Emotional Restructuring: The Sink and Drown Approach

by Florian Meyer

When you finally admit to yourself that your business is in trouble, you also have to admit to yourself that it was probably something you’ve done wrong that has left you in this position. And, you have to admit that fixing it will require you to make some emotionally difficult changes. Dr. Phil says, “If you keep on doing what you’ve been doing, you’ll keep on getting what you got”.

But, it’s not always easy to see what you did wrong. And, when creditors are climbing all over you, it’s even more difficult to rationally identify what you need to change to solve the problem. “When you’re up to your neck in alligators, it’s hard to remember that your original goal was to drain the swamp.”
 

Outside Help

Admitting that you need unemotional, objective, outside advice from someone with more experience at helping distressed businesses recover is a good first step.

Perhaps you’ve engaged consultants in the past only to end up feeling like you’ve paid them to tell you what you already know. As the joke goes, “When you ask consultants for the time, they’ll grab your wrist and tell you what time your watch says it is”.

The right consultant won’t tell you what you already know nor tell you what you necessarily want to hear. That’s just another version of “doing what you’ve been doing”. You can’t fix a problem you refuse to acknowledge. The solution begins by casting off that sense of failure, those feelings of guilt and self-blame over your inability to repay all your debts, and by committing yourself to taking those hard-to-swallow pills prescribed by your “business doctor”.
 

Chief Restructuring Officer

That “doctor” is usually referred to as a Chief Restructuring Officer (CRO). CROs specialize in healing distressed businesses. It’s important to remember that yours is not the first business they’ve helped recover from a tough financial dilemma. And, you have to remember that you’re paying them to tell you the unvarnished, painful truth and for recommending proven methods that have helped others in similar financial straits.

Yet, even the most experienced and successful CRO’s can lose the battle when their clients refuse to emotionally accept the forthright, unbiased recommendations that have worked so well for others. The most perplexing and frustrating challenge is the client who pays for a CRO’s well-founded advice and then chooses to ignore it completely. Isn’t that just another version of “doing what you’ve been doing?” You can throw a drowning man a life ring, but he has to choose to reach for it.
 

Case Study

In one particular case, we were asked to help a client after the bank moved its account to the Special Loans Department (for distressed companies). By the time we were engaged, its future was already looking very bleak.

The business was founded and successfully operated by the same family for over fifty years and distributed its products nationwide. However, the current family members who managed it were in positions that did not really suit their skills and abilities. Ineffective management that went uncorrected for too long progressively eroded the company’s financial health. Some were encouraged to move into positions that better suited their individual talents. Others, who decided to resign, were offered career counselling and financial support. The remaining family members were supported by existing professional managers and further strengthened by promoting other staff from within and hiring other managers from outside.

Creditor Proposal

Even with the improved management restructuring, we knew that the company could not survive unless it could jettison some of the debt from its very weak balance sheet. Rather than being forced into outright bankruptcy, the better approach for the company (and for its creditors) was to submit a Creditor Proposal under the Bankruptcy Act.

Suppliers had provided a lot of product (inventory) on credit. But, that inventory proved to be unsalable. Much of it had to be severely discounted or written off completely. A Creditor Proposal would, in effect, acknowledge that the unsecured creditors would have to share in the losses from the non-marketable inventory by accepting a reduced payment for those items over a number of years. The alternative was to receive nothing at all as the company slid into bankruptcy. Air Canada, among other notable companies, put itself through a Creditor Proposal, and is now reporting record profits.
When we proposed this option to the family members, they would not for an instant consider it nor investigate it as the logical and best approach for all parties involved. We threw them their life ring, and they chose not to reach for it.

Plan B

Instead, they went to one of the larger suppliers and asked for time to pay off their debt in return for an ownership position in the family-owned business. Consultants can only recommend – they can’t ultimately decide for their clients. If the family was adamant about taking this approach, we could only recommend that they offer only a minor ownership percentage that would allow the family members to retain control of the business.

Under the completely legal and frequently utilized Creditor Proposal, a company’s equity position is not compromised in any way. It would have left the family still owning 100% of the business. After the proposal had been fully paid off, the company would be in a much stronger financial position. The bank would most likely have removed its unfavourable Special Loans status, and it would clearly be worth a lot more should the family later decide to sell all or part of their business.

Instead of reaching for the life ring that would pull it to safety, the family, in its panic, grabbed an anchor that would pull the business, and them with it, to the bottom.

