Consulting

Consulting with companies that are strapped for cash, no credit line available, all important vendors are past due and their customers are slow pay because they can.  This is my typical client.  When their business started to slow down, they didn't cut expenses, when their vendors demanded payment, they hit their line of credit, but would not call their customer because they were afraid to lose them.  They hid under their desk when their bank called.  They were in denial and they said that all they need is a few more sales dollars.  They are told to get the sales and everything will be good.  Their comment is that they cannot get any more business either that it isn't there because of over capacity or they can't get new business because they cannot purchase inventory.  I tell them that they cannot say that their problem will be fixed with more sales. This is the debtor's first wake-up call.

The first item that we work together on is the "Thirteen Week Rolling Cash Forecast".  This report shows the debtor all of the business operating deficiencies that they are gong to face in the next 13 weeks.  This is the first time that panic sets in, they are no longer in denial they are scared.  After the first iteration of the budget, plans are put into place to manage the cash flow of the operation.  All non-essential spending is stopped, all overtime is stopped without permission, all unnecessary employees are terminated, 401(k)'s match is terminated, bonuses are stopped.  Vendors negotiations start.  The Bank is brought up to current.  There is normally shock on both sides, lender and debtor.  The lender did not realize on how much their customer is in trouble, the debtor denied his troubles until the budget was complete.   

The debtor agrees that their weekly spending ability is subject to their ability to collect cash equal to the budget, if they are short on cash receipts, they have to reduce their cash spending by a like amount.  After two weeks, the debtor starts to believe in the cash flow budget.  They had never been taught to control cash, they all thought that you grow the top line and everything will take care of itself.

After 3 weeks, the consultant prepares a liquidation value analysis to determine the financial status of the debtor.  This helps determine if the debtor is bankable or is beyond salvation.  Normally after this analysis is prepared and reviewed several times by the consultant and the debtor's financial consultant or CPA, it is shared with the lender.  The value of the liquidation analysis  is a two edged sword.  If the lender is under water, he may decide to pull the plug and take his chances at auction.  If the lender is under water and they see the value of the Cash Flow Budget and having the consultant on site, they may stay in the credit long enough to have the debtor refinance themselves out of the Bank or agree to a 90 day controlled wind down.  If the value of the liquidation analysis shows the lender that the debtor can be liquidated with a 100% pay out, they may stay in the credit pending their collateral value is not negatively impacted.