Here are some important questions our clients are asking:

• Is PPP loan forgiveness taxable?
• Should I plan to take the forgiveness in 2020 or 2021?
• How shall I handle layoffs and furloughs?
• How long should my staff expect to work from home?
• Is our county purple or red?
• Can I still get rent relief/should I renegotiate with my landlord?
• Do I still need so much office space?
• Will I have enough cash?
• What are the tax implications of the president’s payroll tax deferral?
• How will the elections impact tax policy?
• What is happening with tariffs and my Asian vendors?
• When will things be back to normal?

With all this uncertainty, how does a company plan for the future? Many are being cautious, borrowing money and stockpiling cash. Some vendor payments are getting stretched, but that pushes the pain down the supply chain.

One client called to say it has successfully worked remotely since March, but cannot pay rent on its empty office this month. Although we suggest starting with a call to the landlord, a good backup plan might be to officially vacate the space. This second step was a surprise to the client (“can we do that?”), which was a surprise to us.

To paraphrase Winston Churchill and Rahm Emanuel:

“You never let a serious crisis go to waste. And what I mean by that it’s an opportunity to do things you think you could not do before.”

Maybe you just need a fresh perspective. In difficult times, we need to plan ahead, evaluate and execute. We are here to help business owners plot a course through these storms.

To get started and review our process, reach out to Jim Burke at (650) 579-5699.  Or email us at:  jim@burkecapital.net

About Burke Capital Corporation

Burke Capital Corporation is one of the region’s most highly respected catalysts to business prosperity. For over 20 years, Burke Capital Corporation has provided capital, expertise and management support to enable significant client performance gains, often in very challenging times. For more information, go to burkecapital.net or call us at (650) 579-5699. The company’s corporate headquarters is located in Burlingame, California.

Additionally, you’re dealing with issues such as customers canceling, no backlog, suppliers on holiday, scared employees, and perhaps avoiding your bank. No one knows how long this is going to last — but you need help, and you need it fast.

What should you do?

A recent Inc.article recommends six actions to take in light of this crisis:

• Vigorously control what you can. Vigorously ignore what you can’t control.
• Guard employee morale.
• Preserve cash where you can.
• Be first in line (for loans or bailouts).
• Get back to basics — starting with monomaniacal customer service.
• Pivot your product or service to new conditions.

All of these have merit — but the best course of action is to find solutions designed specifically for your business. That’s where we come in.

Introducing the Burke Capital Three-Hour Assessment

Burke Capital can help. We’ve compacted our Three-Day Assessment and made it more affordable because we know you need answers right away. Our seasoned executives will use their expertise to quickly provide you with an emergency business plan.

We start by taking a fresh look at your key vital signs. What is your cash situation and how can we improve it right away? What options are available and how quickly can they be implemented? How much flexibility can your creditors give you?

There are many options available, some surprising. Many of your business partners are facing worse problems than you are. And, as always happens, there are hidden opportunities for those who ask. No one is immune to today’s challenges, so there may be some simple things you can do right now to ease the pressure.

To ensure the continued success of your business so you can put this crisis behind you, we strongly recommend this quick assessment. Burke Capital has experience helping companies of all sizes. To get started, reach out to Jim Burke at (650) 579-5699 or jim@burkecapital.net.

About Burke Capital Corporation

Burlingame-headquartered Burke Capital Corporation is one of the region’s most highly respected catalysts to business prosperity. For over 20 years, it has provided capital, expertise and management to enable significant client performance gains, often in very challenging times. For more information, go to burkecapital.net.

What is it, why do I need it, and what does it cost?

Assume for a moment that you run a successful business. You work hard to develop customers, employees and suppliers. The business is growing, and you make a nice living. Well done!

So, what keeps you up at night? When you have a quiet moment to think about the future, what is your long-term plan for the business and how are you ensuring its continued success?

Here are some end-game options: 

• Leave it to the kids
• Sell to employees
• Outright sale to another company
• IPO
• Insolvency and bankruptcy

To achieve any combination of 1-4, you need to put in place a governance structure now. You need to demonstrate that your company is not just a successful personal endeavor, but a dynamic, thriving enterprise with a sustainable business model. While #5 is not something anyone plans on, in our many years of working with insolvent companies, not one has a governance structure in place. Without a plan for the future, failure is a possible outcome.

