Why Good Companies Become Distressed

Businesses are fragile organizations. Even a firm with a loyal customer base, competent management, and a proven product can experience financial difficulties. A business can be knocked off stride by a variety of controllable and uncontrollable factors. Usually, the origins of financial problems are rooted in fundamental changes that have taken place in a company’s business, marketplace, or industry — months or even years prior. They may be as basic as unfavorable economic conditions or a change in the cost of raw materials, consumer buying habits, or import/export regulations. Or they may be as specific as the expansion of the business into non-mainstream activities, the loss of a key employee or customer, a move to larger quarters, a computer conversion, a problematic acquisition, ownership change, or refinancing. Sooner or later, the impact of these changes is seen in spiraling operating losses and weakened financial condition. Unfortunately, some entrepreneurs react in the wrong direction and compound the problem. Profit and cash flow problems in a struggling company are often exacerbated by improper performance measures, erratic or untimely financial reporting, and dependence on numbers, projections, or assumptions that are no longer valid. Whether a troubled company is suffering a temporary setback, persistent losses, or is teetering on the brink of insolvency, recovery is usually possible. But the true source of the firm’s problems must be pinpointed, the right controls put in place, and the right tactics put into action. Silverman Consulting is in the business of helping companies do just that.