Troubled Turn-arounds: Stop fighting fires

Join us for episode 25 for tips on identifying and turning around troubled companies. If you're a business owner fighting fires daily but looking to make a move within the next three to five years, this episode is for you.

---

TRANSCRIPT:

Welcome to Integrated Insights with ICCG. For more than 30 years, our team has partnered with small business owners to prepare for and navigate the business transaction process.

Pull up a chair as we share stories and insights from our experience on all sides of the M &A table. All right, welcome back. Welcome back. How are you guys doing?

Good. Andrew, how are you? Good. Like Dave said, my name is Andrew, and I'm your host today. Grant Dave, thanks for joining. We are excited to talk about today.

I know we've talked about emotions. We've talked about preparing for visits and all that kind of stuff. And here, it's going to be a little bit less of a common deal for us,

but we've had a lot of conversations about this. Most of our clients that we end up selling are the companies that are trending upwards. They're growing or at least stable.

A lot of our buyers just want that, you know, a boring or stable business, a company that is growing, steadily, cash flowing, you know, ideally no hair on the deal whatsoever.

Low risk. Exactly. But we're talking about today the troubled company that needs to be turned around in a kind of even a more long -term preparation for selling.

And so first, we'd love to ask you guys, what would you qualify as a troubled company that needs to be turned around. Yeah, well, everybody thinks, you know,

cash flow negative, right? But when you're talking about selling your company, if you have negative trends, like sales are going down is the obvious, right?

But, you know, we always, when we get financials from clients, we're looking at gross profit percentages. If that's going down, then obviously costs are going up. So How is the company able to mitigate that if they can't raise their prices?

All those kinds of things are the most common ways. Here in the last few years, because of the shortage of labor, particularly skilled labor,

we've even seen a technology liability, not just in tech businesses, but also in manufacturing. So think robotics, right so if a company if a manufacturer is not you know capable of doing robotics so it doesn't have the equipment or the skill to do it then slowly but surely other companies can produce products cheaper it'll skinny the margins of those that are not technology enabled and eventually the guys that are going

to be are going to win out right and so uh technology is changing so fast that uh those that are behind uh stay behind and so people who are savvy investors are looking at what the technology risk is in even manufacturing and pouring businesses for sure yeah so how can you How can you really tell that a company is in trouble?

What are the signs? Every business is different. You know, when Dave and I get asked to dive into businesses that are maybe not ready to sell,

but they want to sell as soon as they can and they're not in great shape, we always ask people, you know, what are the metrics that you're watching on a daily basis? And I would say,

without much exception, they're not. They're just managing out of their bank account. And so they can't tell you what we call a dashboard.

In other words, what are the numbers that you need to know on a daily and weekly basis that kind of give you an understanding of what the financial situation is going to be next month,

next quarter, next year, you know, think things like patient count for a medical, you know, business, customer mix, you know,

pricing, you know, what are the, you know, how is your pricing model compared to your competitors, you know, are you selling that widget for $100 or are you selling it for $50?

Because if you sell widgets at $50, you're going to have to double the count of what you would for $100. Supplier options, you know, labor supply,

you know, logo retention. You know, are you losing customers but gaining in sales? So you're basically increasing your customer concentration at that point.

And so, you know all kinds of you know closing ratios in sales there's so many different metrics and so if you're going into buy a business that is that is an industry that you don't know about then you would want to know what those metrics are you know most people don't even have financial statements in time to make timely adjustments in their business.

So there's six months down the road, and they've got all these negative trends, and they haven't felt it yet because they're collecting accounts receivable from when good times were on, and they don't feel the downward sales trend for six months.

And so timely information, and, you know, we just ask people, you know, how are you getting that information and maybe the best thing to do is to put systems in place that gives you that information.

Yeah, I think going back to the operating out of the chat book, we see that a lot in blue collar businesses. And I think a lot of that's changing because of the way, you know, technology with bookkeeping and everything has changed.

