Richard Katzman Managing Director | On Call Leadership | Helping Small and Family Businesses Navigate Through Crisis and Turnaround
Zombie companies have chronic, unresolved structural issues that render it to be a non-viable and unsustainable business with excessive debt burden for the levels of profitability and cash flow generated. Yet, the business continues to survive due to ongoing and typically irrational, inertia-driven support of their lenders or political systems, by virtue of extending or resetting debt terms, extending additional funding, or shielding from collections and liquidation. Zombie companies are unable to adequately service their debt obligations, with a material debt service coverage shortfall during any given period and in foreseeable future.
Discussion With Richard Katzman A Turnaround Professional by Neil (Dima) Berdiev
As Richard has been largely focused on companies up to $15MM in revenue during his career, frequently with one business owner or a small ownership team, he’d seen again and again that business owners are eternal optimists. (With all the pressures of running a company, you may not survive if you don’t have this attitude.) However, optimism is of course good in moderation; it can’t be blind to challenges a company is facing. As commercial bankers, when you get a picture of the business from its owners, you are likely getting the brightest possible view.
To make things worse, Richard noted that commercial bankers typically want to hear what they want to hear. (Generally, as an industry insider I’d agree with that.) They (RMs) are often on the side of the business owner and don’t think of a possibility of a workout. Unless things are really dire, commercial bankers tend not to ask hard questions, don’t keep going at it until the answer makes sense. They’d just take what they are being told at face value, log into a CRM / file the notes, and move on.
With some predictions of the next recession a year or two away, now is the time to work with your portfolio companies in order to minimize the effect whenever it does arrive. I have listed five questions you should consider asking yourself in preparation for the inevitable economic slowdown.
1) When reviewing your portfolio, do you know which of your clients are dependent on a strong economy?
Now that I have your attention, let me make it clear that neither I, nor anyone else on this planet, knows for sure when the next recession will occur, how deep or long-lasting it will be, or whether it will be global in scope or more locally or regionally contained.
We do know for sure that both the U.S. and Chinese economies have slowed down. We also know that Italy’s, Germany’s and the United Kingdom’s, according to many analysts, already “are either in recession or … on the verge of it,” as Business Insider reported last month.
Many companies, including such U.S. biggies as General Motors and Ford, already are digging in, according to news reports.
Central bankers have a favorite mantra: Patch the roof while the sun is shining.
But 10 years after the Federal Reserve worked alongside the European Central Bank and the Bank of Japan to bring the global economy back from the brink, their ability to prevent the next downturn is limited.
Whether the world’s central banks are prepared to combat another slump is becoming less of a hypothetical question as the global economy shows signs of strain. The chances that the United States will enter a recession by next year have grown as manufacturing weakens and trade uncertainty drags on. In Germany, the unemployment rate has ticked higher, and industrial production is slowing. In Japan, weak factory production and waning exports heighten vulnerability.
Advisory boards can provide small businesses with the valuable guidance and support needed to chart a sustainable course for growth. However, selecting the proper advisory board members can be a difficult task. Where should you look? How many members will you need? How much should you pay them? These are just some of the questions we’ll answer here.