All businesses, great and small, share one thing in common: there are good times . . . and there are tough times. For family businesses, these highs and lows have a way of creeping into everything because they’re experienced, well, with family. For example, everybody knows Uncle Charlie loves to overflow his entire plate with gravy at Thanksgiving. When business is good, it’s just “Charlie being Charlie.” When business is tough, that gravy reminds everybody of Charlie’s last bonus that maybe he didn’t quite earn in their eyes. Better hide the wine before things get really interesting.
- The Business Comes First. When business is bad, tensions run high, sometimes forcing lingering effects of past wounds to the surface. But when your lender is knocking at the door demanding payment, it’s not the time to exhaust everyone debating who loved who more growing up. Check family grievances at the door—before somebody decides to padlock it. It’s also not the time to take that second vacation because that’s just what you do. It conveys the wrong message to other family members, employees and, most importantly, creditors. The benefit of the doubt is earned from behind your desk, not the beach. The business comes first.
- Face (and Act) on the Problem. The first step to overcoming any problem is gaining the ability to face it. It’s consistently amazing when family businesses ignore lingering problems, allowing them to snowball until it’s too late. Perhaps it’s just easier that way—until it’s not. Once the problem is acknowledged, don’t table it for next month’s meeting. Act on it. Hope is not a strategy, it’s a sentiment; and action is the only remedy for despair.
- Cash is King. Distressed businesses must aggregate and manage cash wisely. Without cash, restructuring options are limited. Trim all unnecessary expenses; table all non-mandatory distributions (sorry, Charlie); develop a rolling 13-week cashflow forecast; and identify your most critical creditors in need of payment.
- The Rules of Workout. If you’re dealing with a lender, remember the golden rules of workout: (a) be honest and realistic; (b) under-promise, over-deliver; and (c) communicate constantly. Lenders view distressed borrowers like parents view children: they don’t get the benefit of the doubt until they’ve earned it and, if they’re quiet, they’re probably up to no good.
- Promptly Seek (and Accept) Outside Help. Unless you’re The Sopranos, don’t let an aversion to outsiders prevent you from seeking competent third-party help. Tenured turnaround/restructuring professionals are often worth their weight in gold because of their experience and credibility in the distressed world. Don’t delay. Every professional has countless stories about businesses they could’ve helped had they just reached out before becoming D.O.A. (in industry parlance). Finally, resist the urge to resist the help. Egos and unrelenting stubbornness are death knells for family business workouts.
Hopefully, your family’s “Uncle Charlie” continues to get all the resentment-free gravy (s)he wants for as long as your family celebrates Thanksgiving. But if that ever changes, dust off this article and proceed accordingly. Your “Uncle Charlie” might hate you for a minute but will thank you in the end. I know: “No, (s)he won’t.”
But that’s life in a family business.