A lot of people are embracing that. But even to pull an accurate P &O, you know, we're with a company not long ago and all of a sudden it comes out what their price for location is for for payroll and the founder looks and says why is it that high and like they're looking like last year's numbers and um you know all that information is just old information and i would say that that that is a telltale sign that a

company can be in trouble when when they just don't know what's going on or they're not in acute you know they're not in tune with those ideas or your Your accounts receivables are going down and you don't know it.

And your accounts payables are going up and you have no idea because, you know, maybe you're not communicating with the bookkeeper or whatever. But trends, I think the trends are probably the biggest telltale of a company in trouble,

you know, before it actually looks like it's on trouble on the books. It's going to be the trends. So how do you determine the root cause? Once you kind of know the trends, once you see the right reports that indicate,

okay, something's going on. How do you get to the root problem? Well, our, you know, just to be clear, I mean, we do a lot. We, we know some of this because we've had to turn around some companies of our own.

And so, you know, and Grant me and a CPA has helped a lot of his clients in the past. You know, part of our services are not necessarily going and turn around. We help people prepare for, for sale. But we've been,

we've told a lot of people that, look, You really need to get this, this, and this in order before you take it to market if you want to, if you want to see value from your company. So, and we have had a couple of companies that we've owned by almost default for some reason or another that we've had to go in and really dig in and turn around.

And I just say that, you know, you question everything. That's something that Grant and I, you know, one of the things we'll do with the P &L is just go on every line item of the P &L,

question everything. And because once you, there's a leadership principle that once you've been in something for so long, you really don't know what's going on anymore. And it happens in all organizations.

Once a manager or an owner has been involved with that business for 30 years, they can't see, it's blind spots, right? There's all sorts of blind spots. Not good or bad,

they just are. And line spots are there and they don't and they don't know it because it's always been like this. I mean, that's a, that's a, that's a really, really difficult place to be.

So you've got to, you've got to have a, you've got to question everything, which then leads you into the trends. I mean, you've got to question the trends. Why are we losing these customers?

Why are we not getting the retention rate of customers? Why are our employee retention rates down? Why are they up? You know, you look for the good and the bad, both, to kind of zero it into what it is.

And oftentimes it is, someone's just not keeping up with marketing or the technology or whatever it is. You know, our world is changing so fast. I think we're all sitting back wondering what's AI going to do to all this,

right? And here I am bringing up a subject I know nothing about. But at the same time, I think, you know, when I say, oh, AI is going to be doing, you know, medical billing before long.

I'm like, well, how would that work? What are you talking about, you know? But, you know, we have to be aware of these things, right? Yeah, I think, you know, the situation,

the particular situation, I think you were alluding to where Dave, you, you dived into that company and questioned everything, you know, we weren't hands -on management of that company until we had to be.

And so think about a guy who's just, you know, he's owned a business for 30 years and now has to dive into the minutia that he hasn't been in for the last 10 years.

And you're tired. You want to sell. So they call us. We sit down with them. And they really don't want to do it. And so our conversation becomes,

okay, we can sell your business right now, but you're not going to get what you want. But you can you can dive back in and do the hard work of turnaround is what we're calling it on this on this call.

I would say it's hard work. And if you're willing to do it, the return can be really great. Because if you turn those trends around, you can you can get a lot more for your business.

So Most people don't want to do it, though. You say you had to be hands -on at some point, right? And so when you're hands -on and you've got to make some changes,

once you've identified, hey, these are the root problems, these are, this is what's happening. What are the most common changes that you have to make?

And really, how do you prioritize the right changes, right yeah i would say the temptation is to is to jump into what you are familiar with first and and i would just tell people what i would do and dave and i are very different people and so we would jump into different things right i would jump into something that i'm familiar with he would with with kind of his forte um but identifying the changes that are a

high yield, low cost, right? So things that you can change quickly and easily with low cost that will yield a huge return and then kind of,

you know, not going to maybe your pet project that would be maybe a high cost with a low return, right? And so sitting down and kind of making sure that you're prioritizing the right things that are going to make a difference is probably the best thing rather than just going after what you want to do.

