Case Studies

Innovative strategy

Shrink or Die
In today’s economy, many companies are faced with challenges that fundamentally change their business economics. Just as the mainframe computer industry had to redefine itself and make a transition into the world of personal computers.. Read more

 

 

Financing in Distressed Times

After several years of growth and profits, many companies find themselves in an unfortunate financial crunch. Perhaps sales have declined or there have been some unexpected costs. Maybe one of their biggest customers is delinquent in paying and this has led to financial stress. When the bank and creditors are looking for relief, it may feel like options are becoming more and more limited, but finding financing is possible even when times are tough.

Even companies with significant financial muscle can spend an enormous amount of time arranging and maintaining proper financing. Management at financially distressed companies can often be consumed with it. Understanding the available options may be critical to long-term success and viability and allow senior management to focus their limited time on the critical tasks of running the business.

Even distressed companies can get financed:
For companies struggling with cash flow or profit problems, it often feels that the funding options are rapidly drying up. In reality, there are many traditional and non-traditional sources of money that can be attracted, even in troubled times. However, they are often hard to find. The key is to understand the criteria, information and business characteristics that the funding sources require and then match the financial needs with the appropriate source.

Understand both internal and external funding sources:
There are many quick, temporary sources of money that can help provide relief until a long-term solution can be arranged:

As you move down the balance sheet to longer-term debt, convertible debt, and equity instruments, the costs and required financial savvy increase. Without a proper capitalization plan, it is easy to jump quickly to the conclusion that an equity infusion is the only alternative. But many options ranging from simple debt to complicated equity exist.

Where your company falls within this spectrum is a function of performance, current capital structure, type of business, risk profile and the economic environment. Developing an appropriate capital plan for your business is the first necessary step in finding the right funding source.

One of the best sources for financing a troubled company is its current lender. But they, like all other sources, will require a credible plan and a credible team to execute it.

Develop a Credible Plan:

Lead with a Credible Team:
Credibility may be an issue when seeking money in distressed times with the same team that has been at the helm during a decline. Replacing the team may not only be unnecessary, but unwise in such a case. Changing leadership while searching for new financing sends a signal that there may be more trouble below the surface. However, credibility of the existing team can gain a boost by using a reputable, independent financial advisor with a proven track record.