Even though he had costs under rigorous control, an operation running full-tilt and 50 mid-sized business customers under contract, the owner-manager of a B2B company was going broke. In a last-ditch attempt to avoid bankruptcy, he contacted chartered accountant and bankruptcy specialist Garry Culverson for help.
Toronto-based Culverson immediately identified the fatal flaw that was preventing the company from being profitable: Prices were set too low and locked into long-term contracts. The company had failed to adjust to steadily increasing costs and had not passed appropriate price increases on to its customers. Instead, the CEO had disastrously tried to improve his own efficiency and reduce his expenses. The result? His profit margins eroded.
To save the company, Culverson contacted every single one of its customers and painted a vivid picture of the difficulties each would face if their supplier went bankrupt. All 50 customers joined together to make the owner-operator an offer he couldn’t refuse — agreeing to an immediate 15% increase in prices.
Culverson’s resume boasts many similar success stories. In a 33-year career that includes stints as a CEO of an NYSE-listed company and a privatization advisor to the federal government, he has rescued more than 20 businesses from almost certain bankruptcy — redeeming the financial futures of their owners, saving several hundred jobs, and bringing about payment in full of tens of millions in debts that creditors had fully expected to write off.
Each story in Culverson’s portfolio may at first seem unique, but Culverson says one aspect common to all the troubled businesses he helps is failure to cope with change.
“New technologies, increased competition and currency movements can be devastating,” says Culverson. “For a business to survive, the owner-manager must understand what’s happening, accept full responsibility for the situation and adapt effectively.”
Culverson believes an owner who “just coasts along, hoping for improvement while losses mount and available resources are consumed” is in a far worse position than someone who accepts change, grabs it by the horns and develops a detailed, workable plan to keep a company profitable.
He says CEOs can help avoid serious difficulty by constantly watching for and identifying trends that could dramatically alter their business, and by making plans that describe how they will deal with the changes likely to be brought about by those trends.
CEOs with financial expertise should be able to develop their own plans, says Culverson, while others may prefer to bring in a consultant with extensive experience in bankruptcy prevention. Either way, an effective plan should spell out the exact steps to be taken, a timeline for return to profitability and the amount of new cash that the company will require. This plan will not only be a guide for management, but also a tool to help convince creditors that the company will effectively deal with the change. It will also encourage stakeholders to ante up additional cash to help the business through a rough patch.
Once a plan is put into action, progress should be measured monthly by using financial statements to detail the goals that are achieved. CEOs should initiate immediate corrective action whenever a target is missed. Culverson stresses that troubled companies should always have someone whose highest priorities are staying on top of finances, assessing continuing results and suggesting corrective actions.
“I get a lot of satisfaction out of seeing a company come back from almost certain defeat and live to fight another day,” says Culverson. “I come in on a project basis, providing knowledge and skills that fill that gap. But even more important, I constantly reassure troubled business owners that success is always possible.”
© 2005 Ron Truman