If you are handing the business to your children, putting it into the hands of employees, or selling to another company, you’ll need to plan for a smooth transition.You’ll need to ensure there is a structure and framework in place that helps them achieve continued successes. And you do want the next leaders to be as successful as you have been, to carry on your legacy, or because they paid you a lot for the assets. Many buyers won’t even consider buying a company without sufficient governance standards in place.

Governance assures repeatability, strategy development, and structure. It also provides you with a valuable sounding board so you can confide in someone about business issues that is not a spouse, employee, or fellow golf club member. It’s about making the best decisions on both the big and small issues that affect your business.

Are you willing to let someone share their wisdom and guidance to make you richer and your company stronger? Who wouldn’t? When looking at their personal health, most people do find value in regular physicals, even if the news isn’t always good. It’s the same for corporations.

Governance can take many forms:

• Board of directors / Advisory board (outsiders)
• Career coach / Peer group (Vistage)
• Financial advisor (Burke Capital)

All have value and generally there is some cost**. For the investment you’re making, you’ll get the benefit of regular, executive-level reviews of your business. The act of preparing an agenda, running an analysis of your business health, and presenting that information is an extremely valuable exercise. Especially when you are pressed to answer questions about your business model, customers, challenges and more.

In order to ensure the continued success of your business so that one day you can reap the rewards of your hard work, we strongly recommend a proper governance structure. Burke Capital has experience helping companies of all sizes defining and implementing a governance structure. To get started and review our process, reach out to Jim Burke at (650) 579-5699. Or email us at: jim@burkecapital.net.

About Burke Capital Corporation

Burke Capital Corporation is one of the region’s most highly respected catalysts to business prosperity. For over 20 years, Burke Capital Corporation has provided capital, expertise and management to enable significant client performance gains, often in very challenging times. For more information, go to burkecapital.netor call us at (650) 579-5699. The company’s corporate headquarters is located in Burlingame, California.| 1021 Burlingame Avenue, Burlingame, CA 94010 |135 Main Street, 9^thFloor, San Francisco, CA 94105 © 2019

* For this discussion, the most important elements of a governance structure are having documented processes, an outside board of advisors and a management succession plan. 

**For a $25 million revenues company, the quarterly cost of each board member ranges from $2,500 to $10,000, depending on the number of meetings. The other options are priced based on time commitment and value. On the topic of cost, we love the expression: “if you think education is expensive, have you priced ignorance lately?”

In our turnaround business we work with many insolvent companies. Although still operating, they have run out of cash and can no longer meet payroll and vendor debts, and have fallen behind on principal and interest obligations to the bank. Typically these companies delay asking for help until all other options are exhausted. By the time we get introduced, it takes quick action and drastic measures to save them.

So how can you as an outsider tell if a company is sliding down the path to insolvency? What are the early warning signs? We reviewed our files containing dozens of troubled companies from the last thirty years to identify some obvious characteristics that contribute to failure. Not all companies that have these attributes will fail, but we do see recurring themes.

Described below are some signals that may help you with the early identification of potential problems.

Common Characteristics of Insolvent Companies

An issue common to all of our clients is the lack of an independent board of directors. We never see insolvent companies with strong outside boards. They may exist, but they are rare in the world of insolvency. The most important thing banks could do to avoid credit losses is to require an independent outside board of directors strong enough to challenge management. Senior management can get very isolated when things aren’t going well, and having trusted advisors can open up communication and options.

A second common issue is weak financial controls. Some may feel that if the CEO is financially savvy, then the company can get by with ‘just a controller’ in the finance function. If you consider the role of the finance function is to simply produce monthly financial statements, you may feel this arrangement is acceptable. However, on a day-to-day basis, who inside the company is telling the CEO that she is making mistakes? Who is monitoring the daily cash requirements of the business and independently reviewing the direction the business is headed? An independent-minded CFO can help identify problems and suggest solutions. Proper reporting can give management the tools it needs to make sound business decisions.

