Armando (0:00 – 1:00)
I’m Armando Roman, host of the Founders Guidepost. You’ve built your business over decades, and now it’s time to think about that once-in-a-lifetime exit. You’ve come to the right place.
Here, you will hear business exit professionals talk about what you should know before exit. Besides hosting the Founders Guidepost, I’m CEO and founder of Axiom Founders Family Office, a Scottsdale wealth management firm helping founders and their families preserve their American success story. We oversee and coordinate a network of vetted professional advisors to help maximize their probability of achieving everything that is most important to you.
And we host the Scottsdale Founders Forum, a biannual live event for the founder considering exiting in the next 36 months. Here’s to your hard work and your American success story. Enjoy.
Hi, Armando Roman with the Founders Guidepost here with Jerry Foster of Resolute Commercial. Jerry, how are you?
Jerry (1:01 – 1:03)
I’m great, thank you, Armando. Thank you for having me on.
Armando (1:04 – 1:34)
How are you today? I’m doing great, thanks. Hey, I’m excited to talk with you, Jerry.
Last time we got together and talked, the key words I came away with from you were stress and chaos. He said that when businesses are in stress or chaos, that that’s when you can be most helpful and most impactful for them. So if we can talk about how you help businesses when they’re in moments like that, that would just be fantastic.
In a nutshell, Jerry, what does your company do?
Jerry (1:36 – 2:35)
Yeah, so Resolute was created 15 years ago, coming just ahead of the last great financial crisis. And essentially our mission statement and ethos surrounds the idea that we are financial advisors to corporate entities that are in distress. Distress can be defined by a variety of terms.
It could be operational distress, it could be financial distress, it could be external distress. They’re having an external threat, litigation or some type of partnership dispute. They’re having some challenge to the market that they operate in and hadn’t been able to understand how to navigate that.
So anytime basically the original thesis of we’re just going to be successful because we do X has been affected at its fundamental core, we’re able to bring our talents and skillset to the table and try to help the existing ownership process what comes next.
Armando (2:36 – 3:07)
Okay, so I imagine they can get in that situation from a variety of things. Like you mentioned potential, maybe litigation or maybe their industry is changing, but can you make it a little more, maybe a little more specific so that a founder who’s listening or maybe an executive management team who is listening can maybe get a little more teeth into understanding, you know, what are those signs where they might want to give you a call and talk with you where you might be helpful for them?
Jerry (3:08 – 9:51)
Yeah, I think a really good example to start with would be a company that we helped here in town. It was a hundred-year-old produce supplier, multi-generational family-based company. It had existed and ultimately become the largest independent supplier of produce in the state of Arizona.
It had been a third generation operator, that operator, I’m sorry, third generation owner, that owner had taken more of a passive approach to the management of the company and had subsequently hired an individual that he thought on paper was an excellent operator and had come out of a very large corporate environment. He was forced to get back involved because this kind of hired gun that he brought out of a very large corporate environment had completely mismanaged the company and created a series of issues that threatened not just the integrity of the business but the livelihood that he depended on and the legacy of the organization that was built over a hundred years. Let me give you some detailed examples of that.
I mean, he was fighting a union issue that had never existed before. This gentleman came from an organization that embraced unions, not to have an opinion one way or the other, but it was a very big point of tension in relation to his workforce that the ethos of the company was previously not in support of wanting to have unions involved. This gentleman, the hired gun, didn’t support that same ethos, didn’t understand or appreciate potentially that tension that it would create on the culture that existed before.
Then all of a sudden you had this workforce that was completely divided and it was almost tearing it apart from the beginning. In addition, the gentleman that ran the company had never really understood how to manage a three-sheet accounting scenario. He was simply only managing the gross profit.
He never understood what a net profit looked like because he got paid, his salary was always committed, but at the end of the day, he didn’t understand anything about profitability. He exploded the organization and put multiple layers of management in places that it didn’t need to exist. He spent this passive owner’s money willy-nilly without appreciating the company was built on the idea of really being more cost effective and finding ways to accomplish things without just throwing bodies or money at it.
It completely inverted the company’s profitability and put them in a very difficult financial position. In addition to that, we also found that due to the passive nature of this owner, this gentleman who is in control of the company really took advantage of the company and and created a series of personal expenses that he used and justified as a result of his role as a president in charge. That also obviously impacted and it was a six-figure number on an annual basis that also affected the profitability.
The note got called by the bank and obviously the owner was summoned to the bank and had needed to justify what was going on. I guess he had let it get too far and only later appreciated when the bank stepped in to say, we don’t believe in the viability of the company. We think that ultimately some of these metrics that are being presented by your financial and executive team don’t make sense.
What’s going on here? That’s where we got engaged. We, through a systematic approach, really started closest to the product.
That’s really our thought process. We believe that based on the service or the product or the mission of the company that you run, the things that are closest to your client, closest to your customer are the least broken. Those individuals work hard.