Tough Terms

They chose, instead, to offer the supplier a 45% ownership in the business with no additional cash injection or investment. The supplier modified the offer and accepted a 50% interest with immediate voting control over the business. AND, it included an option to take 100% control of the business.
The supplier take-over did nothing to strengthen the company’s financial position. It was still left facing very tough financial and operating decisions. The supplier had effectively used a previously written-off bad debt to acquire another company with no additional expenditure of cash. It then assumed complete control of its operations and moved it to a new location. The one family member that the new owner continued to employ was demoted from his senior position to a minor mid-level management job on a very short leash.

The Outcome

Jumping forward 18 months, we read in the business section of a national newspaper that the business was sold for over $30,000,000, and the original family members did not receive one penny from it. They were scraped away with only partial proceeds from the building they owned, and the last employed family member was asked to leave with a small severance.

Subsequently, the family came back to us and asked, “Why didn’t we listen to you about that Creditor Proposal?”

And, all we could say was, “Yes – why didn’t you?”

Links

• Bankruptcy – ‘Creditor Proposal’ as a business funding model
• image courtesy of Allan Donque

 
Florian Meyer is resourceful and imaginative Chief Restructuring Officer (CRO) who maximizes the benefits of restructuring for the business. As a client recently said, “You never give up until a great solution has been developed and implemented.”
Florian has an MBA and CPA, CA and is a Principal of Newhouse Partners Inc. He has been consulting as interim CFO and CRO to a number of private and public companies since 1996, You can reach Florian at fmeyer@newhousepartners.com or 416-873-8684. You will find more details on the Experion Group website and LinkedIn.

Why Employers Need An Employment Policy Manual

by Jim White

A well-written Employment Policy Manual will clarify many of the expectations within the workplace. It will also minimize your risk of facing expensive litigation, such as a wrongful dismissal or a constructive dismissal lawsuit, by ensuring that your current employment practices conform to current employment-related legislation and case law. An Employment Policy Manual is like an insurance policy.

If you should find yourself facing a judge defending yourself against an employment-related lawsuit, the only reasonable defence that will work for you will be based on the documentation that you can provide that clearly shows due diligence on your part. The Employment Policy Manual, along with a clear ‘paper trail’ of disciplinary notes, etc., will be an important part of that due diligence defence.
From the point of view of your employees, both current and prospective, the Employment Policy Manual will clarify much of what is, or will be, expected of them during their employment. It will also clarify and communicate what they can expect of you, their employer.

The best employees will be looking for employment with organizations that present their employment practices in a clear and confident manner.

Ideally, the workplace expectations should be clearly communicated before the employment relationship is established. A copy of the Employment Policy Manual should be given to the prospective employee as part of the employment contract.

A well-written Employment Policy Manual, along with consistent application of those policies, will:

• clarify and communicate many of the general expectations of the workplace;
• ensure that everyone in the organization has the same understanding of the general parameters (non-job specific) within which they work;
• help to ensure a degree of consistency in operations, output and quality;
• be useful as a training and orientation tool;
• serve as an arbitration device in the event of disputes;
• be the basis for performance management, including discipline;
• reflect the “personality” of the organization;
• support good employer-employee relations;
• attract the ‘right’ employees to the organization; and
• reduce the chances of expensive litigation.

Links

• image courtesy of .shock

Jim White, JSW & ASSOCIATES, has over 40 years of experience involving close interaction with a very wide variety of organizations. He believes that one of the most important responsibilities of management in any organization is to ensure that all employees understand what is expected of them. You can contact Jim by e-mail at jwhite@j-s-w.com. You’ll find more about Jim on the Experion website and LinkedIn.

Better - Faster - Cheaper

by Jay Perry

Regardless of what business we are in, we will always be challenged with a common task: to provide a product or service Better - Faster - Cheaper.

Look at any business. It is the same challenge. From the logging industry to manufacturing cars to computers to television news, always a better mouse trap. You are in business. What makes you think you are immune to the same challenge? You are not.
 

The Challenge

The challenge will always be the same. That sameness is actually providing the difference in the “day-to-day” that keeps us going to the shop to open the doors. Without having a challenge, you would have no interest in your business. As an owner, manager or supervisor, the job of looking for continued improvement to the efficiencies of your operation should be your primary concern.

Customers are no longer willing to pay for industry’s inefficiencies. Consumers are more educated (and protected) than before, also making demands that stretch our abilities. They make “unreasonable” requests. I say to you those “unreasonable” requests are going to be the new standard for minimum performance by your business. It is the business that responds to the marketplace’s requests that will soar above the crowd of competitors.
 

