Get Proactive Before Things Get Worse

No matter where you are, you hear things like:

"It is getting better out there."

"Business is picking up for the summer."

"Banks will start lending soon."

"It's not over and we have not hit bottom yet."

"Expect a reversal in the third quarter 2009."

I'm sure you can add a few comments of your own. We've heard them all, and they are all over the place. Chances are some will pan out, but most will not. (If you believe the one about the banks lending soon, I have some swamp land you can buy.)

Where you fit in the construction industry will decide your overall outcome from this recession. For example, a review of stimulus projects by state shows a majority of the funds going to road, bridge and water-related infrastructure projects, so I guess those of you working in those areas may see a recovery in '09. For the rest of you, it still looks to be slow for a while.

Admit that you need help
Last month, we covered ways to improve and keep your profit margins. We discussed ways to manage pricing, margins and overhead to keep your head above water, and provided a method to make overhead reductions that made sense and were fair to your entire staff - all steps to keep you in a positive cash flow.

So what happens now after you have made every adjustment you can think of, yet still find yourself in "the glass is half empty" crowd? You made all the right moves and expense cuts, and were aggressive with the bidding process, yet still don't believe you will make it out of this situation in one piece. If you find yourself in this situation, it is time to take a realistic view of your financial scorecard with a goal of minimizing any forthcoming financial disaster.

If cash flow is nonexistent or negative, you have stretched out vendors as far as you can and you find your jobs being liened for collection, you need to address the issue before someone else does it for you. This means trying to negotiate with your banks and major vendors to work out a program before the "work out" guys come in. Once they enter the picture, it is almost impossible to produce a solution that will come out in your best interest.

The timing of your actions is very important. The sooner you express your concerns to your bank, the sooner you will start developing a recovery program which, if anything, will keep your losses to a minimum. In short, the bank will keep you from digging the hole deeper for yourself, and thus keep your exposure down in the process.

Get the right people on your side
The tough part here is assessing who and what you need on your side of the table. What you need are people who understand your industry and your company; have experience restructuring loan agreements; can negotiate with your vendors; and have the experience to sell the program to the banks and vendors. Personal guarantees will be an important part of this process.

Make sure you know your legal alternatives before making any final decisions. A good bankruptcy attorney will be worth his or her weight in gold if they can help you with this process. You will need good tax council, as well, to structure your final arrangements to keep as much of the adjustments from reaching your tax returns. These same advisors should also be able to assist with the value and sale of assets should that be required.

What we are trying to say is that you are better off being proactive if it looks like your company will not be able to wait out the turnaround. Be proactive, find good people to work with, get it worked out, then get back on your feet and back to work.

Keys to Recovery

To get through the recovery process, you need to:

  • Understand your loan documents and provisions
  • Have realistic cash flow projections
  • Know where you stand personally
  • Have knowledgeable help available
  • Have a team member who has the experience to restructure and negotiate on your behalf
  • Have an alternate plan ready

Garry Bartecki is the managing member of GB Financial Services LLP and VP Finance for the Associated Equipment Distributors. He can be reached at (708) 347-9109 or