They have a job. They need to know what their job is and we need them to articulate clearly how they interact with the organization, what are they expected to do. Then from there, we build back and what we realized, and it’s relatively consistent with many of the things that we do, is yes, there were some broken mandates in terms of who does what and how, but at the end of the day, the issue really resided in that C-suite and those folks were making decisions that were impossible for the individuals touching the customer or the product to fully comprehend.
They thought they were building this amazing archetype and they were throwing tons of bodies at it that all that it did is confuse the individual that was in charge of picking the produce off the shelves to build the pick ticket to load the trucks and get it in the hands of the customer. There were these really large initiatives like, oh, we should switch to this ERP system because it’s going to change everything, but they didn’t fully appreciate the chaos that would implement in terms of making a big software change. Instead of running two software side by side for six to nine months, which is probably a best practice, they literally had one software program they operated up until a Friday.
Everybody came to the office on Monday and they were doing business out of another and it completely destroyed their company. Again, many bad decisions that were rendered by someone who probably was given too much autonomy and didn’t have the benefit of having a resume that looked like they knew what they were doing, but at the end of the day, really didn’t understand accounting, didn’t understand operations and were more of a divisional president in a larger corporate structure that I think wrecked havoc on this family business.
Thankfully, we were able to get involved, save it and turn it around, but it took about a year and a half of work and it was no small task because of so many different places in the business had had this perhaps negligent influence in terms of the hubris of this individual didn’t allow him to see that he was creating the problems when others were trying to bring those solutions to the surface. He just thought he had all the answers and ultimately created more problems than was necessary.
Armando (9:52 – 10:27)
Well, I’m glad the company came out on the other end good and thank you for helping that third generation Arizona business continue to survive and thrive. I’m also glad that the bank threw up the red flag and said, hey guys, wait a minute, wait a minute, something’s going on here. We needed some help because they called the attention to that third generation business owner and then got you involved to help look at the company in its totality to see what’s broken, what needs to get fixed and how does that get done and that’s what your company came in to do, right?
Jerry (10:27 – 11:36)
Yeah, we pretty much extinguished most of the external threats, either litigation or kind of market-wise. We helped them reevaluate the profitability and the segments of the market that they should focus and concentrate on. We executed a strategy to basically go after and win some great contracts that I think have provided a tremendous win behind their backs, if you will, towards the restructure.
We readjusted costs associated with the company, got rid of multiple layers of management that appropriately didn’t deserve to be there and most importantly, exited the hired gun that created a lot of these issues and allowed the organization to have some ownership for itself rather than the culture had gotten just tremendously toxic. We were able to kind of turn it around and renew the spirit of what it once was, which was family-owned, family-operated. The family, the business was an extension of the family and therefore, we empowered the owner to get back involved and ultimately, it’s a great success story.
Armando (11:36 – 12:17)
I imagine the employees were happy to see you come in and happy to see the third-generation family owner come back in as well. So, what you mentioned are just a variety of disciplines, operations, finance, sales, marketing, a lot of things there that you looked at, analyzed and came up with solutions to help get them back on track. So, the team that you have within Resolute sounds like it’s a broad-based team.
My question would be that when you have specific, maybe industry-specific people you need to bring on board as part of your team, how does that work so that you can serve that client best?
Jerry (12:18 – 19:35)
Yeah. So, it’s a great question and we get challenged with this a lot. You don’t understand our business and I think largely, that’s true.
I mean, we can’t be experts in everyone’s business. What we are experts in is managing chaos, absorbing liability and providing a steady hand in terms of good decision-making. One of the things we find most commonly applies to business owners in distress is that they are obsessed with the problems of the business, whether it’s the bank has started to communicate with me that I’m behind on my payments or they now have their attorney communicating with me to try to figure out a resolution.
That becomes almost very myopic and it becomes something they can’t stop thinking about. And where the byproduct of that happens is that business owner takes his eye off his own company and gets fixated on dealing with this issue. And so, then the company suffers.
And so, one of the biggest roles that we play is we compartmentalize these issues with regards to the bank and or their attorneys. We know how to speak with them. We understand what they’re looking for.
We understand the language under which they need to be communicated with and the goals and perspectives that need to be shared. That is not organic to every business owner. And so, one of the biggest attributes that we’re able to do is to say to that partner from the business owner, just go back to doing the things you do.
We need you to get re-engaged in your business. You know this business better than us, but what we can do is we understand what the box of a healthy company looks like from a profit and loss statement, from a balance sheet perspective. We’re going to be involved very heavily in that kind of box.
And then you get back to work on the widget. The widget or the service that you provide, we’re not going to do anything better than what you did before. But what we are going to do is take some of the load off of your plate in terms of helping you solve some of these other issues.