Contributing Characteristics

1. Management

We continue to be surprised at how many people end up running companies ‘by accident’. The accidents may be from natural causes such as the death of a founder, but also include the unexplained departure of a partner ‘for personal reasons’, the buyout of a founder, son or daughter taking over the business, or the hiring of an outside manager without any controls in place to ensure his performance is on track.

All of these warning signs need further attention. Who is managing the manager? Have performance goals been set? What are the repercussions if the manager doesn’t meet goals?

Businesses with family members in key roles provide us with many turnaround opportunities. When tough decisions need to be made, and the owner has to decide between family interests and business interests, which way will he go?

Everyone would be better off financially and psychologically if parents did not insist children enter the family business. The business would benefit from better quality outside management and an open internal playing field so that all the managers are promoted based on merit. Better information about the business gets to the CEO, without ‘family filters’. The business attains a higher value, leaving heirs with more cash. Junior gets to pursue his own career in a field of his choosing.

Other management warning signs include:

• Surprise or frequent changes in key management
• Acquisitions – almost never live up to expectations. The hope that ‘we can get twice the revenues at half the cost’ can turn into ‘half the revenues at twice the cost’. How will key managers and customers be retained at the target company?
• Building a plant or making an acquisition out of state. This can be a huge management distraction. Who will run it? Is the demand justified? Will the company pull the plug if it doesn’t work out?
• Launching some new, unrelated venture in another industry
• Purchase of a jet or a yacht (we have sold three jets in 15 years)
• Change in CEO spending habits – new vacation home, flashy new car – make it difficult to reduce salaries in a downturn.
• Lawsuits of any kind. We think lawsuits represent a failure to communicate.

2. Sales Strategy

We often see successful companies suddenly depart from their base business. This may be due to boredom, hubris, or fear that the base business is being threatened. The company feels that since it is successful in one business, why not another? This may be due to an emphasis on growth over profitability.

While businesses should always consider expansion possibilities, a major departure requires doing your homework and testing the waters prior to jumping in. Are the customers the same? What do they expect? Are the channels of distribution the same? What is the competition? Will you alienate existing customers? Do you know what the company’s core business is? As a lender you need to confirm that the base business is still getting adequate management attention.

We saw a consulting company try book publishing, a circuit board maker enter the military armored car business, and many others. Although in each case there were reasons for the expansion, what was missing was a risk assessment, a trial product, a budget, or adequate market intelligence in the new space.

Other problem areas:

• Introducing too many new and untested products all at once
• Change in sales channel – eliminating sales force, eliminating traditional reps.
• Confusing customers with change in markets without adequate explanation.
• Large concentration of sales with one customer puts company at pricing risk and makes loss of the customer life-threatening. (The paradox of getting the big new order from Costco or Wal-Mart)
• Launching a big new development project without a ‘customer sponsor’. One of our CEOs actually said “We can’t ask our customers what they want – they have no idea!”

3. Operations

Many ‘financial’ problems actually indicate an ‘operations’ problem. Look at inventory, for example. By providing inventory financing, lenders bear a greater burden to understand inventory risk. What are normal inventory turns for this industry? What reaction do you get when you ask your customer to provide an aging of its inventory? Most accounting packages don’t do this, so it normally requires some effort and creativity. It can be a big job and the borrower may be afraid of the information that is discovered. Especially when there is inventory financing. The discovery of stale inventory would likely result in a curtailment of available financing, losses on the P&L, and a hit to net worth. How can a leveraged company sustain this?

Also look for:

• Unusual customer rework and returns. What is really happening here? Do you have people at the company you can talk to besides the CEO? Perhaps this signals overall quality problems. Who is responsible for Quality Control? Are they independent of operations?
• Loss of a major customer (justified after-the-fact because ‘we didn’t make money on that customer anyway’). Normally in a local or regional company, the CEO has a direct relationship with her top 3-4 customers. Loss of a major customer should never be a surprise. Has the CEO lost contact with customers? Are quality problems not being addressed? How are competitors able to cut prices and steal the business if your company cannot?
• Company got stuck with unwanted inventory because … bad sales forecast? Dispute over specs? Is the bank now financing inventory that has been rejected by a customer for quality issues? Are there outdated customer specifications or revisions?
• Is the company building product ‘on-the-come’- in anticipation of orders?

