Financial advisors, avoiding BK(corp). Layin it out there, not pretty.

[peppy]

Lendaddy I hate to hear of your struggles. I lost a business also, and it just about broke my family. I still pay 1k a month on it and it is closed. My pride cost me tens of thousand of $$.

Keep your chin up, and never be ashamed. You can work things out.

GOOD LUCK!!

[Don Plumley]

I'm sorry for your situation, but you have a lot of good advice so far. Based on the limited information, I agree that it's too early for a BK or workout attorney. But you might want to have the number of a good attorney at hand so if bad goes to worse, 30 days before lights out you can be proactive with your creditors to minimize your personal exposure.

You sound like a small job-shop contract manufacturer. So there are two basis of competitive advantage you can choose: Specialty or Volume. I'd guess that the volume race is lost to off-shore so your choice is high-precision, specialty work. Can you do this without additional capital?

The hard question I would ask again is in regards to your cost structure and what you know you can sell your products for. If your cost structure (debts, OH, salaries, etc.) plus a reasonable Profit is not available in today's market, then all you are doing is prolonging the agony. For sake of discussion, let's assume you can.

For your existing business, are you confident of your total burdened cost per piece? After taking over a manufacturing company, I did a quick analysis of our cost per product line and found part numbers that were minimally profitable to losing money every time we took an order. That was changed within days - communicated to the customers personally (I flew out to see the big ones) and explained exactly what we had to do or I would discontinue making the product. That change dropped 4 to 6 points to GM, and of course falls right to the bottom line. It also improved morale at the factory because people intrinsically know that something was not right and were thrilled someone was willing to stand up to the customers.

As others have mentioned, you have to cut operating costs. I imagine your operation is very lean as it is, so probably not a lot of fat there. Do you have excess inventory to dump? How about old or obsolete equipment?

Finally, as you know it is an input problem - not enough orders. I concur that manufacturer's reps are not ideal for your circumstance. You need to pick up a bag and start seeing potential customers daily. You can't solve the order problem from behind a desk or computer. And not those cheesy networking events, go knock on doors. Make connections, ask for referrals, talk to anyone. You might be able to convince a semi-retired or retired sales guy to pick up your cause for expenses and a very generous commission plan. But remember that part above about costs? You need to charge a premium for your products and you must make enough money to support the enterprise.

Be as dispassionate about your analysis as possible. I know that's nearly impossible in a family business. But numbers are your friends here - and they will tell you what to do without emotion.

I'm also happy to chat with you about this - pm me anytime.

Don

[lendaddy]

Thanks Don,

Not much fat to cut or inventory to liquidate but maybe a little. I really see the truth in the "beat the pavement" approach and that has generally been handled by my father. I had him on the road for a month or two straight recently and he came back empty and depressed about bad things had gotten since he last had to do that. He did get a couple of jobs but we had to come in so cheap to get the work that it was actually counter productive.

But I should and will get out there myself. It's very easy to get caught up working in the business rather than on it. A wakeup call helps.

[MRM]

Len, even though you're a small shop, you need a financial professional to analyze your books and help you develop a business plan to keep your business open. If you can't generate large amounts of new income quickly, you need to cut costs brutally in a way that doesn't cut bottom line income. You also can't take on new business that costs you more money than it is worth. A financial professional can help you do these things. You need a real pro who has a track record of advising people in your situation. Do you have a business plan? You need a solid understanding of your financials, top line and bottom line before you can draft the business plan that will get you back on your feet. You don't have much time, but if you do the right things now you should be ok.

[MRM]

What Don said about analyzing the true costs of production is absolutely essential. Get a firm view of that and work from there.

[the]

Originally Posted by lendaddy

Regarding personal guarantees, well just about everything is. Obviously the cards and the line. The building lease and a couple of other notes.

All told:

Notes - 300k

Cards and line-130k

Leases - 200k equip + five year building at $6,500/mo

Payables are only 55k (running 45-60)

Receivables are @ about 80k (averaging 45 days)

Sales are ~40k- 60k / month right now which is terrible.

Len,

That info gives me a lot of concern. How easy would it be to re-lease (or sublease) the building at $6500?

With that level of guaranteed obligations, you need to really think through what you are doing. It isn't as simple as waiting until the end, and then dumping the company into bky in 30 days. When substantially all the obligations are personally guaranteed, putting the company into bky is in many instances a basically useless exercise that won't do you much good.

