Our friends at Revitalization Partners help companies make better decisions about business operations. This blog from their newsletter focuses on small private companies that were referred to Revitalization Partners just in time. At Juniper Capital, we are committed to sharing business advice that helps you achieve success. We specialize in real estate investments with private money loans in Washington, Oregon, and Idaho. Share your thoughts on this blog, so we can continue to provide you with quality information for operating your business in the Pacific Northwest:
Many of our restructuring assignments come through referrals. In 2015, we assisted a number of companies because a trusted advisor to the CEO or owner suggested that they might need our help. However, sometimes that suggestion comes too late or the CEO/owner decides they can fix their problem without assistance. Near the end of 2015, we were referred to two companies that had reached the absolute brink of survival unnecessarily.
The first, a family-owned construction business, was successful at small jobs but wanted to move into large commercial projects. Due to the quality of their work and their status as a minority contractor, they were given the opportunity to participate in number of large public works contracts. However, management had no idea what was required to operate in the larger environment. Neither did the people they hired. A small line of credit from a bank was not sufficient to support even one large job, let alone the several they undertook. In one year, revenue almost tripled without the management or infrastructure to support the growth.
As time developed, almost everything went wrong. Bids were underestimated, payments were often not prompt, and overruns due to improper estimating were regular. When the company decided it needed a new computer system to manage what was becoming a disaster, a transition began without the proper understanding of how to do the job. As a result, invoices and change orders were no longer timely, which worsened an already bad situation.
How did the company continue to operate? By not paying federal and state payroll taxes, by not paying union dues or benefit plans, and by not paying their subcontractors. As Project Managers began to see the threat of liens against their projects, they began paying the company’s subcontractors directly, reducing and in many cases eliminating payments to the company. Cash flow was further reduced.
By the end of the year, the company’s debt had ballooned to over $4 million, almost half of it “borrowed” from trust funds. As the company searched for a loan to pay off these past debts, instead of just saying no, a lending source referred them to us. By this time the IRS and the state had issued seizure notices, and the unions had cut off all benefits including health insurance.
There is still a glimmer of hope in 2016 however. The company continues to get work and has new estimating and project management support. The IRS and state seem to be willing to cooperate with a workout plan. But, without major changes in management-thinking, the hole will continue to get deeper. The ultimate outcome is still undecided.
Operational and financial restructuring, like any profession, is a learned skill; and like most professions, experience matters. Revitalization Partners has that experience, as well as the ability to remain objective and realistic about a business situation even as it rapidly changes; and to take rapid and effective action to ensure that change is positive.
Revitalization Partners is a Pacific Northwest business advisory and restructuring management firm with a track record of achieving the best possible outcomes for clients. They specialize in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Contact Revitalization Partners if you want the best resolution in the fastest time with the highest possible return.
Revitalization Partners… when a company is worth saving.