4. Financial

If a company is tight on cash, constantly at the top of its borrowing availability, is begging its vendors to ship product, and yet it has 6 months of inventory on the books, there is a severe marketability problem with this inventory. In addition, if the suspect inventory is greater than the company’s net worth, the company is probably insolvent. Management needs to dump the surplus inventory immediately, even below cost, to generate cash for the business. We see serious mind-sets against this remedy, and have even heard management say it cannot reduce prices of obsolete products because the customers will expect lower prices in the future. There is no satisfactory excuse for waiting.

Also, if the financial story doesn’t add up, something is wrong. One of our clients had flat revenues, but showed profits. However, it continued to borrow more money from the bank. Inventory was growing ‘in anticipation of new businesses. Then there were some inventory ‘adjustments’. The delivery of financial statements slowed down. Then the company replaced the controller. Ultimately it ran out of cash and required a major outside intervention. The lesson? Don’t rely on profits alone as a sign of health – they can be manipulated many ways.

Other financial warning signs:

• Change in CFO / controller. How much did they know about management problems?
• Change in outside accountants. Did the accountants want higher reserves on assets?
• Spouse keeping the books – no independence Unusually slow financial statement delivery, or evading your phone calls.
• Frequent surprises Restated financials (back-dating problems). “We uncovered some one-time inventory problems that really relate to last year.” Oh, really? How many years of profits were just wiped out?
• Overall declining financial trends

Income Statement

• Financial statements show profits, but company needs to borrow more and more money.
• General sales decline
• Shipping higher volumes at lower prices
• Decline in operating cash flow

Balance Sheet

• Swelling inventory with no increase in sales – longer turnover days
• Company unwilling to sell obsolete inventory to recover cash
• Stretched vendors – either growing A/P days or more delinquencies
• Change in selling terms or in customer payment patterns
• The greater the company’s leverage, the more sensitive it is to any financial setback.
• Companies with ‘cash-flow’ term loans will often turn the fastest

Lessons We Have Learned

• It’s not easy to kill a company – it takes persistence and unwavering determination.
• Chances are, if the person in charge is determined to run a company into the ground, he will succeed.
• Incompetence is not illegal; there is no lawful method to stop an owner from tanking his company.
• Often everyone in the company knows what is wrong except the person in charge.
• If you continue to do the same things the same way you will get the same results.
• Putting family members in the business is bad for the business and bad for the family member.
• Bad management occurs in good economic times and bad, but in general most problems surface in the years after a downturn.
• Insolvency – there is a cure.

Things that don’t work when insolvent: (all of these really happened)

• Sue everyone trying to help you, including the bankruptcy judge and your own attorneys
• Draw a gun on federal marshals
• Put additional personal funds into the company (never do this unless there is a plan in place to fix the business.)
• Hope things will ‘get better’ on their own.
• Move out of state to avoid your bank guaranty

Things that do work:

• Ask for help.
• Acknowledge mistakes and ask creditors for time to come up with a plan.
• Apologize.
• Tell the truth about the situation and what happened.

Company Summary Triggers

Toy Company
Spouse came in to micro-manage the business
New business venture – entered board game business
Unable to sell obsolete inventory

Precision Ceramics
Widow took over business, told its largest customer to go away, and put incompetent son in charge

Wafer Distributor
New business venture – entered polishing business
Built new plant in different state

Environmental Consulting
Partner left to start complimentary business
New business venture – book publishing
Out of control personal spending habits by owner

Semicon Equipment
Founders turned business over to outside manager
New product launch – no customer champion

Metal Fabricator
Leveraged acquisition
Weak controller, no CFO
Recurring inventory adjustments
Extensive customer rework

Machining
Launched major new plant out of state
Unable to pull the plug when it didn’t work out

Data Cable
Seventeen acquisitions in 4 years
No common accounting system
Management from outside the industry

Printing
President fired the sales staff with no replacement concept
Out of state ownership
Resisted offshore sourcing

