Office of the CFO Blog

Welcome to a Guest Blogger on Office of the CFO: Rich Brooks. Rich is a Partner in Tatum's Northern California practice, a Certified Turnaround Professional and was recently featured in Comstock's Magazine offering advice about managing financial difficulty.

I find it interesting that so many are claiming the recession is over. I'm not sure, but based upon conversations with clients and referral sources (lender workout groups) the economy still has a lot to flush out. This is of particular concern to CFOs, because with limited capital, depressed valuations, slow sales, etc, more and more companies are tripping covenants causing loan defaults.

This in turn means having the uncomfortable meeting with their lenders. Lender workout groups are adding staff to deal with the flood of loan defaults. By the time your credit hits the lender workout group your lender is probably "fatigued," meaning they want you to take your business elsewhere. And given my earlier comment regarding limited capital, you may not have many options. The lender becomes fatigued because the company misses deadlines, presents optimistic forecasts, continually misses these optimistic forecasts - in short, the lender doesn't have confidence in the company's management.

What's a CFO to do? Be proactive. At the first sign of trouble hire turnaround/restructuring advisors to help you through what can be a difficult and turbulent situation. This action serves many benefits. First and foremost, the lender is generally happy to see a distressed company hiring professional help, especially if the company is open to their advice. Also, the bank sees the advisors as objective and knowledgeable of their process and position, which makes for smoother communication.

But more importantly, the advisors are experienced dealing with complex situations and therefore can help the company find a solution to their dilemma. Experienced advisors create a buffer or breathing room for the client by working with the lender to set reasonable timeframes and expectations. You want the lender workout group to see your company as being proactive and cooperative. Don't wait for the "Hail Mary Pass." The lender may call your loan and put you into liquidation - which is highly possible given the limited credit on the market. This horrifying reality has happened to many this year.

Is the recession over? The economy may be picking up, but CFOs are still facing serious situations and will be for months to come.