And we’re collectively going to give you maybe more horsepower from a modeling perspective or from a business case understanding in terms of where should you concentrate the focus of your efforts. Are there assets on the balance sheet that are non-core that if they could be liquidated could provide working capital to the business that when applied appropriately could energize great ideas, could fortify current initiatives, could give you the opportunity to de-lever from some debt. Those are the types of things that we’re focused on that perhaps every business owner could find on their own, but maybe it’s helpful that they have just a third party that comes in with a different perspective and we can do that.
You know I say often when I get involved in these things and it’s almost universally under the context of holy cow I can’t believe I got here what do I do now is this is the career we chose, meaning I did and my team. And so therefore what I tell my team is that two things are really critically important to the work we do. Number one we extend grace and how we interact with those people that are on the other side of this.
They’ve never done this before. We need to appreciate that the circumstances they’re encountering and the things that they’re trying to process are unique and sometimes really emotional and we need to understand and meet them where they are and try to help them navigate through. And then secondly we need to be calm and very transparent in what we’re doing because I think ultimately that calmness is contagious and if we can demonstrate that we understand what we’re doing these issues seem like big deal to you but provided we find a way to develop a plan that everybody buys into we’ll get you out of this and all we need is you your trust and faith in us and we work as partners. And then the other side of that is the transparency really works well in organizations and I think people don’t give enough credit to it because the analogy that I use is that I can’t I mean it’s almost a universal truth and I say that there’s probably small exceptions but if you have a relatively robust organization and there’s issues at the top whether they’re financial issues or operational issues or existential issues and the ownership typically takes the attitude of telling the company one thing and then worrying about their issues in a small vacuum or at the top of the tower.
The analogy I use is that it’s like when you have a wife and a husband and they’re not getting along and they maybe fight in the car in the garage the kids still know that essentially there’s a problem and and universally the employees know when leadership isn’t aligned. Employees know when there’s operational issues with delivering you know in the case of the example I brought up earlier you know when issues about getting the product to the customer or there’s inefficiencies in the business and then you know what that does is it ripples through the organization. If there’s indecision at the top there’s indecision in the middle there’s indecision at the bottom and that’s not to be understated so the concept of transparency is we present our plan to everybody.
Now it’s appropriate for the level under which it’s described but everybody needs to be a part of the plan and I think too often leaderships neglects the opportunity to either ask for feedback from folks that are deeper in the organization or ultimately get them to buy into a strategy that they feel convicted to. It feels as if they create this in an ivory tower and they roll it out and they don’t fully appreciate what the issues could be as it relates to the individuals doing the actual product or service and so that’s the thing that we try to do. We do a town hall, we really invest in culture, we try to do a better job of communication and that usually goes a long way and a lot of times those people feel in the dark.
You know if they are a W-2 employee there’s certain basic truths that they want to know especially in a distressed situation. Do I have a job? What’s the future of my employment?
Most times they want to dig in and how can I help and a lot of times people are afraid to admit their challenges and so therefore they don’t engage maybe good thoughts or perspectives from other people on their team because they’re embarrassed about the situation they find themselves in and I think it’s in those scenarios where the good ideas can come from a lot of different places. Many people want to help and in the case of the example that I brought up before there was great ideas and we found even the individuals that we believed were transient employees, people that were making relatively minimum wage they were so vested in the opportunity to kind of continue the legacy of the company and they valued the opportunity to work for the patriarch of the company and desperately wanted to be a part of the solution that it was really inspiring and very empowering to see how everybody rallied around the opportunity.
Armando (19:36 – 19:56)
It sounds like that town hall is the town hall part of the initial when you first come into a company to understand what is really happening yeah there’s some kind of a symptom maybe the financials aren’t looking right or the metrics or something there’s some kind of a symptom but to find out the problem is the town hall part of understanding or finding out
Jerry (19:56 – 21:55)
Identifying what that problem is yeah you know we again part of our approach is to never convince a business owner we know more about his business than he does it just doesn’t make sense it automatically sets you up for failure so what we do really for the first couple weeks of our engagement is that we are in active listening mode we come in and we say how do we get here you know what do you think the issues are what are places that we need to do better what are things that we need to continue to do as you have been doing that maybe we were not emphasizing enough and what are things we need to stop doing altogether and then when you collectively have a bunch of different touch points in the organization you bring that all back and you distill it down and you know we’re able to basically just show a mirror to the executive team and say does this reflect where you think you are and you know we heard this feedback and here’s a common theme we’re hearing and so to a certain degree we think of our job and it sounds kind of silly but there’s a big degree of dr phil in the world we the work you know we’re dealing with humans that are emotional creatures and they like to feel connected and validated and when you give opportunities for people to speak i’m always surprised at what I hear and when you then distill all those things down you typically can find very quickly where the problems are and so that’s how we begin our discovery process is that it’s as much qualitative as it is quantitative and I can study all the financials and tell them that their profits need to be higher or that the cost of goods are too high or something like that but there’s inherently the problem exists in the organization and that starts with people and then probably looks and revolves around process and so when we start to look at it that way the quantitative informs where