Specialty Auto Parts
Lost business line representing 40% of sales
Prolonged failure to cut back
Management impasse

Aviation Repair
Overly dependent on one industry in one geographic region

Safety Equipment
Founders turned business over to outside manager who had previously served jail time for embezzlement (no, we don’t make this stuff up)

Logistics
Too many family members in the business
Lack of accountability

Motorcycle Parts
Founder died, left business to untrained insider
Conflict over family members in the business

About Burke Capital Corporation

Burke Capital Corporation is one of the region’s most highly respected catalysts to business prosperity. For over 20 years, Burke Capital Corporation has provided capital, expertise and management to enable significant client performance gains, often in very challenging times. For more information, go to burkecapital.net or call us at (650) 579-5699. The company’s corporate headquarters is located in Burlingame, California.

Burke Capital
1021 Burlingame Avenue
Burlingame, CA 94010 |135

“Maintaining an Interest in the Deal”

The Call

Your biggest borrower misses its profit targets for two quarters. The bank’s credit administration urges you to exit the credit. You have lunch with the borrower and tactfully slip in the edict right before dessert. You mention a 60-day deadline — but possibly not a drop-dead date. The borrower momentarily looks concerned, but then reassures you that it is called on by plenty of other banks and there should be no problem.

You pick up the lunch tab and report back that the message was delivered. Switching banks is a delicate dance. The borrower needs to refresh its projections, update the business plan, explain the losses, track down the new bankers, set up initial meetings, supply due diligence material, negotiate term sheets, schedule field exams, answer more questions, and read and review complex credit documents. Even under extremely favorable circumstances, this will take longer than 60 days. In addition, the lenders that called on the borrower during good times may not be the right lenders today.

One of the biggest problems is that the borrower may get told there is interest in the deal, only to get turned down after spending valuable time nursing prospective lenders. Fortunately for everyone, Burke Capital is here to help.

Why use Burke Capital?

BCC knows the capital sources that support a wide range of clients with all kinds of stories. That knowledge, coupled with a comprehensive understanding of business operations and management, allows us to package and market the business, aligning company needs with capital availability. Lenders also appreciate BCC’s involvement because we know exactly what is required for a successful financing — and the unique “sweet spot” each lender is looking for.

We communicate with the incumbent bank, set realistic timeframes, and make a market for each transaction — bringing in the right players to participate. We don’t waste time. Plus, in every case, we negotiate better flexibility, availability and pricing for borrowers.

Burke Capital Corporation’s Five Principles of Capital Sourcing

Over our more than two decades of capital sourcing activities, BCC has developed the following five principles of a successful financing:

It’s always about the relationship. Time and time again, BCC has observed that the final group of potential lenders present proposals that are similar in amount, structure, and pricing. Our advice to clients invariably becomes: pick the bank and the people with whom you feel you will have the best relationship.

Beauty is in the eye of the beholder. We’ve also learned that not every deal is a fit for every lender — for a multitude of reasons, some even unrelated to the transaction itself. That’s why our initial “market discovery” work is so important.

Cast a wide net. During our initial market discovery work, we contact a wide swath of lenders — everyone we feel could be players in the transaction. That doesn’t mean we blindly “throw stuff against the wall to see what sticks”; we customize our contacts based on our prior experience and market knowledge.

Be prepared. BCC ensures a quality package is developed before lenders are contacted. Our electronic data room makes the information easily accessible. When a plant tour is appropriate, the client will be ready and know what’s expected.

Competition brings out the best. Having BCC conduct a capital search allows everyone a fair shot at the deal. Isn’t that all anyone can ask for?

Case Results

In a recent transaction, we presented our manufacturing client’s needs to several highly qualified lenders. The company had a number of excellent proposals to choose from. The CFO is now looking forward to working with its new bank. Bottom-line, it was a win-win for all. Whether you are a business that has capital needs or a banker who wants to help a customer that exceeds your organization’s lending parameters, make your first call to the professionals at Burke Capital.