And it's easy to go in and say, well, we're just going to increase prices to make more money, but that comes at a cost often, right? And sometimes you're better off to find the cost savings than you are to raise your prices.

And it just takes work to do that. I think that changing people is really difficult. And I think that that's, but sometimes that could be one of the best things.

Again, sometimes someone's been in something so long that it's difficult for them to change for the, you know, to do things better. We've seen that. We've seen that. It was when we took over a company once and it was in the transportation business and they were still dispatching by the old,

you know, they has spindle and a piece of paper. And, you know, when the call was dispatched by by phone, they would push the paper down. This is like the digital, and we ended up owning a digital dispatch company,

you know, in this space for this very reason later on, because it was like when you pull technology to that, but man, that was like pulling teeth, you know, I guarantee if we went up there at midnight during the night dispatches,

they were still doing the spindle thing as a computer. So I think part of it is helping people move along. And part of that's the culture. I think the changing culture is one of the things that I think you can really do to change,

to turn a company around. And often that comes from a management standpoint. And if you're a business owner, hang on here. But, you know, some of the times we've walked in and one of the biggest changes and the best change was made from taking a dictator,

a dictator owner or manager and replacing them with someone who was actually had some, you know, common sense and feelings about them, you know, well, maybe not the feelings, but had the common sense and,

you know, had some, you know, had some people skills. It weren't just managing by the, by the baseball bat and, and, you know, the constant, I'm going to fire you, I'm going to fire you, the management of fear versus the management of encouraging.

Remember what we say, you know, you build, you build, you just give someone a task, you're building a bunch of followers. And a lot of managers are really good at getting people to do stuff for them or just building followers.

But if you get them, if you get them responsibility, now you're building leaders. And I think that that's just, that's a culture change, that we're in this together. That one company that Grant referred to that we went and had to,

we took over the operations. One thing we did, we had people who were, you know, had barely a high school educating education all the way up to medical physicians.

And when it came around to bonus time, we realized that after the first year, we thought, you know what? We need to bonus everyone on the same level. Because as soon as we, as soon as we said,

well, this person needs more because they're more important. All we did was we changed their feelings toward each other. And we just perpetuated this idea that all the front office people weren't valuable as valuable as a nurse or as valuable as this other person,

medical assistance. So we would just say, you know, if you've been here for this many months, you get this, you all get the same. And that was one of the best things I think we ever did because they all felt like they were family then.

So it's culture, right? Name your, name your business. It works different in different businesses. Yeah, and the only thing I would do is I'd use a different descriptor than Dave did, and that is,

you know, the low, bad word, low end people or the people on the ground, let's say, a lot of them have great ideas that are never listened to by management.

And so going into the company and saying, hey, we're losing customers and asking the people who boots on the ground, why are we losing customers? They probably have some great ideas.

And so listening is a great tool. Yeah, that's interesting. Well, I know we have a lot of conversations with companies that the owner is tired and he's wanting to sell,

he needs to turn it around before and really kind of have a more long -term prep. And so we have those conversations. We have, we are willing to sit down with anybody.

So if any listeners, if you guys, you know, if you're, if you would describe your situation as more distressed or you're tired, you're ready, it's, it's time.

please reach out. We're happy to sit down with you. But that's all we have time for today. Thank you guys. Grant, Dave, appreciate you all. And listeners, we'll see you all next time on Integrated Insights.

And that wraps up another episode of Integrated Insights with ICCG. Be sure to subscribe and stay tuned for more stories from our team. We love hearing from our listeners.

If you have any questions or topics you'd like us to cover, please send us an email in the show notes. For more information about ICCG, please check us out on our website or follow us on LinkedIn and YouTube.

Until next time, there's always a seat at our table.