At the top of list of reasons for business failure are often issues relating to management and leadership. Challenging dynamics often present themselves when control is placed in the hands of second and third generation family members.

These dynamics played out in the case of XYZ Limited (not their real name), a company that had a 50 year successful history as manufacturer and distributor of a seasonal line of clothing. The relationship between two brothers who co-managed the company that had flourished under their father and grandfather had become so strained that it affected their ability to reach consensus and make day-to-day business decisions. Interpose into this situation, the challenges of an industry where a trend to sourcing product offshore was threatening the core of their business and you have a formula for disaster.

When we were called in as advisors, the Company’s bankers had already issued demand and had allowed the Company a short forbearance period to find a replacement lender. Given the Company’s poor financial results and toxic management, options were extremely limited. At the insistence of their external accountants, management engaged turnaround professionals from the Farber Financial Group to assume responsibility for righting the ship. This dramatic intervention is what was required to save their business.

Farber’s turnaround team immediately implemented sweeping changes in personnel, manufacturing, financial reporting and controls and cash management. A refocus of marketing efforts was also necessary to respond to changing market realities. The involvement of professional management helped bridge the credibility gap with the Bank and allowed the Company to buy some more time on its forbearance arrangement.

The Farber Financial Group went to the financial marketplace to find a new lender. Given the time constraints, the best option was to bring in an asset-based lender who would provide the necessary funding to pay out the Bank, which was poised to appoint a Receiver at the end of the peak season so as to maximize the Bank’s recoveries.

The asset-based lender provided necessary bridge financing to pay of the Bank. With a more tolerant lender in place, we were able to assist the Company to re-finance with longer-term lender at more favourable interest rates. The Company’s restructuring efforts, particularly as they relate to their changing market conditions, are ongoing but financial disaster was averted by employing proactive professional management.

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