Armando (21:55 – 22:13)
We go the qualitative informs what we do yeah so your listening skills have got to be very very sharp to be able to get those clues and those those unwritten um that unwritten information to help you understand where to focus and where to look at and and really focus your time within
Jerry (22:13 – 22:42)
That organization correct yep absolutely and you know you’d be surprised I mean the executives are typically the most guardedbut when you get into the organization many people are are willing to kind of in a trusted environment they’re willing to tell you a little bit more and then you get a here and you use that as an opportunity to prompt a question with the next person and then it just continues to get a little bit more developed in terms of a fullness of a thought or an issue
Armando (22:43 – 23:09)
Yeah you mentioned grace and it made me think when you said that that you are creating a safe place for them to open up to you and you’re not it sounds like you’re not blaming or finding fault pointing fingers rather you’re listening maybe with empathy so that you can be part of the solution and help engage them to be a part of the solution as well yes you know the other part of
Jerry (23:09 – 24:26)
Our core principles and how we go about this is that in order to earn trust we have to extend trust and so you know getting people on board with who we are and what we do requires us to build a certain level of trust and so therefore it’s incumbent upon us to absorb the information that they share and process it in a way that doesn’t expose anyone individually. It doesn’t betray that trust but it allows them to feel like they’re heard and as I go back to you know we’ve talked i’ve talked about it in just a brief time we’ve connected many times individuals in the organization don’t feel as if they’ve been heard and so we’re able to give voice to their issue and maybe it’s not directly attributed to them but the individual at the production level in a town hall when we identify the issues we heard feels like his comment was actually recognized and it’s something that we’re going to focus on that builds that trust right in terms of being able to recognize that you know he had a hand in trying to give voice to the issues here that makes him vested in the success and it allows us to feel as if you know he’s a big part of of what we’re he or she is a big part of of how we start to turn this around yeah and i’m glad that you
Armando (24:26 – 25:02)
Use the example of that third generation business because that that just goes to the point or to show that even though business may be mature have longevity and that they get into trouble too maybe opening a new line or new locations or making changes where they had to get some additional financing it’s not just the startup is trying to build and grow it’s the existing maybe the mature business that also can get in trouble bringing a new leadership or or as you mentioned implementing a new a newcomputer system that that maybe helps things go off track
Jerry (25:02 – 26:02)
As well and look you know many of these decisions that are those I mean when you make a decision to move on from one software program to the other given how important it is to the operation of any business today it’s not to be understated and you know the promise of what it can be is only realized as a result of the discipline of how well you prepare for it and how much everybody buys into it along the way but there’s a lot of pain and struggle and there could be a lot of second order problems that come as a result of buying into the promise of what it could be um and I think in this case that company wasn’t prepared for kind of the issues that quickly manifested as a result of what they thought was really trying to propel the company forward over time they got there but ultimately it was a really hard run and and so jerry signs um
Armando (26:03 – 26:28)
The bank in that situation threw up a red flag and and that started the process if there’s not a bank involved the company a company that’s functioning and running that that they may see some signs of distress and or chaosother examples of what that might look like where they might want to pick up the phone and talk with you yeah you know
Jerry (26:29 – 31:59)
The world’s a crazy place these days and there’s a lot of moving shifting sands not so much in a context of a financial conversation but just in terms of like what fundamental business practices used to exist another great example I can bring up is that we took over a family operated 28 unit retail retailer that was located in the malls and they sold um they sold product geared towards a teen demographic around the idea of skateboards and surfing culture and things like that and they woke up one day and they were completely blown away by the fact that the malls had lost their favor and that online had become such a dominant force in selling product and opportunities and it seemed interesting because when we were able to connect with them it was probably five years ago you know the internet was well defined and the use of amazon and things was not novel but to a large degree this group had existed on a very steady following and as those trends related to individuals dependence on shopping in a mall versus shopping online kind of changed and people became more comfortable shopping online this group didn’t embrace it and they couldn’t get around it and so in that example it almost happened too late and they didn’t recognize the forces at work for them in the overall marketplace and had believed that their customer base was loyal to them to a fault and would never leave them and I think you know unfortunately for this company they weren’t able to overcome those those external forces but again the common theme that I see in terms of your comment about when can someone reach out we would love to meet business owners at their earliest point of distress and the reason why that’s important is because the toolbox for us has the most amount of options at its earliest point when you get to the point of this retailer where they were probably they were using an old trick in terms of just selling things through the mall they had built an organization that wasn’t able to be supported the rents associated with their existence were simply too high their cost structure was overwhelming and they didn’t have another outlet to push the product you know they were dead and they didn’t know it and it ultimately all came up on them too quickly if we would have gotten to them earlier and been able to kind of empower