Artist and art publisher Gary Hinte's company was gasping for cash, down to three employees and losing customers when he asked turnaround consultant Ward Wieman for help.
"We were virtually bankrupt," said Hinte, founder and president of Arion Studios, a Carson-based fine-arts printer specializing in color serigraphs selling for $1,000 and up.
Hinte finally saved his business because he was willing to admit that he needed help. But thousands of small businesses fail each year because their entrepreneurial owners are too stubborn to acknowledge that things are falling apart. This refusal to seek outside help dooms many small businesses that could be saved.
Worried bankers, concerned investors or a panicky board of directors are usually the ones who insist on bringing in an objective rescuer. When this happens, the owner or manager is forced to cede control, at least temporarily.
One of the first things Wieman did was roll up his sleeves and help assemble a press, which gave Arion additional printing capacity. Next, he negotiated new terms with Arion's creditors and raised prices to reflect the true cost of production.
"Hinte was a very good artist but not a very good businessman when we met," said Wieman, who previously held high executive posts at Texas Instruments and Rohr Industries. Wieman, a principal in the Playa del Rey consulting firm of Wieman & White, worked with Hinte for several years, getting the company organized. At one point, he took an equity position in Arion but later sold it back to Hinte.
Despite a major fire that destroyed the company's building last summer, today Arion is a thriving enterprise with annual sales of about $500,000.
A reputable turnaround consultant charges between $75 and $250 an hour, plus expenses. It's expensive, but "the cost of the cure is a lot less than the cost of a business failure," says one turnaround expert.
These white knights work for big and small accounting firms or for companies that specialize in crisis management and recapitalizations. They usually have years of experience managing various businesses, or they enter the field with a particular expertise, such as engineering.
The best turnaround experts are cool-headed, diplomatic and expert negotiators. They thrive on chaos and work well under great pressure, with little or no help from beleaguered owners.
"When we walk in, our clients are out of time and out of money," said Gerald P. Buccino, president of Buccino & Associates, a Chicago turnaround firm with offices across the country.
Lax financial controls, over-dependence on one or two accounts or suppliers, a despotic owner and the lack of a business plan and budgets all contribute to the demise of a business, according to Buccino. By the time a turnaround expert arrives, he or she usually finds key employees rushing out the door, key suppliers cutting off credit and customers taking their business elsewhere.
"We have to do some Herculean things," said Buccino. In many cases, salaries are slashed and weekly payrolls are switched to biweekly to conserve cash. Excessive inventories are sold to generate cash. Company-owned or leased cars are eliminated and country-club memberships terminated. The consultant also negotiates with union leaders and worried employees to build support for the company during the crisis.
"We know very shortly if a company can be saved or not," said Buccino, whose firm usually charges a $5,000 retainer up front and expects to be paid weekly.
Because most troubled companies are in a chaotic state, one of the first things a turnaround expert does is plow through the piles of mail and paper work to search for uncashed checks.
Bruce Ballenger once found about $1 million worth of uncashed checks after being called to rescue an ailing hotel.
"The accounts receivable clerks weren't cashing the checks if they couldn't find an invoice to match," said Ballenger, the partner in charge of Ernst & Young's corporate services management consulting group in Century City.
Losing track of incoming checks is just one warning sign of impending disaster. Companies that don't keep close tabs on cash flow and don't adhere to a strict monthly budget are candidates for failure, according to these experts.
Another major sign of trouble is when a company submits late or grossly corrected monthly statements to its bankers or accountants.
"These companies are lurching from one cash crisis to the next," said Ballenger. He strongly recommends that even the smallest company create a board of outside advisers to monitor operations.
In some cases, heroic measures fail and the business has to be merged into a stronger partner or liquidated. But turnaround consultants say their record of success is quite high when a business owner calls them in time to help.
DISASTER WARNINGS If your company is suffering from more than one of these symptoms, seek help immediately: You frequently turn in late or heavily revised monthly financial statements. You have piles of uncollected accounts receivable. Your banker refuses to extend any more credit or threatens to call in a loan. You have excess inventory on hand all the time. Your expenses for perks are out of control. You have no monthly budget or long-range business plan. Your business is overly dependent on one supplier, vendor or customer. Your cash flow fluctuates and you feel a lack of control over expenses.