With $40-60K per month in income, there definitely are pre-bky strategies you can employ, but with that level of debt, you'd need a good 6 months or more to really make them work.

What are the personal assets of you and your family like, generally? Is there real property with significant equity in any of the names of the personal guarantors?

[Shaun @ Tru6]

Joel, you've already gotten great advice here. I can't add much more other than as someone who recently had a company fail, one in which I invested everything I ever had, save for the E, I can only suggest that you take 2 hours and do an Achieve-Preserve-Avoid analysis, WRITE IT ALL DOWN and the prioritize each bullet point within each column.

OK, so it sounds like some goofball management consulting thing, and it is. But it's really helps to clarify a very complicated situation, one in which the emotional often battles with the pragmatic in making a decision, showing a clear path to take. Getting it out of your head and onto paper also frees up your mind for more creative thinking. Hope it's not too touchy-feely.

it's also great to show to a completely uninterested outsider to get a reality check on how honest you are being about the present situation and future prospects.

This was the process that allowed me to finally dump G9Girl and get Little Traveler going.

Good luck, I know how it feels.

[lendaddy]

Originally Posted by the

Len,

That info gives me a lot of concern. How easy would it be to re-lease (or sublease) the building at $6500?

With that level of guaranteed obligations, you need to really think through what you are doing. It isn't as simple as waiting until the end, and then dumping the company into bky in 30 days. When substantially all the obligations are personally guaranteed, putting the company into bky is in many instances a basically useless exercise that won't do you much good.

With $40-60K per month in income, there definitely are pre-bky strategies you can employ, but with that level of debt, you'd need a good 6 months or more to really make them work.

What are the personal assets of you and your family like, generally? Is there real property with significant equity in any of the names of the personal guarantors?

Thanks for the brutal honesty. The building is a tough call to re-lease. It is a fair price but there is a lot on the market. Lets say 60% chance within a year, but that's a guess.

Can you give a sysnopsys on the strategies assuming I can make it 6-9 months? I jsut want to have all the information.

My father has some assets. He has some property on a small airport with hangers that is currently for sale ~ 250k-300k

Beyond that he has his home on 13 acres ~300k-500k (market is all over the place in Michigan, so it's a tough call as the land is developable). $245k mort

One of the leases is a piece of equipment worth 200k+ (fair market) and $50k liquidation.

All other equipment here is worth maybe another 40k at auction, maybe 3 times that fair market.

[Jim Bremner]

what about finding someone else to come in with his company to share cost?

if your fix cost are x and his is x then yours would be 1/2 of x or however you can split it

[lendaddy]

Originally Posted by Jim Bremner

what about finding someone else to come in with his company to share cost?

if your fix cost are x and his is x then yours would be 1/2 of x or however you can split it

It's worth looking into, but the building really doesn't lend itself to double occupancy. You never know though.

[lendaddy]

Originally Posted by Shaun 84 Targa

Joel, you've already gotten great advice here. I can't add much more other than as someone who recently had a company fail, one in which I invested everything I ever had, save for the E, I can only suggest that you take 2 hours and do an Achieve-Preserve-Avoid analysis, WRITE IT ALL DOWN and the prioritize each bullet point within each column.

OK, so it sounds like some goofball management consulting thing, and it is. But it's really helps to clarify a very complicated situation, one in which the emotional often battles with the pragmatic in making a decision, showing a clear path to take. Getting it out of your head and onto paper also frees up your mind for more creative thinking. Hope it's not too touchy-feely.

it's also great to show to a completely uninterested outsider to get a reality check on how honest you are being about the present situation and future prospects.

This was the process that allowed me to finally dump G9Girl and get Little Traveler going.

Good luck, I know how it feels.

Good points Shaun, thanks.

[lendaddy]

Originally Posted by MRM

Len, I am a lawyer, and it occurs to me that you probably do not need a lawyer. I think you need an accountant that specializes in distressed companies and debtors rights issues.

There is nothing wrong with lawyers, but they are set up for one purpose. They're the people that actually do the lawsuit, file the bankruptcy, etc. They're just not well set up to help you evaluate your situation and select your best option. Lawyers are best set up for when a client comes into them and says "I need ___ filed/drafted. Can you do it for me?"

What you really need now is a cold hard, professional assessment of your finances from a financial professional, and then some sober advice about how long you can last, what to jetison/expand in order to maximize what you have, and then your options on moving forward. Almost any decent public accounting firm will have accountants who can crunch the numbers, financial analysts who can tell you what is working and what isn't, and consultants who can help you put together a business plan for going forward, whether it's bankruptcy or a smaller company. The firm might even be able to hook you up with another client of theirs who needs what you sell or who is looking to invest in someone like you.

