The Turnaround Ace

To Get Paid on Time, Be Ruthless


Editor's note: This is the latest in a series of case studies about business turnarounds. The name and identifying details of the company used as the example have been changed.

Problem: A Window Company Experiences a Sudden Loss of Revenue

The Picture Perfect Window Manufacturing Co., based just outside Gary, Ind., consulted with us several years ago to work on its sales strategy and management. The company was already doing pretty well, but after we worked with it for a few weeks, its profits increased by more than 50 percent. It had a good product, a solid reputation, and, with our advice on generating more customers, its sales were going strong and continued to build for some time.

Then in January we got a call from the company owner, Peter. He informed us the company was down to $6 million in sales for 2009, compared with $15 million in previous years. It had never used a line of credit before, but now it was depending on one to survive and the line of credit was already maxed out. Something about that didn't sound right, so we set up a meeting to look into it.

Peter was a subcontractor for several large construction companies in the area. At first, it seemed like they couldn't go wrong. There were a number of new commercial real estate developments going up in the region and buildings need windows—lots of them. But then the economy stalled and projects were put on hold. Cash flow was weak for everyone in the business. This filtered down to two, then three, then four of the construction companies Picture Perfect was working with, and the result was Picture Perfect wasn't being paid for services already being delivered.

That caused Picture Perfect to fall behind in its own payments. It got to the point where the company couldn't even pay its union fees, and in this business, that's the last place you want to be. In the construction business, nobody wants to mess with union leaders. It could hurt you for years to come. At the rate it was going, this once-thriving business was about to fold.

This was a case where it was time to get down and dirty.

Solution: Do What It Takes to Get Paid

We contacted each and every general contractor and told them that unless they paid immediately, we would file a legal lien against the job. This would prevent the obtaining of a "certificate of occupancy" upon completion. This was a bit of a bluff on our part, but we had to get their attention and we had to sound like we meant it. Just to make sure they took us seriously, we had men walk right onto the construction sites and physically start locking up toolboxes and pulling them off the site! That was as unsubtle a gesture as you'll ever see!

As expected, they got the point. We let them know, "If we don't get paid the money we're rightfully owed, you are not going to stay in business."

We kept up the momentum relentlessly, even calling after hours to apply pressure. It was a lot of work but it paid off. Simultaneously, we negotiated with the union and assured it that we were going to stay in business and wished to remain in good standing. Then we stretched out the payments as long as possible.

Within three weeks we accelerated to $300,000 in collections by getting tough with the general contractors. Finally, after two union meetings, the union agreed in writing to take the $300,000 owed to it and spread it over 48 months—turning the immediate debt into a long-term payable. This helped dramatically with the company's cash flow, not to mention its relationship with the bank.

The lesson to be learned here is, sometimes you have to get tough to collect on your receivables. Business owners get squeamish about this. It tends to be the other way around. They pay on time and wait patiently for their customers to pay their invoices, fearing that pressuring them will somehow annoy clients and cause them to take their business elsewhere. But that's no way to survive.

Paper profits are one thing, but the check has to clear and if you can't put your hands on real money, it can push a business into crisis mode faster than you think.

Today, Peter and the Picture Perfect Window Co. have seen the light. Friendliness is fine, but if others don't respect the fact that you deserve to get the money you're owed, then it's time to take the gloves off and make demands. It's a daily battle to bring in enough cash to keep your business running. This is your business and your money, so you have to be willing to fight for it. You are entitled to be ruthless.

—With Samantha Marshall

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Cloutier is the founder and CEO of American Management Services, a management firm that specializes in financial turnarounds and profit development for small and midsize businesses.

Steve Ballmer, Power Forward
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