About Burke Capital Corporation

Burke Capital Corporation is one of the region’s most highly respected catalysts to business prosperity. For over 20 years, Burke Capital Corporation has provided capital, expertise and management to enable significant client performance gains, often in very challenging times. For more information, go to burkecapital.net or call us at (650) 579-5699. The company’s corporate headquarters is located in Burlingame, California.| 1021 Burlingame Avenue, Burlingame, CA 94010 |Satellite Office at 135 Main Street, 9^th Floor, San Francisco, CA 94105

Previously President of Comerica’s High Technology and Life Sciences Division

Burke Capital Corporation CEO Jim Burke announced today that Greg Belanger has joined Burke Capital as managing director of its technology consulting practice. As president of Comerica Bank’s Technology & Life Sciences Division, Belanger catapulted the group into national spotlight for its innovation and market penetration before retiring from Comerica Incorporated in October 2016. Under his leadership, the division became one of the premier technology and life sciences banking practices in the country.

“We are very excited to have Greg join our team. He has an impeccable reputation in the industry for his financial and strategic leadership skills. We are seeing many opportunities in the technology sector for our cash planning and governance services,” Burke said. “Greg’s primary responsibility at Burke Capital is to expand our key relationships with the venture capital and private equity community. These investors appreciate the guidance of experienced business professionals in their portfolio companies.”

Belanger is a proven senior executive with broad experience in business leadership, strategic planning, channel marketing and executive development. He has assisted clients in technology, life sciences and middle market business segments.

About Burke Capital Corporation

Burke Capital Corporation is one of the region’s most highly respected catalysts to business prosperity. For over 20 years, Burke Capital Corporation has provided capital, expertise and management to enable significant client performance gains, often in very challenging times. For more information, go to burkecapital.net or call us at (650) 579-5699. The company’s corporate headquarters is located in Burlingame, California.| 1021 Burlingame Avenue, Burlingame, CA 94010 |135 Main Street, 9th Floor, San Francisco, CA 94105

“That small difference made all the difference.”

The Backstory

The client, a well-run group of manufacturing companies, built a solid financial condition that would be any bank’s poster child of a good customer. The 80-year-old founder controlled his empire with an iron fist, even taking care of the bookkeeping. The bad news was that he had not embraced the computer age, as all financial entries were made in pencil on 10-column paper. Plus he made all key decisions and was the bank’s only contact. Maybe you can guess the rest: he suddenly passed away.

The family rallied to get control of the business, appointing the 60-year-old son as CEO. A skilled product designer well versed in the manufacturing processes, he was in the dark about the rest of the operation.

The Call

A Burke Capital Corporation (BCC) partner received a panicky call from one of our Integrated Expert Network (IEN™) professionals, who was acting as the company’s controller. The bank had just frozen the line of credit and notified the company that it was moving the relationship to the Special Assets Department (a SAD story). Although the bank showed a lot of patience, a seven-figure loss (the company couldn’t “locate a few assets”) coupled with no quarterly financial statements drove it to its wit’s end and precipitated the drastic action.

The Assessment

Two BCC Partners quickly went in to take a financial snapshot. Of the six subsidiaries, two were performing well, one had potential to be turned around and three needed to be closed immediately. A formal board meeting was called to present the results. Fortunately, there was a board already in place, consisting of shareholders and outside professionals.

The CEO presented a comprehensive plan supported by BCC’s assessment. It recommended closing or selling the losing entities, supporting a temporary go-forward plan for the marginal performer, and embracing the profitable entities. Staffing and inventory reduction plans followed the overall strategic plan. The board understood the go forward plan and ultimately approved it.

The Results

Although the restructure plan was obvious enough, its execution became a long and arduous process. We initially compelled the cash to become positive, allowing the client to internally finance its operating requirements and buy time. Ironically, that took the pressure off the timely close of the losing operations, which we then had to force. We also instituted voluntary reductions in the outstanding line of credit balance.

The real key was completing a major culture shift from operating under the “founder model” (top-down, tightly controlled, autocratic, “seat-of-the-pants”) to a “sustainable growth model” (process and data-driven, with policies and procedures, metrics, accountability, and reporting). In this way, the success became repeatable and sustainable. Additionally, close, timely and accurate communications with all stakeholders allowed corporate credibility to be restored.

