When Owner's Commitment And Dedication Work Against Them

May 25, 2010 | Download PDF

Your client's business used to be a major success. Now it isn't. But if you rely on your client to tell you that he or she is in trouble, you'll be the last to know – and worse, you might be unable to intervene.

Where Do You Fit In?

There Are Warning Signs That Your Client's Business Is In Crisis

Passion and Emotion Helped Build the Business – But Now Passion Is The Enemy

Your Role: Restore Objectivity

A Checklist of Hard Questions Can Help You and Your Client Set a New Course

The Reward for Intervention is a Fiscally Sound Client and a Healthier Client Relationship

Where Do You Fit In?

That’s where you, as personal banker and financial advisor, can make a difference.Your client needs objectivity – an intervention from a professional who can help tamp down emotion, take a hard look at new business realities and recommend a course of action, one that may involve difficult decisions about shedding operations or letting go of longtime staff.

Such interventions are not easy. But for your client, they can mean the difference between business survival and failure. And failure can easily spill over into the client’s personal finances. Helping a business owner work through a crisis is well within the scope of your responsibilities. And most clients will ultimately value the service you’re able to provide.

There Are Warning Signs That Your Client's Business Is In Crisis

As the person responsible for your client’s overall financial health and asset management, you may be the first outside professional to suspect that your client’s business is in crisis.Among the warning signs to watch for are:

  • Difficulty in making loan payments. Economic contraction quickly forces cash flow into negative territory. Clients desperate to keep the operation going will begin to look for ways to remedy their cash crisis. A change in behavior – a client who begins to slow down loan payments, or asks to skip a payment – is a sign that there may be something wrong in the underlying business situation.
  • Trying to borrow more. It’s reasonable to try to bridge an episodic downturn through increased borrowing but a client’s sustained upturn in borrowing is cause for concern. Even more concerning is a client who tries to borrow while simultaneously slowing down payments on outstanding loans. It happens often and it’s a clear sign that the business is in a bind.

  • Lending money to the business out of personal funds. The client originally started the business to generate personal income. But when the business owner begins to move personal cash into the business – not as a one-time, exceptional loan for some specific purpose, but in an ongoing attempt to support a money-losing enterprise – that is cause for alarm. It indicates not only that the business is in negative territory, but that your client is emotionally caught up and is willing to do “whatever it takes” to save it. “Whatever it takes” is not the same as having a plan.

Passion and Emotion Helped Build the Business – But Now Passion Is The Enemy

All of these are signs that the business is at risk – and that the client’s passion has overwhelmed reason. Simply put, many private businesses spiral out of control because the owners have lost their objectivity. Attachment can take many forms. Your client might be:

Your Role: Restore Objectivity

What is the remedy? It’s essential that the business owner return to objectivity about the state of the business and to make new plans accordingly. That’s where you can play a key role, both as a trusted advisor and as the professional who can assemble a team of others – including attorneys and accountants with turnaround experience – who can determine rationally whether to exit or how to scale and revise the business so that it is suited to new economic realities.

A Checklist of Hard Questions Can Help You and Your Client Set a New Course

Interventions are difficult – especially in a situation where the client’s emotions are already running high. Asking the right questions can help establish an objective, professional atmosphere - and the answers, together with the numbers, will begin to determine your client’s best course of action. The questions you and your colleagues need to ask are these:

How can the business be “rightsized” to sustain itself at a new, lower level of activity? Most likely, this will involve letting people go. As noted, this is extremely difficult because at the scale of your client’s business, the people aren’t just numbers – they’re individuals. Some of them may have been there at the founding and many of them have struggled and sacrificed alongside him or her. But the realities are the realities. In that business that employs 200 people, it doesn’t make sense to keep 50 of them if the result is going to be that all 200 lose their jobs. The point is to keep those who can realistically be kept and to help the others make the transition as effectively as possible. It could be better for the client’s employees to move on than to stay in what are likely to be dead-end jobs.

The Reward for Intervention is a Fiscally Sound Client and a Healthier Client Relationship

The process of intervention in a client’s affairs is not easy. But the result will be that the client’s finances are healthier. In other words, by intervening, you have acted according to your obligation as a professional. Your relationship with the client will benefit as well. The interventions will not always be neat – there will be resistance and emotionalism. But experience suggests that the majority of clients will value professional guidance and will be happier to be out from under their financial cloud.

Your client’s business is his or her own creation. After cutbacks and rightsizing, it still can be. But the essential step is for the client to do what’s needed – or, as noted entertainer and business entrepreneur Merv Griffin put it, to “turn the page.” The right team of advisors – with you in charge – can make it happen.


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