Company in Distress: Don't Wait Until It's Too Late
Troubled companies can leave collateral damage in their wake. Don't let your firm be one of the victims. Here's what you need to do today to be a hero, not a chump.
May 10, 2010
The economy may, indeed, be at fault for many of the latest business failures. But blaming the economy won't turn around a company in trouble; recognizing the problems and taking swift action could. That's where CPAs can help.
With over 40,000 business bankruptcies in 2008 and 2009 and little improvement expected this year, the message of turnaround specialist Katie S. Goodman couldn't come at a better time.
One of the key opportunities facing CPAs today, according to Goodman, is to "truly recognize that certain clients are in financial distress and will not make it through the economic cycle."
Goodman is preparing to share her message at the newly combined AICPA Practitioners Symposium and TECH+ Information Technology Conference, June 7-9, in Las Vegas. Goodman is managing partner of Atlanta-based Grisanti, Galef & Goldress, one of the oldest turnaround consulting firms in the United States. She is often called in to assume the role of the director of reorganization or the chief restructuring officer for companies with private equity funding, and she serves as an adviser to boards of directors and management teams.
She says CPAs are in a unique position to aid the troubled businesses, sometimes even before it becomes too late to save it. "Stepping back," she says, "CPAs can see the issues in a business," such as uncollectible accounts receivable, bloated inventories, stretched accounts payable and breaches in lending covenants.
"It's an opportunity," she says, "to truly add value." CPAs can "talk to the business owners, find out what's going on and offer advice and solutions."
It's especially important for the CPA to dig behind the numbers of financially distressed clients for two reasons in particular, she cites:
So what should CPAs be doing about it? "As always," Goodman says, "they should be stepping back from the data and be good advisers to companies and company owners. In a 'trusted adviser' role CPAs are invaluable in guiding companies to success. Who else has regular access to financial data and can make that objective assessment?"
The economic situation could get worse before it gets better, according to Goodman. "We have a long way to go," she says. The level of debt maturities from 2012 to 2014, which spring from the 2005 – 2007 financing spree, will cause "large, continued" financial problems for companies. "And this will be combined with maturities of CDOs [Collateralized debt obligations], a weak commercial real estate market and a residential real estate market that will take five or more years to recover," she says.
But if advisers such as CPAs can give good advice, clients will, with a little luck, make it through the recession.
"Smart advisers," she says, "look at the big picture."
YOUR OUTLOOK: What are your books telling you about the economic forecast? Is your A/R line recovering? Are you writing down less? How are clients rebuilding their balance sheets? What signs do you see? E-mail your comments with your observations to Rick Telberg.
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