John Wirth, Attorney, Mallery and Zimmerman S.C.
John Wirth, Attorney, Mallery and Zimmerman S.C.

Increasingly, lenders request that business borrowers engage consultants. Most frequently, this occurs when the borrower violates financial covenants or otherwise defaults under the loan documents. However, it also happens when the loan is nearing maturity and the loan officer is concerned that the loan committee will not look favorably on a request for renewal or modification.

Most typical business owners do not like this request. Their rationale is simple: When things are tough, why add costs? What can this hired gun reveal that they don’t already know? After all, business owners feel like they know their business and their market. Is this consultant nothing more than a mole for the lender?

Moreover, many business owners have probably heard the horror stories of the high-priced consultant who moved in and never left (until, possibly, the business failed) or the slash-and-burn consultant who cuts costs until the business is gone.

These concerns are justified, and some of the horror stories are all too real. Just hiring a consultant — any consultant — is not a magic bullet for a business. However, hiring the right consultant can be an investment that pays for itself. A good turnaround consultant has several essential qualities:


Business owners have spent years — and often their savings — building their business, only to see some unforeseen circumstance threatening their life’s work. Worse, without the business, how will they continue to provide for their families? The stress is oppressive. The struggling business owner is exhausted from phone calls from creditors or, if they are staying current, from just keeping all the balls in the air. Being in business is hard, even when business is good. When business is bad, business owners are under a great deal of pressure, and they often feel like their lender just does not understand.

With that much on their shoulders, it can be difficult to make short- and long-term decisions. Their accountant and lawyer, despite what they claim, probably have limited experience in successfully advising businesses and their owners in these circumstances. Plus, they lack objectivity, since they have a personal investment in the business owner’s welfare.

A good consultant, however, brings a fresh, objective set of eyes to the situation. The consultant cares, but does not have the same investment in the problems that the business owner and current advisors have. This objectivity allows the consultant to set aside emotion and make recommendations based on real experience.

Experience Advising Similar Businesses

Every business owner believes the story of their business is unique and, to some degree, that is true. However, having dealt with hundreds of troubled small and large businesses, I can assure you that there are similarities among troubled businesses.

A good consultant sees patterns and the tell-tale signs of businesses that need to make changes. They have seen these signs before. They have a different skill set than other advisors, and they use their experience to recommend techniques that have been proven to work in the particular situation of the business.

Packaging a Story for the Lender

Maybe things are not as dire as a lender believes, or maybe the business is on the verge of turning things around. A good consultant has had these conversations with lenders hundreds of times and speaks the lender’s language. The consultant knows what persuades lenders, and what lenders will not believe. The consultant also knows what substantiation will persuade the lender.

Customized Suggestions

A good turnaround consultant customizes suggestions for short-term cash flow relief and long-term growth. Turnaround consulting is not slash and burn. A good consultant knows if costs are cut too far, the business will choke to death. The business might stay alive a bit longer, but ultimately it is doomed.

On the other hand, a good consultant knows that long-term plans mean nothing if the business does not survive long enough to turn things around. Good consulting is a balancing act between managing short-term cash flow, lender requirements and long-term growth needs.


Frequently, during the engagement of a consultant, facts come to light or circumstances change, which require the turnaround plan to change. A good consultant will be sufficiently flexible to respond to those challenges and change the plan.

Although, rightly or wrongly, the lender no longer trusts the business owner (partly because of changes in plans prior to engaging the consultant), the lender will often go along with the consultant’s new recommendations because the lender has seen the consultant’s prior successes. The consultant has credibility, something a struggling business greatly needs.

Gets In and Gets Out

Consultants are expensive. Good consultants realize that businesses do better if the turnaround timeline is minimized. Business owners should beware of consultants who claim they will be there to help for years. Such parasitic advising is usually a death knell.

Is the business caught in a Catch-22? Its traditional commercial bank lender wants to end its relationship, and based on short-term difficulties, no other commercial bank wants to take a chance. Business owners might buy into the old adage that only those who do not need money can find loans.
A good turnaround consultant knows that there are many other sources of financing, including asset-based lenders, private capital investors, receivable firms and others. If all else fails, a business’ survival may be attained through a fire sale of some equipment or inventory. Each choice has pros and cons. A good consultant will walk business owners through the options.

A Last Resort Sale

A good consultant initially tries to save the business, but if that will not work, selling it expeditiously is often a better alternative than giving it to the lender to liquidate. A good consultant can help in that process. Some are very good at conducting sales while others assist competent brokers or investment bankers.

Business owners often believe they have the right people in the right places. However, a corporate lawyer might have little experience dealing with a special assets lender. An outside accountant might be great at providing tax advice, but not very good at helping with inventory systems. An in-house accountant might be good at keeping the books, but might not have the experience to advise a business owner regarding accounting systems.
Based on years of experience, a good consultant can objectively assess whether current advisers are the right people for this time in the business’s existence.

Alternatives to Handing Over the Keys

By requiring a consultant, a lender does not necessarily want that consultant to thwart the lender’s plans for your business. However, a good consultant, who is paid and engaged by the business, is working for the business. They should assist the business, with competent counsel, to explore options — even options the lender might not like. Maybe the business can be reorganized through a chapter 11 bankruptcy. Maybe its state, like Wisconsin, has a good receivership process. Perhaps the lender will give more time if the business authorizes a chief restructuring officer or if it embarks on a definitive sales process. A consultant should, early in the process, explain the options available if a business ultimately cannot be turned around.

The lender might have prompted engagement of the consultant but, unless the consultant is hired by the lender, the consultant’s allegiance is to the business. The consultant cannot share information with the lender unless the business owner agrees.

Avoiding Personal Bankruptcy

Too often, in trying to save the business, owners violate many of the cardinal rules of a successful turnaround. Business owners will “defer” paying sales taxes and withhold other taxes, invest retirement dollars into the business (thereby losing exempt assets and creating personal tax liability) or run up credit card debt. Sometimes, they provide new personal guarantees even after the business is hopeless.

While it is terrible to lose a business, it is even worse to lose a home, savings and retirement due to a delay in decisive action. Part of advising a troubled business involves understanding the owner’s personal situation, and providing advice that does not make that situation worse.