My sense is that part of your company is still proftabe but that is overwhelmed by th parts that are losing money. You might be able to save the tree by pruning its branches off ruthlessly. I think you need a professional to look at your books and help you decide.

If your company is large and is willing to pay $300-$500 an hour, call any of the Big 4 (are there still four of them) accounting firms - like Deloite Tousche, or the big consulting company - Accenture. If your company is smaller or would rather pay $250-$350 an hour, look for a reputable regional accounting firm with a consulting group, like McGladrey Pullen.

If you aren't willing to pay that much, look to 10 or 12 man CPA firms that have good reputations. Interview a bunch. Ask specifically for examples of their past work where they have helped people in your situation. There are lots of people who are expert in helping people in your situation. Call around, inteview accountants until you find a group that has a proven track record. Tell them your financial situation and agree on a budget in advance. They'll appreciate it and you will benefit from it.

I'm trying to get back to everyone that posts so please don't take the delay as anything more than your order in the posts. There is a ton of great information in there and I really appreciate you taking the time.

We are VERY small right now, 8-9 people total. There is maybe a small amount of fat to be trimmed but I've been pretty liberal with the carving knife.

Getting good advise on who, how and when to pay would be helpful as we don't know the "rules" and could easily be making mistakes. I will give this much consideration and am honestly torn a bit between the accountant route and the workout attorney route. I have a CPA now, but he's useless for advice.

The 40-60k income we have is pretty stable.

[lendaddy]

Originally Posted by Seahawk

Road trip


Nothing to add that hasn't been posted...all the best, Len. You are a good man.

My buddy called an hour ago with the same advice, "road trip" I may do it, who knows. Clear my head and get some perspective. I can think of a lot of words that describe me right now and "good" didn't make the first cut

[lendaddy]

Originally Posted by stomachmonkey

If I can find a way to help you I will.

Best,
Scott

You already have by recommending more sex on my stress thread. How can the wife deny the obvious expertise of an internet buddy

[lendaddy]

Originally Posted by onewhippedpuppy

Most importantly, keep your head up. Everybody has hard times, you'll make it through. The difference between winning and losing in life is getting back up when you've been knocked down.

Thanks,

Believe it or not I'm not depressed. I know that I'll land on my feet one way or another. I have the most wonderful wife and my two boys are just amazing, in a broad look my life is absolutely charmed. Even if I lose everything material I'll be ok, my parents on the other hand I just don't know. I mean I know they'll be ok as well, I just wish they could retire in more/some comfort.

[lendaddy]

Originally Posted by Mo_Gearhead

Sorry to hear this. I know this must have been hard to post in the public venue ...so to speak.

It sure was, but I'm very glad that I finally did it as I've gotten much good/great advice. This is truly an amazing assembly of people.

[lendaddy]

Originally Posted by scottbombedout

Len,

This brought a tear to my eye as I went through this with my Dad in the early 90's. It still hurts to think what happened to us.

No advice, but the very best of luck.

Scott

Thanks and I'm sorry you had to go through this. How did you and your father come out the other end if I may ask?

[lendaddy]

Originally Posted by Kurt V

Len I think you know I am an attorney too, and agree with MRM. You definitely need someone more interested in looking at the plusses and minuses of your company and can give sound advice as to the ongoing viability of your company. As I recall you have downsized once. If there are any employees left they may have to go for you to survive. One lesson I think you have already learned is that you should always be out there drumming up business. Never wait for it to come to you. Keep us informed as to what is going on. You never know what ideas may emerge. Not to mention just typing out a problem sometimes is a catharsis.

Thanks, The downsizing has been ongoing. We have gone from 35-40 guys on the manufacturing floor to 4-5! And you're right that typing this stuff out brings it home better. I am definitely going to be looking for professional advice, which route to take is the question.

[lendaddy]

Originally Posted by PBH

This is not a short-term automotive downturn, it is restructuring of North American business. Smaller is more flexible and safer right now.

And there are thousands of guys in your shoes right now.

PM me if you need a reference in the Detroit area, I know someone who will know who to use. Good luck.

I totally agree that the downturn will get worse and last a long time for automotive but it would be tough to get a lot smaller and more flexible than we are now

I appreciate the offer on the reference, are you talking a lawyer or an accountant? Again, very generous thank you.