them to build an online presence and create a community that allowed them to have both a physical presence and an online presence again these are not novel ideas i’m not an i’m not telling you that i’m an expert in building e-commerce but we clearly could have dedicated their thought process around how did they want their image to show up and engage with that community could we have captured information from the customers that came to the stores to be able to follow up all very very common things in today’s world but they just they were reluctant to accept it they didn’t think they needed it they always thought everybody was going to buy their skateboard and paraphernalia and apparel through their stores and ultimately it didn’t work out for them so I think you know whether going back to touch on those items if you have a partnership dispute if you have a inheritance issue meaning like you’re trying to pass it from one generation to the other and you have multiple children at the bottom generation of which they’re disputing who is in charge and how it gets divided and we’ve been a part of a number of those types of opportunities where you know the father in their best interests or their mother in their best interests are wanting to pass along a legacy company to their children and you know one person is involved in the business the other person’s not they don’t believe it’s equitable you know how do you and and by the way we’re not trying to wade into those waters but the big thing that needs to be talked about is the company needs to exist so that there is something to kind of have a conversation about how do you divide equitably and so a lot of times what we do where we get involved in situations like that is people turn to us and say we need you to run the company and we’re going to solve this issue related to who gets what over here but you know one sibling says we don’t trust this one and the other sibling says we don’t trust that one so the clear answer is we’ll just be an interim management group we’ll come in we’ll operate it we’ll put it on cruise control we’ll make sure nothing terribly happens to it we’ll continue to empower your staff we’ll we’ll move forward under your wishes but ultimately there’s something still there because that kind of tension going back to the earlier comment at the highest level distracts the business owner or the primary operator and all that does is affect the value of the underlying business and that’s where I can’t under I can’t understate the impact of where distress usually lands and take takes hold for business owners is that the the the burden that they carry and the distraction that it offers takes them away from what made them good or great and that’s where
Armando (31:59 – 32:53)
Our assistance allows them to go back to doing that yeah you mentioned that that they seem to focus on that not distraction but on that problem which takes them away from running the overall organization and where you can come in to run it and they can take a bit of a break to focus on that issue and fix it in your example the siblings understanding and determining how the sibling is going to get that wealth from say from mom and dad to the next generation that sounds like it could be a big relief because the as as as obviously with most business owners the the bulk of their wealth is in that company and if they take their eye off the ball or get distracted or go down just down the wrong path then that wealth diminishes and diminishes and diminishes to some point where it just might break and there might be nothing left yep we’ve seen it too often and you know
Jerry (32:53 – 32:58)
The comment is always all the attorneys make all the money um but you know there’s certain ways
Armando (32:58 – 33:15)
That you can ultimately mitigate that are you wondering if you’ve missed anything in your planning we hear that a lot from very smart very successful people and that’s why you may be interested in our founder stress test even if you’ve already sold your business years ago for
Jerry (33:15 – 34:27)
More information go to Axiom corp.com and I think the first of which is making sure that the company is in good hands the assets are in good handsin the event that they’re operating assets how are they being administered how are they being over you know seensuch that you can solve these highly emotional issues between siblings um reach a point at which you come to resolution and then we’re happy to turn it back over and and see how we do or you know sometimes in the third case there is no opportunity to kind of agree on who’s going to run the company so we can get involved in conducting a sale process to allow it to achieve its maximum value under which then the proceeds get distributed equally based upon the siblingswe we’ve done that a number of times as well which is there’s no resolution in terms of how or who should ultimately be in control of the company so the only resolution is you know give it to a third party like us and then our mandate is to operate it and then essentially prepare it for a sale under which it can be monetized for the benefit of the siblings yeah yeah and sometimes that I can see that that could
Armando (34:27 – 34:49)
Be the best solution because it just might cause too much pain irreparable harm in the family if a sibling stays with the company and others are not are not included and liquidating might be what the parents need to do just to keep that family as intact as possible yeah and it’s
Jerry (34:49 – 37:28)
Not always that kind of passing of generations I have another example where we were engaged um by a company that was founded by a uncle and a nephew the uncle had a bunch of money they helped the nephew build a stone company the nephew was given a contract to be the sole source provider of a certain type of stone that was being used for a master plan community in north scottsdale he previously had been an installer and found a way to kind of corner the market on a stone that was approved by an hoa on a very prominent master plan community in north scottsdale so wonderful things happened there was the priming um you know capital contribution by the uncle but he was relatively passive they were 50 50 partners the company grew and had tremendous success it achieved you know multiple tens of millions of dollars in in revenue and by all accounts was a really successful company well the the uncle said okay well it feels like you’ve done great and we’ve reached these great milestones i’d like my money back and the younger partner who was the nephew said well I want to commit these dollars to basically continuing to grow the company and because they were at a governance structure that said 50 50 there was no clear path for them to kind of figure out how to navigate this disagreement and unfortunately you know the the con the capital contribution was eight million dollars so it wasn’t insignificant