I’ve been thinking again! I don’t claim to have all the answers, but as a country boy do have a bunch of observations and questions!
I’ve been around businesses in distress for over 30 years,
having financed them, coached them and procured financing for their turnaround plan. Some make it; some don’t. I liked working with them as a lender because we could “save” businesses if they had a decent plan and the collateral to back up a loan. As a financing coach I like helping business people out of a jam by coaching them to put out a plan that shows they can succeed and then obtaining the financing to execute the plan. It is challenging and very rewarding to me when they make it.
It fascinates me to see the similarities that distressed businesses have with our government. To name a few:
- Denial: Before a CEO is ready to fix problems he/she must first admit they exist and not think they can operate as
normal. Does our government believe they must change?
- Cost cutting: Most immediate reaction from CEO’s is that they can’t cut anything as it is all necessary. When forced to do so they find lots of waste they can eliminate and it makes them better going forward in good times too. Has our government really examined all the waste?
- Credit rating: Most can’t believe they are a bad credit now after all the years of success. A common statement is “but I have made all my interest payments on my credit line”! But their financial condition shows it is only a matter of time when they won’t, and most of the cash they use to pay the bank comes from more borrowing, or from trade creditors who don’t get paid promptly or at all. Does our government think we are ok if we borrow more money to service our debt?
- Management: It has been said that there are three kinds of people: the business builders, the business operators, and the business “fixers”. Quite often most of these skills do not reside in any one person and the business needs the skills for the situation. Who in our government has ever fixed anything? Do we need more people with turnaround skills?
- Creating a plan: Some don’t think they need to document a plan with projections that they say are just guesses anyway. The fact is that they need a plan and need to adapt to changes as they occur in order to make their goals. It is a map for their turnaround. Does our government have a plan? Management mentality: Sales people think sales
solves everything; finance people think cost cutting and frugal management will solve it; product people believe that “if we build it they will come”! All of these have some merit, but it is the leader’s job to coordinate the skills needed for success. In government, some see tax increases similar to the sales increases in business as solving the problem. That logic is similar to price increases which may work, but if only to a few, punish the customer that is most successful and makes them successful. Some look only at cost cutting, the risk being decimating the organization for the future. Here is where government is a bit different, cost cutting can consist of combining functions, eliminating
waste, and looking hard at programs that may not be necessary. Government like businesses cannot be all things to all people. “If we build it they will come” may not work for government either because there is no end of things they can build that sound good.
- New financing: Financing for turnarounds is usually more expensive than for sound businesses. The problem is to find a lender who will buy their plan and be willing to bet on them. But more attention to cash flow and costs frequently reduces the total interest expense in spite of the rate. Debt reductions can reduce interest rapidly. Will our government continue to find sources for debt? Does government understand that reduced debt results in reduced interest much more than rates?
- Business as usual: Many businesses believe growth and business as usual will solve their problem. The reality is that they cannot finance growth and must stay level for a while in order to recapitalize. Do we still have folks in Congress that want to grow the government?
- The good news” Most business who have been through a turnaround emerge much stronger and more successful than they ever believed they would.
There is hope for theUSA!