Magazine article Business Credit

Learning from Business Reorganizers

Magazine article Business Credit

Learning from Business Reorganizers

Article excerpt

Credit managers often have to assess a customer's financial and business strengths when the customer is having difficulties. It sometimes is difficult to know how to analyze a company that could be facing financial distress. Credit managers can learn from financial and management experts who look at troubled companies all the time: specialists in reorganizing businesses, sometimes referred to as turnaround specialists. Reorganization experts are successful because they use a consistent approach from the beginning to the end of their association with a company.

To help credit managers better understand how these experts work, Business Credit interviewed Raymond H. Wechsler. chairman and chief executive officer with American Equity Partners, Inc., a New York-based firm that Wechsler formed in the early 1990s to focus specifically on distressed or underperforming companies. Wechsler has had extensive experience in working with distressed firms in many industries. His background includes experience with financier George Soros and the Quantum Fund and many of the restructurings they were involved with. He also has significant experience as a senior financial executive and CEO with major U.S. multinational corporations and as a management consultant. He holds an MBA from Columbia Business School and is a certified public accountant.

When you look at a company that's in serious financial distress, but not yet in a bankruptcy state, what are the major areas you focus on?

I start with the balance sheet. I try to determine what the asset values of the company are. For example, it might seem that a retailer's biggest asset is its inventory, but if the company has to be liquidated, you find out quickly that this may not be the case. If you are going to reorganize the company, the biggest asset could be its brand name or its reputation with its customers, and this won't be on the balance sheet. The most important thing is to look at the cash flows of the company.

How do you look at the cash flows?

You have to dissect the cash flows pretty carefully and understand where the cash is coming from and where it's going. In small, private firms, it's important to identify questionable payments, such as excessive salary draws. With larger, public companies, this is less likely to occur. The main thing you need to do is trace receipts to actual deposits. This requires a detailed evaluation of the cash flows. Then you need to determine which cash flow items relate to events that occurred in the past as opposed to operations. For example, it is important to identify the cash flows associated with debt service. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.