but the uncle was at a different point of his life and just said look I don’t know that I want to take any more risk with this money i’d rather de-risk it pull it back in and allow it to work for me in a different way but the younger nephew was in a different stage of life and he didn’t have the ability to refinance out or didn’t want to take that eight million dollars of a true cash contribution out of the company and so we were engaged to basically keep the operations going as they solve their issue and in what ultimately happened is that we helped the nephew find financing to basically finance out and created the structure to buy out the uncle and that worked for all parties so I think in that scenario it’s not always multi-generational in the sense that the father created the business and passed it or the father and mother created the business and passed it to the children this is another example where maybe there was a very generous uncle who saw promise and a nephew and perhaps similar issues could develop just based on different expectations and you know having achieved success yeah and that brings a good point that when there
Armando (37:28 – 38:07)
Are partners who are at different stages of their life and they’re 50 50 that that can become a very uncomfortable situation when when when something like this happens uncle wants as he said to de- risk he’s at a different stage of his life it had it been 51 and 49 ownership that’s different than one person clearly is in control or had they made some provisions up front before they before they got too far along in the business so that there were some options already a clearly defined path then it could potentially have avoided some of what would have to happen yeah that’s you know
Jerry (38:07 – 41:01)
Obviously I’m not here to speak towards governance issues but I can tell you that you know many people that go into business never really think about especially in partnerships the different kind of avenues that things could materialize later on and if they are that I guess the the common things that I would tell you in reverse as an individual who sees these things once they materialize you know the worst possible situation you could be in is a 50 50 partnership I mean it’s the beginning before there’s anything to fight about or anything to have a discussion about I think it’s important to understand you know who’s going to lead and have majority and who’s going to have minority whether and how you determine that is really up on your own but it it sure makes things easier on the way out and yeah maybe some feelings might be hurt but it’ll save you tens if not hundreds of thousands of dollars in terms of legal costs or otherwise to try to solve that later when there really is something to fight about and perhaps it just becomes a lot stickier and problematic to have such a non-emotional conversation that’s the first thing the second thing is you know some type of ability to kind of solve disputes um you know whether it’s a shotgun provision in the in the operating agreement that says look I mean there’s a way under which we collectively if we don’t agree and perhaps it gets to the point at which it’s so it’s so problematic that one can acquire the company and the interests from the other or there’s you know the composition of an advisory board that they essentially allow to some tie break or decision-making authority that helps them navigate these types of complex issues that the business owner may face now granted they have to be willing to follow the the advice offered by the individuals that may not be directly connected to equity but you know you have to have some humility in this as well and not all good answers come from you and perhaps other people’s perspectives are valuable especially when there’s situations that you may not be comfortable being in or you’re there for the first time and you know that’s why you’ve surrounded yourself with a good team of people um and and so that’s the last thing is really you know yourself as a from a financial advisory perspective from a wealth advisory perspective wealth protection or and growth perspective I mean I can’t say enough as i’ve gotten more um tenured in my career of how you surround yourself is critically important and the people that you essentially have as your either virtual board of directors or your small advisory group is critical to success even myself as a smaller business owner I can’t tell you how important it is and I don’t have all the good answers evenwhen i’m actually paid to help solve other people’s problems I need people to
Armando (41:01 – 41:44)
Help me with mine as well right but it gets back to what you said earlier you know there’s no one who will know all the answers no one person does but being able to tap into the right expertise along the way when necessary is really what matters and in getting to some type of a favorable resolution for the parties involved yep yeah and I think that it’s it’s with time that we realize that you know we don’t have all the answers and we need to make sure we have either advisory board or a mentor or several people along the way who have a certain expertise that they can share with you from their own battle scars and that that they’ve learned along the way yeah sometimes those
Jerry (41:44 – 42:26)
Mistakes if you make them yourself are costly and and you know we’ve all made them I mean success is not linear unfortunately right and so I think that’s the big misconception about building businesses is that it’s not just as simple as a great idea and a bunch of effort I mean there’s a bunch of different you know that it’s not a straight up and down story there’s a lot of twists and turns to the road and it’s how you navigate those twists and turns that’ll and perseverance through the bends that essentially create the success stories on the back end and everybody has them but it’s just how you navigate them and what you do in terms of when you are faced with the adversity you know how do you respond right and that that makes a lot of sense
Armando (42:26 – 43:28)
So it sounds like within the business cycle jerry you can get engaged in the very initial part of the business cycle or towards the latter part of the business cycle or really anywhere in between but as you said when there is distress and chaos but it sounds to me like also what maybe what what would be important is planning is always so important when when you do things up front as you mentioned having that agreement rather than a 50-50 have some type of resolution agreement built in before there’s a problem so even though distress and chaos may be when they they they find you or they look for you i’m sure you can be helpful before they get to that point as you’re in your example with the the retailer in the malls before they got to that point had they had a conversation with you you might have been able to help them understand the bigger picture in the industry and that e-commerce was coming whether they liked it or not and they had to prepare for it and make that part of their strategy going forward yeah you know a lot of
