Hannelore Green, Calder’s Continuous Improvement Director, recently sat down with John Harrington, Calder’s Distressed & Turnaround Advisor, to gain some insight into his processes, his experience, and his best advice for helping clients.
Hannelore: “Can you outline the specific steps you take when first engaging with a distressed client? What is your initial assessment process like?”
John: “It typically starts with a phone conversation, either having been referred to them by a third party or being contacted directly, but just to introduce myself and try to determine what they feel their biggest challenges are. One of the things I typically ask them is ‘What are the three things that keep you awake at night’ which tends to open them up a little bit and also encourage them to be open and honest about how they’re feeling about the situation that they’re in. It’s important not to be critical of the status, but to let them know that we’ve been through this before and that we have the ability to help them, and that really, it all starts with identifying what the issues are. I also will ask them for certain financial information so that I can get a better picture of what their financial picture looks like and that helps me determine where I think the most immediate needs come from.”
Hannelore: “What types of industries have you worked in? How does your approach differ by industry?”
John: “I’ve worked in just about every industry I can think of from non-profit to for-profit to manufacturing, wholesale, and retail. The key to looking at distressed and turnaround situations mainly is in the leadership or the lack thereof. Most businesses struggle because of the lack of leadership, not necessarily the industry that they’re in. So even though their issues may be different, their problems all seem to stem from the same place.”
Hannelore: “What are the key financial and non-financial indicators that you look at to identify distress?”
John: “The biggest financial is the condition of the company, the balance sheet, the debt structure, the accounts payable getting stretched, bank payments are getting missed, overdrafts are occurring are typical financial symptoms of the bigger problem, and typically the bigger problem is the leadership or ownership is kind of lost control of the company and its operations. The non-financial indicator is the level of the leadership’s ability to express their opinion as to what’s wrong. They can typically start out by trying to blame other sources such as their bank, their suppliers, their customers, but typically it boils down to they’ve lost for whatever reason the ability to maintain their vision of what the company should be or they’d like it to be.”
Hannelore: “Could you provide a detailed breakdown of your financial analysis process? What financial statements and /or data points are most critical during that initial assessment?”
John: “The financial analysis starts with taking a look at the company’s performance in the last three years, including their year-to-date financial income statement, and also looking at the balance sheet over that period of time as well to determine what we see as far as losses and or reduced income might be creating on the overall performance of the company and then basically it’s trying to identify the causes of the change in the financial statements and the income statement primarily to determine what where is the company losing ground from where it historically had been and to focus on those areas from a financial statement standpoint.”
Hannelore: “In what ways do you prioritize issues when working with a distressed company? What factors do you consider when deciding what to address first?”
John: “Really that comes as a result of the initial conversation with the owners and also determining whether or not their view of things is consistent with what I also see in the financial statements and other data that we may ask for. Once I’m able to make sense of the situation to the best of my ability at that point I try to identify what the critical issues are at the moment and then from there prioritize what services we would need to provide to help them overcome those challenges but we take it on a very methodical basis and help them understand why we’re focused on that and what it is they can do to help us further understand those things.”
Hannelore: “How do you develop a turnaround plan? What are the key components and milestones that you implement into this plan?”
John: “I develop a turnaround plan based first of all on what the ownership wants to do with the situation that they’re in. Do they want to sell the company? Do they want to turn the company around? Do they want to exit the company in any way possible through an orderly wind down? So really for the plan to work, I’ve got to make sure that the owner truly knows what it is that they want to do. Because in any situation that we’re in, it’s going to take ownership to be able to execute and develop the plan with our guidance. It can’t be our plan, it has to be their plan. So again, the first thing is what is their objective in having us involved in it? Once we determine what that is, then we can better assess whether or not we believe that we can get them to that point, whether it’s a sale, to fix, or liquidate, and then work through with them what it’s going to take to accomplish that goal. So it really takes them. The next step once we identify what they want, is identifying their capacity to help make that a reality. In some cases, people just are not willing, able, or interested in doing what’s necessary, so then we have to take it to one of the other objectives because no matter what we do to help turn a company around if the ownership isn’t on board with it, it’s never going to last. And I try to stress that to my clients. This is their plan, it’s not mine, and they’re going to have to live with it because I’m only gonna be there for a very short period of time.”
