Pre-emptive workouts, the secret path to survival, for those who know…you have no viable option.

This is advanced…a pre-emptive workout. I believe I have made this concept up, inventing it out of necessity! I believe its time is here and when the facts line up, its the way to go. I am doing this for a number of clear thinking small business owners and it works…assuring survival and emergence as a business capable of navigating these difficult economic times, and lasting well into the future.

Here is a definition of the concept.

A business with significant debt and sharply declining revenues and sharply reduced valuation of its assets, which if such disproportionate situation is allowed to continue will result in self destruction as the revenues dip too low to allow the business to continue to service its debt. The requirement for survival is reduced debt…a workout before the business is crushed.

It requires an evaluation of your current and future condition, and if you are carrying significant debt, in an industry hard hit by the ‘recession’ we are immersed in, with reduced revenues likely to be the new normal and likely to last a long time before revenues return, if ever, you are ripe for either a pre-emptive workout or a going out of business sale, either one. Your choice.

Here is the deal. You must explain to your lender that while you may have been qualified for a loan and demonstrated capability to service the loan when you got it, and you may even be able to support it today…next month or the month after you will NOT be able to support the loan, so now, before you crash and burn, you want to do the workout so you will survive and be able to pay off some of the loan, rather then none of it.

Wow, can you imagine that discussion with your banker. ‘I am ok now, I am paying the monthly debt service now, experiencing severe pain and watching my own decline and pending demise. So lets do the workout now so I can survive and pay you less but that’s better then paying you nothing and going out of business…soon’.

That’s advanced. That’s like closing the barn door BEFORE the horse gets out. Something rarely done. Something bankers rarely, if ever, consider.

The problem is the bankers are not quite there …yet. They are not yet in tune with the clarity and appropriateness of pre-emptive workouts and thus will look at you funny and restate your position as follows:

‘ You mean you can pay me today and are current at the moment, but you believe you will have difficulty paying next month so you want to renegotiate the loan now!!!!’

‘That’s a good one….’ he will chuckle, ‘…now lets go to lunch and talk  sports.’

It is highly unlikely that your lender will understand or will be able to or willing to explain this concept to his superiors and committees. I do not see this working…so how do we do it?

They may be willing to reconsider restructuring your debt, allowing interest only for a short while, lengthening payback, reducing interest rates, but unlikely to even consider reducing the principle.

So how do we engineer a pre-emptive workout?

We just do it. Carefully, with precision, always respecting the security agreements and liens, yet setting the stage for successful transformation and transition. We re-organize, re-design, re-implement, and explain to the bank that this is what was necessary to support ongoing business under different terms and conditions in this changing economy, different then when we originally made the loan, thus the loan must be rewritten.

Its a tough sale, but I have succeeded and continue to represent forward thinking business owners who see the writing on the wall and know their revenue is unlikely to return in the near future and thus the debt is too high to support and must be reduced for the business to survive and the bank  to get paid, something more then liquidation value.

The trick is in the skill of implementing the plan and the effectiveness of the presentation of fact and projections. If done well, the results will be stunning as you still have the necessary capital to survive and emerge as a smaller, tighter, more effective business with less debt, and able to service it.

Advanced…yes. Impossible…no, call me for hep, this one requires it. 413-584-2581, Norm will arrange a teleconference so we can discus your problem and my solution.