to call while your business deteriorates even further.  Great thinking.  Time is not on your side in a distress situation.

“They don’t have the nerve to push us into bankruptcy…”

Brilliantly spoken by people without the money to fund a court fight.  When a creditor has invested funds in legal fees, they may be past the tipping point.

“Wait until we hit them with lender liability…”

Ask your attorney how many successful cases of lender liability they have taken into the courts and won.  I stress taken into the courts and won.  Banks have attorneys wandering around their hallways without much to do sometimes.  Threaten a legal fight and you may get one.  (See Nero fiddled…)

If your source of wisdom is an employee who lost his business, you might be in trouble.  Surround yourself with calm, intelligent people.  This is not the time for the amateur hour.