Hannelore: “What kind of software or analytical tools do you find most useful? Do you have any Proprietary models or frameworks that are helpful in this process?”
John: “I use Excel and build my own tools. I don’t have anything proprietary. I don’t have anything fancy. I don’t have anything that gives me the answers. So from a technological standpoint, there really isn’t anything other than working with Excel.”
Hannelore: “What are the key skills and traits someone should possess to excel in distress and turnaround advisory?”
John: “The main skills are listening, being able to empathize, being understanding of the fear and concerns that the ownership has and not to be critical, but to be positive and look for solutions rather than pounding on problems. And if those skills are put in place, it doesn’t take a lot of financial mastery or Excel mastery to help somebody. It’s being able to understand what their situation is and what their concern is.
Hannelore: “What certifications or qualifications do you hold that make you an expert in this field?”
John: “Great question, I hold no certifications in the turnaround and distressed arena. Qualifications really are just experiences in dealing with small businesses and understanding the challenges that they face when they’re in distressed situations. So probably the biggest piece of that would be just the time that somebody’s been in this field helps develop their expertise.”
Hannelore: “Are there any materials or courses or books that you would recommend as foundational learning for advisors new to this field?”
John: “Well, there is a turnaround management school, I guess, or what do you call those, workshops or that type of thing, that others that I’ve talked to in the field have found to be very helpful. I have not gone through that. I think most of it, at least from my perspective, came from just diving in and doing this. So I’m not really sure I have any specific materials that I would refer to.”
Regardless of circumstances, whether it be the owner’s health failure, the lasting impacts of COVID-19, or the inevitable end of an economic boom cycle, periods will arise when certain businesses become unable to continue profitably. In these situations, if the stakeholders are able to react timely, there is often value significantly in excess of liquidation value that can be preserved and realized. Employee and customer relationships can be preserved under new ownership and the business and the owner’s legacy can continue.
The biggest mistake that owners make is waiting too long. Liquidation is almost universally the worst option, both economically and emotionally.
Contact Calder today to get the process started immediately!
About John Harrington
John Harrington joined Calder Capital in October of 2023. He is responsible for leading Calder Capital’s new turnaround and distressed advisory practice and assisting other advisors with working through the distressed sale process.
John has more than 40 years of combined experience in bank management, executive leadership, and turnaround consulting covering a wide spectrum of businesses. John received his BSBA from Central Michigan University with an emphasis in Finance and Economics. His executive leadership and consulting background help his clients focus on maximizing the value of their enterprise while his banking experience allows for effective negotiations and communication with his client’s lenders and creditors.
Outside of the office, John enjoys outdoor activities such as boating, golfing, and skiing. He takes pride in his role as a father to two children, Alexander and Pauline. Being a Grand Rapids native, John is deeply involved in community service. He has contributed his time and expertise to various local charities, serving on boards and committees for organizations like Guiding Light Mission, West Michigan Refugee Education & Cultural Center, Economic Development Foundation, YWCA, and GROW. In addition, he has been involved with the United Way of West Michigan, Grand Rapids Chamber of Commerce, American Heart Association, Leadership Grand Rapids, and the Early Childhood Education Program.
About Calder Capital
Calder Capital, LLC is a lower middle market investment bank providing mergers and acquisitions advisory services to business owners, entrepreneurs, family offices, and investors across the United States. Our dedicated team of professionals combines extensive industry experience, technological innovation, negotiation savvy, and key relationships to exhibit exceptional execution. Calder’s services include mergers and acquisitions advisory, private funds and capital markets advisory, and business valuations.