Business executives and decision makers typically steer companies as hard-driving strategists, confidently navigating risks to reach rewards. Some favor the fast lane, overtaking rivals or zooming toward growth mileposts.
But the road to success, even for those following a prudent pace, may have tricky turns, unexpected detours and unforgiving drop-offs. Failure to see or heed the warning signs can bring a pileup of problems that result in bankruptcy.
That situation often is avoidable, and always can be eased, if company leaders enlist experienced guidance when they see distress indicators flashing. Early consultation with experienced legal counsel is essential and can help keep a business from cruising closer to the cliff.
Yet in 32 years as an attorney specializing in bankruptcy law and reorganization, I have often been called in only after a firm drifts into the insolvency zone and cannot pay debts as they mature. By that crisis point, increasingly strident notices usually have arrived from the firm's bank, from trade creditors and from the IRS.
A blind spot about the need for help much sooner is the single biggest mistake I see top executives make. Denial can be a powerful part of human nature, and powerful people are not immune.
CEOs are optimists and risk takers. A never-give-up optimism is part of their arsenal. They assume they will find a way over any hurdle, which they usually do. It is difficult for can-do people to acknowledge that anything may prevent them from accomplishing their goals.
But yesterday's successes do not necessarily pay tomorrow's bills, and that is why independent advisers are vital. They help owners and corporate officers become aware of pitfalls and precautions. Outsiders deal non— emotionally with financial life-and-death issues that insiders may not be able to deal with as they nurture a business they created or built.
In fact, there is no downside to getting advice at the first sign of liquidity problems — a stage in which nimble moves can avert a slide into insolvency or cushion its impact. Businesses have more options and negotiating flexibility before they burn through available cash.
Attorneys who have guided companies through this process also help shape downsizing decisions to avoid across-the-board cuts that undermine a shaky structure even further. For instance, management might want to cut 50 percent of advertising expenditures but only 10 percent of sales and none of the accounting staff.
A clear-eyed analysis can make the difference between losing an ailing business and using its healthiest parts to ensure survival. Chapter 11 is the bungee cord for corporate daredevils.
Rom, a fellow of the American College of Bankruptcy and certified specialist in business reorganization and bankruptcy law, is partner-in-charge of the Detroit office of Pepper Hamilton LLP.