The upshot: the client remains with the bank under new workable loan terms, which allows it to focus on selling quality products and making money. The moral of the story is this: management succession and disaster recovery plans are a vital part of managing business risk. It’s often the unexpected small things that can trip up a business.

*Chaos theory is a field of study that analyzes the results of dynamic systems that are sensitive to initial conditions. Consider if you intended to fly to LA from the Bay Area, but started off going north instead. What are the possible outcomes? Small differences in initial conditions can yield widely diverging outcomes. — November 2016

On day one of a recent project, we were given the party line — told that everything was fine, the business was profitable, and the balance sheet solid. Day by day, the story changed, and by the end of the week we determined the business was losing money and the balance sheet was seriously upside down. Also, the reported collateral assets had dropped by $3 million without explanation. The bank put the client in the workout group and needed to know what was happening — ASAP.

By being on location, we also observed weakness in the accounting department, and we built trust with key employees. The information we’d been given was now more nuanced. For instance, we learned there was a large backlog, but that it may not be very profitable.

How do we manage through these kinds of difficulties to fix the company and get the bank secured? We begin by focusing on cash — the lifeblood of any business. We examine the cash ins and outs for the prior 90 days and combine this information with an analysis of the company’s immediate cash hot list. This allows us to determine where the major problems are and what resources are available to address them.

“Blood! That should be on the inside!”

If there is a shortfall at this point, we need to determine what surplus assets are available for possible sale, what operating costs can be cut immediately, and what obligations can be deferred without affecting the company’s critical operating needs. After two weeks onsite, we get a lot more comfortable about forecasting the cash situation.

To make an accurate 90-day cash forecast, we use the AR and AP agings and payroll levels, and factor in other key operating expenses such as rent and utilities. We interview key employees to get backlog information and learn about other critical issues. We segregate those expenses vital to critical operations from expenses that are more discretionary. An example of a discretionary expense might be payments on the owner’s boat or on notes payable to shareholders. In any kind of a workout situation, these become a low priority.

Next, let’s discuss financial statements. At the beginning of an engagement, we can sometimes appear casual about the need to produce accurate historical financial statements. Here’s why. We assume they are inaccurate and we know it would take a lot of time and expense to correct them. We also know that as we review the accounts, we will find additional problem areas. When we do produce a financial statement, we want it to be accurate and reliable, so we’ll need to really take our time and thoroughly scrub down the numbers.

“Six months? I have a rented car!”

This process can run counter to a borrower’s normal behavior. Oftentimes, they want to show profitable operations and boost asset values to provide a nice picture for the creditors. An important part of our job is to rebuild creditability with the outside world, so we need time to convince borrowers that coming in with super clean numbers is the best policy. Our argument for “trueing up” the financials is that the situation won’t get any worse with the creditors than it already is. Plus, they already know the company is having trouble paying its bills, so why not use this as an opportunity to present a true and accurate picture?

Lastly, another one of Mr. Ong’s gems is: “when we get into these turnaround situations I am often surprised at how much people on the outside don’t know about what is really going on at the business.” Again, sometimes you just need to be onsite to get the whole story. If this is not practical, then by all means, call Burke Capital. Experience: More than 100 years combined. Focus: Independent executive-level viewpoint. Results: 25 years of successful assignments.

*Quotes in italic are from the 1971 movie, “Bananas,” produced by United Artists.

Burke Capital Corporation’s team is three principals, three senior associates and dozens of affiliated professional service providers available through our Integrated Expert Network™.

A banker recently called Burke Capital with just this problem when one of its large borrowers maxed out its line of credit, but needed more money. The size of the credit now required an extra level of loan approval authority and the banker couldn’t explain why the company needed more money when the financial statements showed profitability. Adding complexity, the company had just lost its controller and couldn’t produce a reliable borrowing base report, and some loan covenants had been triggered.

“From now on, we live in a world where man has walked on the moon. And it’s not a miracle, we just decided to go.” — Jim Lovell

The banker was wondering what was going on and how she could get a quick analysis to know if the situation was improving, or getting worse. She needed to know what the borrower wasn’t saying, and quickly.

