Small businesses are the drivers of the U.S. economy. Yet, despite the fact that they create the majority of jobs and pay the majority of taxes in the United States, when a once-successful business falls into financial and operational trouble there aren’t many places they can turn to for help. The reality is, affordable resources are limited and distressed situations become even more stressed. The lack of financial and physical assets can incite emotional overload for owners, lenders, vendors, suppliers, employees, and their families.

Getting everyone to cooperate takes a lot of effort.  The key is to move past emotions and start digging into facts.  This is difficult for most management teams and incredibly hard for entrepreneurs who have subsisted on big dreams and an ABL diet.  Stakeholder alignment cannot work without fact. Without it, stakeholders take matters into their own hands and try to force assets to work on things that don’t help the core business, such as debt repayment. This will only accelerate the demise of the business. If a troubled company wants to survive and thrive, big dreams have to pause for a brief moment (about 100 days). All energy must first be dedicated towards identifying the core issues driving current challenges and then towards improving the strategy and execution behind it. While the former approach may buy quick relief for lenders, if the core issues aren’t addressed, they will undoubtedly reappear again … and next time they will threaten the assets ability to repay debt.

The Ten Key Business Factors Beneath the Numbers

Companies and stakeholders under duress should start by focusing on ten key business factors. This approach empowers management to separate and identify its strengths and its weaknesses -- the immediate threats to the business. A thoughtful and realistic evaluation of each factor will reveal exactly where the tension points lie and how to focus.

1. Market – Define the competitive space in which the company operates, including the number of competitors and the size of the market. It’s important to understand whether the company has any reason to exist in the first place. If it does, what market place leverage does it have with customers or does it have a niche it can focus its assets towards?
2. Environment – Review the most immediate stakeholders around the company: customers, vendors, lenders, family, attorney, advisors, and other important individuals or entities. To what degree are the stakeholders supporting the company or dragging the company down and squandering assets?
3. Risk Management – Consider 12 macroeconomic factors—customer loyalty, technology, sales channels, competitors, demographics, innovation, product life cycles, regulations, special interests, stakeholders, globalization, and outsourcing/offshoring—that reveal sources of risk and also influence whether or not companies can continue. If the factors reveal high-risk, it may be a reason why the company can’t survive—calamity is unavoidable. On the other hand, identify the influencing macroeconomic factor can be used to improve the deployment of assets.
4. Strategy – Describe how the company addresses the market and its product and services. Then consider the following: How the wrong plans wreck even the best of assets? It’s not about being “responsive and flexible.” It’s about being focused on a plan of execution so you look responsive and flexible while really you are delivering on a specific set of deliverables valued by certain customers.
5. Sales and Marketing – Assess the company’s intelligence, organization and processes as it relates to communication, brand, and value proposition. The easiest way to sink a company is by focusing its assets in the wrong direction or missing opportunities. Also, don’t say one thing and then deliver something else.
6. Operations – Explain how the company makes its products and services available to its customers. How self-aware is the company about the assets it needs to deliver its products and services, and can it measure how much that delivery costs?
7. Accounting – Measure the company’s awareness of its financial condition and the financial outcomes of its sales and operations. How much knowledge does the company with regard its working capital assets? The assets the company measures weekly become a leading indicator of where the problems are hiding. Look for what it does not measure and you will find cash and assets bleeding.
8. Infrastructure – Examine IT data infrastructure and operational infrastructure, such as equipment or vehicles. Nothing destroys confidence like a system that spits out inexplicably inaccurate data or equipment that doesn’t serve a purpose.
9. Human Resources – Objectively evaluate the company culture, policies, and labor ratios. How employees are deployed and managed reveals valuable information about how the problem started. This can also reveal which assets work and which are being destroyed.
10. Legal – What is the company‘s ability to protect itself when it gets in trouble? How often does it get in trouble? A company that gets sued or sues others will often use its working capital for these non-operating tangents, drying up liquidity.

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