Keep Looking

Also, you should always be on the lookout for people to assist you in improving your business, making it run smoother, developing into a better place to do business for the community you serve. The people can come from outside your industry or could be as close as one of your vendors. Keep your eyes open for people who have a caring attitude toward others and enroll them into the supporting of your business.
 

The Lime

Here is an actual experience.

When I arrived into town late one evening, I went to the hotel restaurant. I felt like having a beer. After ordering one, I asked a server for a lime wedge. The woman I asked this of was not my server but one of the regular staff, filling salt shakers. After she was gone for what seemed a long time, she returned with a little bowl full of lime wedges. I asked her what had happened. She informed me that the kitchen was out of limes so she had to go clear across the hotel’s casino (very large) to the bar to get some for me. I recognized this as someone who would not let anything stand in her way of making the customer happy and subsequently talked to her about a job as Customer Service Rep at one of my clients’ businesses. She interviewed and took the job offer. She become their best performer in the month of December of her inaugural year.

You need to lookout for people who can make a contribution because they hold the view that part of their purpose is to help others. With the continuous improvement they can bring to your business, you can do what you do better, faster and cheaper.

Links

• Overcoming mediocrity consistently
• image courtesy of Klaus Eppele

Improve the processes and you change the culture. Ally Business Coaching helps progressive companies manage both aspects of these kinds of transformations. Leadership is developed in people, not trained. With over 20 years of experience in developing leaders through a coaching style, Jay brings quick, effective and permanent improvements to clients all over North America. Here are the complete services. You’ll find more about Jay on the Experion website and LinkedIn.

Bankruptcy – ‘Creditor Proposal’ As A Business Funding Model

by Florian Meyer

Hard as you try, does it feel like your business always has more debt than it can pay off? You’ve spoken to your banker, your family and friends, and no one is able to offer you any financial help. Does the constant debt pressure make you wonder whether it would be better to just throw in the towel and bankrupt the business? No … not yet!!!

There is a solution that could provide you with the breathing room you need to help you recover. And it’s legal.

Within the Canadian Bankruptcy & Insolvency Act (BIA), you are allowed to make a proposal to deal with your creditor debt and remain in business.
 

How To Start

First, you need to engage a Chief Restructuring Officer (CRO) and a Trustee. The CRO works inside the business with you to develop and monitor a clear plan for moving the business into a more positive financial position and to encourage you to make some of the hard strategic decisions.

The Trustee works with you for the benefit of the creditors. The Trustee begins by preparing a Notice of Intention to File a Proposal (NOI) that is filed with the courts. That stays all creditor actions against you. In other words, creditors are legally prevented from doing anything to collect on the existing outstanding debts.

After the NOI is filed, you have to ensure that all obligations incurred in the future are paid as they become due. Within ten days of filing the NOI, you have to file a Cash Flow Plan with your Trustee and the courts. The Cash Flow Plan shows how you expect the company to generate enough cash flow to cover any new debts plus a portion of the historical debts that were stayed by the courts. Your CRO will help you prepare the Cash Flow Plan and will help present it to your Trustee.
 

The Creditor Proposal Meeting

With the cash flow filed, you have 20 days to develop a plan for the business and a plan to repay a portion of the historical debts before you are required to have the Creditor Proposal Meeting. It’s often possible to get extensions of up to six months for having the Creditor Proposal Meeting as long as the creditors are not disadvantaged. An extension requires court approval and needs a reasonable justification, such as: 

1. You have not negotiated a settlement with the secured creditors, or
2. Another activity that needs to be completed before the proposal is ready to be presented to the creditors.

 

Payments

Generally, you will offer to repay 15% to 20% of the existing, unsecured debt over a three to four year period. You send a cheque monthly to the Trustee who annually distributes the payment among all the creditors included in the NOI. The Trustee’s fees to administer the process are paid out of the pool allotted to pay the creditors, with no additional cost to you.

Bear in mind that a Creditor Proposal will not reduce your obligation to pay off any bank loans or other secured debts. By obtaining a secured interest for their loans, the secured creditors have acquired a legal interest in some or all of your company’s assets. You and your CRO will have to negotiate with them to arrange a repayment plan that eventually pays those debts in full.

After the Cash Flow has been filed and a repayment plan has been negotiated with your secured creditors, the CRO will work with your unsecured creditors to obtain their verbal agreement to the plan. Finally, the Trustee will hold an official Creditor Proposal Meeting to receive legal and court approval of the process.
 

