Clients in the News

White & Lee
in the News

Other Events and Activities

Session 1 | Session 2 | Session 3 | Session 4

Crisis Management - When Things Go Wrong
— Bill Deihl of WT Deihl and Associates

Is the business worth saving?

The ten most important questions to ask FIRST?

1. Is the industry growing? If so, by how much?
2. What is the company’s rank and share in the market?
3. What are the gross profit margins?
4. Is the business family owned and do the owners want to continue?
5. If the owner(s) want to continue, can they invest additional money or are they willing to accept dilution from third party investors?
6. How long has the company been in business?
7. What sort of reputation does the company have?
8. If there are bank loans, are they in default? Did the owner guarantee the loan(s)?
9. Is any litigation pending, if so what is the cost?
10. Is/are the owner(s) ready to listen?

The crisis play book - The company still has some net worth

What to do!

1. Get your hands on the cash!
   1. Open a bank account in another bank.
   2. Keep you last payroll in reserve always.
   3. Don’t accept COD deliveries unless approved in advance.
2. Gather management to explain the nature of the crisis, solicit their commitment.
3. Freeze purchases of stocking inventory and non-routine expenses.
4. Prepare a rough cash forecast covering 90 days.
   1. Establish these categories
   2. Payroll and taxes
   3. Fixed cost (i.e. rent, utilities, expense reports, taxes etc.)
   4. Inventory and supply purchases
   5. Past due balances
5. Negotiate a payment plan with your suppliers.
   1. Be conservative, don’t over commit.
   2. Meet your commitment due dates even if the amount is less than planed.
   3. Do not get ahead of your commitment schedule even if you can.
   4. If you come in from outside explain that you can get the creditor his money faster than the courts.

The crisis play book (continued) - The company still has some net worth

1. Cut those cost which won’ t yield results before 60 days.
   1. Slash administrative overhead below sustainable levels.
   2. Put sales force on higher commissions and lower base.
   3. Eliminate development of non-core product lines.
2. Liquidate accounts receivables.
   1. Demand better payment practices from your customers.
   2. Enforce "workout" plans in-place for delinquent customers
3. Liquidate slow/non-moving inventory (even if it is put in a dumpster).
   1. Lower inventory to include only core high margin products.
   2. Do not purchase inventory on speculation.
4. Do not call the bank. Let the bank call you.

If you have completed the above, you are ready to talk.

The crisis play book - The company has no net worth

1. Reorganize, Reorganize, Reorganize.
   1. Get your hands on the cash!
   2. Open a bank account in another bank.
   3. Keep you last payroll in reserve always.
   4. Don’t accept COD deliveries unless approved in advance.
2. Get competent legal advice
3. Prepare a rough cash forecast covering 90 days.
   1. Establish these categories
   2. Payroll and taxes
   3. Fixed cost (i.e. rent, utilities, expense reports, taxes etc.)
   4. Inventory and supply purchases
   5. Past due balances
4. Gather key management to explain the nature of the crisis, solicit their commitment.
5. Negotiate a payment plan with your suppliers.
   1. Prepare and present a complete plan
   2. Be conservative, don’t over commit
   3. Meet your commitment due dates
   4. Do not get ahead of your commitment schedule even if you can.

The crisis play book (continued) - The company has no net worth

1. Prepare an operating plan (business plan)
   1. Re-capitalize the business
   2. Use outside equity capital
   3. Restructure bank lines and term debt.
2. Convert Accounts Receivable and Inventory to cash as soon as possible.

Dealing with the bank

1. The bank is not your friend, partner or advisor.
2. The bank is a low margin commodity supplier and needs to minimize its risk.
3. Management is responsible for repaying the bank loans.
4. Management must convince the bank it is a better position to generate the cash to repay the loan than the bank is.
5. Involve legal council, it keeps the bank "honest."

How not to get here again

Common fallacies

1. Sunk cost
2. No exit strategy
3. Its just business.
4. Giving up too early.
5. Following conventional wisdom (and not thinking through the results).