Failure is Not an Option: Introducing the Three-Day Assessment

“Let’s work the problem people. Let’s not make things worse by guessing.” — Gene Kranz

Burke Capital’s three-day assessment package is perfectly suited for this situation. We pool the resources of our seasoned executives to quickly provide a comprehensive business review. We test pricing assumptions, supply chain costs, and production efficiency, and we examine the flow of cash through the organization. We top this off with a written status report including a business forecast. This is just what the banker needed.

We complete these assessments by focusing on key financial vital signs, looking beyond the financial reports to determine the true cash flow of the business. How much cash is being generated, where is it going, and how could it be improved? Is the company falling behind with key suppliers, and is it in danger of not meeting payroll? Speaking of payroll, does the company have the right number of employees and does the management team have any weaknesses?

This is Houston: Do You Read?

“Listen, listen, they gave us too much delta vee, they had us burn too long. At this rate, we’re going to skip right out of the atmosphere and we’re never going to get home.”  — Jack Swigert

We get in and out quickly with minimal disruption or cost to the business. We strictly communicate with the borrower. We find areas where the company can save substantial amounts of money. Plus, we are professional and objective. If at the end of the day we can improve the company’s relationship with the bank, who wouldn’t want that?

Getting back to our large borrower, we discovered the family was diverting huge sums of cash to sideline businesses. The only problem was they weren’t sharing this information with each other. Each family member was funding their own project, and no one was managing the overall spending activity. The solution was to come up with a master budget that everyone could agree to.

That may sound like a simple solution, but the tough part was getting everyone to eventually agree. That’s where the benefit of working with seasoned professionals comes in. Burke Capital has experience negotiating agreements with not just creditors and borrowers, but also among family members in family-run businesses, which poses a unique challenge.

Mission Control. Mission Accomplished.

“Just a little while longer Freddo. Just a little while longer, we’re gonna hit that water in the
South Pacific. Open up that hatch. It’s 80 degrees out there.”  — Jim Lovell

This wealth of experience means Burke Capital is ready to lend a hand when your borrowers are in an uncontrolled spin. Although we are not as talented and/or brave as those men on Apollo 13 or the men and women in Mission Control, we do have the experience to help your clients who fly out of control.

Quotes in italic are from the movie, Apollo 13, produced by Universal Pictures.

About Burke Capital Corporation

Burke Capital Corporation is one of the region’s most highly respected catalysts to business prosperity. For over twenty years, Burke Capital Corporation has provided capital, expertise and management to enable significant client performance gains, often in very challenging times. The company is based in Burlingame, California located at 1021 Burlingame Avenue. For more information go to www.burkecapital.net.

To learn more about Burke Capital, please contact Jim Burke at 950.579.5699 or at jmburke@burkecapital.net.

(c) Copyright 2016. All Rights Reserved.

Burke Capital proudly announces the addition of two first-rate executives to its professional team; financial services veteran Michael R. Ong and manufacturing expert Peter Dennis. They are joining as principals to help meet the needs of the growing number of businesses that can benefit from Burke Capital’s services.

“We believe this is an excellent time to staff up,” said Jim Burke, founder & investing partner. “This is an opportunity for us to add talented and experienced financial professional to our team.”

As chief credit officer, Ong helped engineer the successful sale of San Jose’s Focus Business Bank to Heritage Bank of Commerce in August, serving as an integral member of the team. Burke noted that he is a proven senior executive with a unique background of middle-market business leadership.

Previously at Burke Capital, Ong held positions as president, acting CFO, chief restructuring officer and court-appointed receiver for clients, providing crisis consulting services to a diverse range of businesses, including heavy equipment and consumer products manufacturing, commercial construction, furniture importing, social media, and crowd sourcing.

Dennis has held leadership roles in manufacturing, operations and finance, most recently establishing the supply chain for an eclectic bicycle company. He brings an entrepreneurial spirit, working with clients to rapidly determine what issues need to be addressed and develop clever, innovative solutions.

“Peter’s ‘out- of-the-box’ thinking has solved many issues for clients,” Burke said. “He understands the minute details that can make or break a business, as well as the broader business strategy. Dennis is an expert in cash management, systems engineering, cost analysis and improvement, and supply chain management.”