Benefits

The Creditor Proposal Process gives you a legal avenue for reducing your unsecured debt to a more manageable range of 15% to 20% with a defined schedule of how it will eventually be paid off. With the assistance of your CRO, you will develop a go-forward plan to bring your finances back to a much healthier position. Your CRO will help you negotiate an achievable repayment plan with your secured creditors and help you look for additional sources of financing, if needed. And, your time can be more effectively devoted to managing and improving the business to ensure that the plan works.
 

Resolution

Now you can move the business forward with a much improved cash flow. The creditors are no longer calling to collect, and you have a new plan that allows you to move forward with the historical issues resolved.
 

Example

As an example, I worked with a client that was behind in payments to the landlords and other vendors. It owed a large debt to the Canada Revenue Agency (CRA) which was primarily unpaid payroll source deductions for which the owner was personally liable. At first glance, there simply seemed to be no way to move forward.

I stepped in as the CRO, connected the client with a Trustee, and introduced an accountant who could effectively manage the financial reporting. By helping the client work through and obtain approval of its Creditor Proposal we accomplished the following:

1. Developed a go-forward plan that realistically gave the company a chance to succeed.
2. Engaged a lawyer and obtained court approval to eliminate an obligation to a creditor who had inappropriately attempted to declare its claim as a secured debt.
3. Established a six-month payment plan with CRA. They would no longer continue to chase for collection, and the accrued penalties and interest were stopped as of the date of the Notice of Intention to File a Proposal (NOI).
4. We renegotiated with the landlords to have rent reduced to a level that the company could afford. The accountant worked with the internal staff to ensure that informative and timely monthly financial Statements were now being produced.
5. After the six-month payment plan with CRA was completed, the plan began paying the unsecured creditors at 15% of the original obligation over the next four years.

Although it may feel as though there is no hope of keeping your business afloat, our legal system provides a life raft to give you a second chance.

Links

• Focus on the important not the urgent
• Identify and leverage your Key Performance Indicators
• image courtesy of Mitarart

Florian Meyer is resourceful and imaginative Chief Restructuring Officer (CRO) who maximizes the benefits of restructuring for the business. As a client recently said, “You never give up until a great solution has been developed and implemented.”
Florian has an MBA and CPA, CA and is a Principal of Newhouse Partners Inc. He has been consulting as interim CFO and CRO to a number of private and public companies since 1996, You can reach Florian at fmeyer@newhousepartners.com or 416-873-8684. You will find more details on the Experion Group website and LinkedIn.

Ask More Questions

by Billy Anderson

Bad leaders have all the answers. Great leaders do not.

We live in a world where management is expected to have all the answers, all the time. If an employee comes to you with a question you probably feel you should give an answer immediately (God forbid the “boss” doesn’t know something). Why do we do this? Because admitting we don’t know something means showing vulnerability, which many people assume is a weakness.

If that’s you, you make up the majority of management who underutilizes their team’s potential. As a leader, you will get more from your team when you ask more questions and give fewer answers. Asking them questions leverages their skills while showing them respect, and respect motivates the right people more than anything.
 

Try It

Next time an employee comes to you saying, “I’m not sure what to do about this”, try responding with “What do you want to do about it?” Chances are they’ll be taken off guard the first time, but they’ll get used to using their brain more and they will come to you less often with challenges they realize they can sort out on their own. They will then feel empowered, and empowerment fuels creativity and hard work more than green beer fuels St Paddy’s Day.
 

Goals

Now let’s look at your organizational goals. Every organization (and individual) needs goals: they provide direction, focus, and a strategic filter for decision-making. However, goals and guesswork both start with the same letter for a reason: goals are educated guesses.

We set goals based on what we know about the company, the competition and the market as it stands right now. But all that will change over time. If you follow your five-year strategic plan to the letter for the entire five years, you’ll go out of business. You set goals and targets in order to provide direction, but you have to accept they might change.
 

Next

Once you have your goals and strategy, you need to determine how often you will revisit them to see if they still apply. Put the review dates in the calendar. At this point you’ve figured out what you need to do to get there.

Now you can focus on who you need to be as an organization. Who are your employees being when they’re at their best? This will link to your organizational Values because your company will perform at its best when living true to its Values and Mission (assuming they were created properly in the first place, which most aren’t).

So try not knowing. Ask your employees more questions more often. Have the courage to know when a plan no longer works and needs to be revised. Have the guts to admit you don’t know and follow with “…but I’m confident we’ll figure it out”. That will gain the respect of your team and encourage them to do more.
 

Links

• image courtesy of Paul Moore

Billy Anderson is a Courage Coach & Speaker, and founder of Made You Think Coaching. He helps people get the life they want, because once they have that they perform like superstars.You’ll find Billy’s profile on the Experion website and LinkedIn.