Jerry (43:28 – 45:38)
Times as it relates to the conversation about distress which is the thing that i’m able to speak to with the most amount of confidence what people don’t realize is that when they reach what’s called the zone of insolvency which means that the bills that are presented are not able to be paid in a current term there exists a bunch of liabilities that potentially could create individual issues that could be greater than the company itself okay and so if people are not aware of that and they’ve essentially kind of tripped into this unknowingly or as a result of hey i’m just going to kind of borrow a little bit from my vendors here to be able to because next month is going to be better or the month after that will be different you know one of the biggest examples we see which is a complete no-no and unfortunately people do it is that they borrow from their employees in terms of payroll taxes and they don’t make those payments to the government when in fact you’re withholding them from your employees check it’s a responsibility of a corporate owner to make that payment to the government and of all the federal agencies that we’ve worked with the department of labor is the one that I would tell everyone not to fool around with they view it as stealing they view it as they are very aggressive in the pursuit of getting those dollars back and it’s typically the third rail I mean not to tell you that you should not pay any government entity that’s not what i’m telling you but you know can you work through some irs yes could you work through some property tax issues yes can you work through some sales tax issues yes can you work through some payroll tax issues no I mean it is pretty pretty dry pretty cut and clear and it’s typically where we tell people look you have to figure out how to pay your payroll taxes or essentially you have to scale down your staff because it’s just nothing you want to gamble with because of the aggressive nature that that particular department of labor takes
Armando (45:38 – 45:59)
When those issues emerge yeah and that makes sense to me because as you said it really you are taking money the employer is taking money that came out of employees paychecks and using it to run the business I can understand what you’re saying that they don’t like that they don’t they don’t look at the favorably and they come down very harsh that makes sense to me yeah and look I think
Jerry (46:01 – 47:09)
Almost every one of these business owners that we talk to that ultimately gets themselves in these situations are like oh I was just going to refund it and it’s just yeah you know i’ll get back to it next month or i’ll be able to make it up and you know the problem is if you can’t again this gets back to that concept of the zone of insolvency if you knowingly are in a situation under which you’re operating a company knowing that you can’t pay your debts as they come due this could essentially introduce personal liability for the directors or the officers or the ownership of the company and it’s a critically important issue that everybody needs to understand because there is a tremendous amount of of you you you then change the dynamic it’s no longer a risk to the company it’s a risk to you personally and and that where we can get involved as I said going back to it earlier um the the earlier we can get involved the better we can insulate you from those liabilities because you have taken an extraordinary step to engage a professional like us to help you work your way out of that and together we think we can craft
Armando (47:09 – 47:39)
A plan that’ll solve those issues over a longer term okay that makes sense so I I ideally before they get they may see some signs of trouble or maybe just starting to get into trouble and they realize that but rather than wait to see if they can solve it or resolve it on their own it sounds like they might be better served by just having a conversation with you and seeing how you might be able to help them navigate that before it gets any worse yep and I think the current posture of lenders in terms of operating businesses is they don’t want to see you go bankrupt they don’t want to own your assets I think that’s a common misconception we see a lot in when we deal with lender or when we deal with companies is oh that bank just wants to own my business they really don’t I mean banks are notoriously terrible operatorsthey simply are in the business to extend capital and get paid interest on it and have that come back to them and put it back out they’re not in the business of owning nurseries or manufacturing businesses or you know car dealerships that’s just not who they are that’s not what they’re in business to do but I think there is a weird misconception in the marketplace that you know lenders when you get into these troubles they just want to own that’s the last thing they want they desperately want you to present them with a plan that allows them to get their money back and perhaps get some interest on it and find a way to and that requires you to stay alive quite honestly usually when it comes down to operating businesses the revenues generated as a result of the business being
Armando (48:41 – 49:10)
Operational right if the lender is making money by by lending and and getting interest on those loans they don’t want to operate the business then you’re right I would agree 100 that that that they want to see the business be be successful so they can get repaid and continue on their business model which is the lending of monies to generate interest and fees so they can have a successful lending institution bank whatever the institution might be yep yeah that makes sense and you know if you
Jerry (49:10 – 50:24)
Are faced with a challenge where you are dealing in a scenario where you’re dealing with a special assets officer or you’re dealing with a lender that’s asking for more information than you’re usually accustomed to you know my general advice is to overwhelm them with transparency right if you have a problem in your business let them know if you have an issue with cash flow let them know I mean a lot of times people want to hide from it and that’s not a way to build trust because those individuals are uniquely interested in trying to solve these problems and there’s two ways to go about it you can either build them as a friend or you can build them as a foe and if they’re a foe then it gets worse if they’re a friend they can do what they can to help maybe you need a third party to try to translate you know what’s the issue of your business versus how they need to internalize that for their processes and you know there’s conventional ways under which information is shared we know all of those types of things we can help business owners navigate that but in the event that they chose to want to engage on that directly don’t view those lenders you know that they’re happy to hear they don’t want to hear bad news but it’s important that you share it with them because they don’t want to be surprised right and and