[the]

Originally Posted by lendaddy

Thanks for the brutal honesty. The building is a tough call to re-lease. It is a fair price but there is a lot on the market. Lets say 60% chance within a year, but that's a guess.

Can you give a sysnopsys on the strategies assuming I can make it 6-9 months? I jsut want to have all the information.

My father has some assets. He has some property on a small airport with hangers that is currently for sale ~ 250k-300k

Beyond that he has his home on 13 acres ~300k-500k (market is all over the place in Michigan, so it's a tough call as the land is developable). $245k mort

One of the leases is a piece of equipment worth 200k+ (fair market) and $50k liquidation.

All other equipment here is worth maybe another 40k at auction, maybe 3 times that fair market.

OK, here's some things I've seen done and issues I've seen considered. I'm not recommending them, but I've seen it done.

1. With everything guaranteed, a bky isn't going to bail you out. They will ignore the bky carcass and come after each of you individually on the guaranteed debt.

2. Therefore, before a bky is filed, many people find it beneficial if the corporate assets are used in a way that pays down the guaranteed debt. In some order of priority where the largest and/or most aggressive creditors are paid first. (Usually "largest" = "most aggressive"). In a bky, unsecured/unguaranteed creditors have almost no rights and usually just go away. In the event that certain creditors (i.e. those holding guarantees) are paid down before others in a bky, it is best if those payments are made at least 91 days before the bky is filed, as they are outside of the "preference" period. All payments made in the 90 days before the filing will be very carefully analyzed, and if they are not in the "ordinary course" and are large enough, the creditor may be sued by the bky trustee and have to give those payments back (of course, they will then seek recovery of those lost payments from the guarantors).

3. In the event a bky is filed, and the case is administered in any way (in other words, it isn't a simple no asset case - yours probably would be an asset case with a trustee appointed) payments to any company insiders are going to be very carefully analyzed, ESP. payments within a year of the filing of the bky. Payments made to insiders outside a year are outside the "preferential payment" period.

4. The biggest issue is going to be the lease. $70K per year is substantial, and the landlord is going to come after the company for it if you close down, and look to the guarantors if the co. files bky. That's a very difficult issue.

5. While the biz is operational, try not to let on to your creditors that you are having difficulties. That may make them nervous and make them seek legal advice. If they sense there is going to be a run on you, they will want to be the first creditor to strike, while assets are there to pay them. I've seen lots of biz's make this mistake, and it has hastened their demise. Some of your contracts may have "insecurity" provisions, where if they feel insecure because of your condition, they can make demands on you. Or, even if they don't have that in the contract, they can choose to strike fast on any minor default, if they are feeling insecure. Always remember, your creditor are going to look after their interests first, esp. if they talk to a lawyer.

6. If the biz goes down, and creditors start coming after the guarantors, one of the first things they are going to do is a collection analysis. That will determine how hard they come. For instance, if a person has no assets and moved to mexico, a creditor a lot of time would just write the debt off, or get a default judgment and stick it in a drawer. If a person has a $1 million house owned outright, the creditor is going to be on them like glue.

In a collection analysis, the first thing they will do is a real property search. Real property is the easiest to collect on.

The other thing they will look at is the financials you submitted to them. But a lot of creditors find that when a business has been struggling for a couple of years, the owners have had to use up a lot of their assets, and the stuff that was on their financials is unfortunately gone.

If for some reason a guarantor were to transfer their real property to a relative, that is usually a mistake, esp. if it was done while a business was struggling. That is looked at as a fraudulent conveyance, and can be undone by the court. But, sometimes creditors are unlucky, and the guarantor sold the property to a legit third person (a bona fide purchaser) who has nothing to do with the guarantor. Nobody could ever take the property from that person. The only thing the creditor could do is try to track down and recover from the sale proceeds (i.e., the cash). Cash is very often difficult to track down. Most creditors usually find that the guarantor doesn't just have it sitting in a bank account waiting to be levied on. In fact, it is usually gone, used up in living expenses and the costs of running the business.

If the biz goes sideways, and creditors come after the guarantors, the matters are much easier to settle, and creditors pursue less, when there are no assets to come after. Keep in mind that a creditor, esp. one that gets a judgment or a provisional remedy, has a lot of rights, including the right to do debtor examination, which includes subpoening banks for account records, etc.

These are just some of the things I've seen in the past. There are a lot if issues involved, as I'm sure you can begin to see.