Armando (50:24 – 50:39)
Jerry I think you mentioned before that sometimes it’s the lending institution that will call you because they’re trying to help that that borrower that business help them get on solid ground again and and continue going forward right correct yep oftentimes the
Jerry (50:39 – 51:20)
Biggest referral source we get is banks and they basically tell us ahead of time you know hey we have a problem credit we’d like to make an introduction of you to the company clearly we’re not telling them who to hire but we’d like to introduce them to you and then we have the opportunity to kind of discuss the merits of what we do and how we could do it for them and sometimes companies see value in that and other times they choose to go it alone or they choose another provider all of which are good answers but you know I think opportunities for success are better with our involvement when you’re faced with really significant issues yeah
Armando (51:20 – 52:23)
And it’s what you just described speaks tells me that that there’s a lot of confidence that lenders have in you and your track record otherwise they wouldn’t they wouldn’t introduce you to that to that picture at all and it also sounds like because you’ve been doing this as long as your company has been you’ve got a variety of industries you’ve worked with and as you said there’s a certain core in business that you’re really looking at and focused on because you’re not the expert in in say a particular company or industry but you do understand the business and has to make that business functional from the the core standpoint that’s correct yep that’s very well said okay good good well jerry anything that we haven’t touched on up to this point that you think is relevant for say that that business owner out there who’s listening and wondering you know how might jerry be able to help are there other things that we should touch on that you see as you come into companies to help them get back on solid grounds I think we’ve really covered a good
Jerry (52:23 – 52:53)
Spectrum I mean I think you know there’s always unique circumstances that bring people to us and I can’t anticipate or articulate every one of them as I mentioned when we opened our conversation right the typical common denominators of what we do are chaos distress you know there’s an issue with regards to uncertainty about where do we go next you know that’s where we can play a huge role and we thrive in those environments and I imagine obviously in the last 18 months or
Armando (52:53 – 53:25)
So interest rates have risen so any anybusiness that has a variable line of credit that line of credit that cost has certainly increased because of rising interest rates which might make someone who’s operating on a thin margin in their business it might make it even thinner and rather than them then risk going over the edge into that abyss where they they need help they might want to reach out to you sooner and and just have a conversation um yeah so maybe they’re
Jerry (53:25 – 54:19)
They’re not in the right structured product or maybe there’s way to de-lever their balance sheet there’s you know we talked earlier about assets that could exist that maybe are not core or critical where you could actually add working capital pay down some of that re-evaluate the kind of products that the vehicles the lending vehicles that you’re in does it make sense is it the most appropriate um you know work what’s the need for the capital is it truly working capital is it being used appropriately are you funding new ventures and opportunities with it or are you using really as it is an extension of cash flow which unfortunately many people do which isn’t oftentimes the proper way to do it um and so you know it really requires just a kind of complete holistic review of why are you using you know why do you have this debt how are you using it and is it intended for what it’s being used for um and is there another way to accomplish the
Armando (54:19 – 55:05)
Same goal yeah and sherry it sounds to me then based on what you said that from a lender’s perspective you know what the lender is looking for it sounds like you also know um i’m not sure what the correct term is but you understand enough about the the the inner workings of the banking system you mentioned for example there’s a point where you get into what you call the zone of insolvency where you might get where the the the people working the business might get personal liability because they’ve crossed a line and they wouldn’t even know it correct but you do and you can spot some of those things and and help them the business owner and and the executive executive team understand how maybe they can avoid some of that by taking steps proactively to not get into
Jerry (55:05 – 56:06)
More trouble yes that’s correct and you know it’s it’s at the realization that you are in the zone of insolvency it’s what you do next that ultimately creates the issues for you right um so you know i’m very fortunate on my staff our former workoutheads of workout departments for lenders here locally somuch like the people that work for the irs and ultimately become accountants and cpas that know the system I feel like we have a cheat code in in a way of understanding kind of what the internal conversations are happening at the bank level and so therefore when we work and build plans with our customer our clients we anticipate how that’s going to be received on the lender side and and that usually allows us to have a greater degree of success because we already know how to prepare the information for it to be you know brought further into the committee conversations or up the food chain to the chief credit officer for successful plans of reorganization yeah yeah with the people that you have on board
Armando (56:06 – 56:42)
In your experience you’re able to anticipate the questions that the bank the lender will be looking to answer and you can address this ahead of time proactively which of course as you said builds trust and can help get them out of that situation sooner so i’m i’m i’m glad that we talked about that about your your expertise in the banking arena and that you’ve got got those people on board in your in your company who’ve been in those roles working for the bank as it says workout um what do they call workout people workout officers yeah and then you know the other side of it is I think and it’s not to be understated when people when people have lawyers in their life they usually view their life as not being going in the right direction right if you if you have to be dealing with a lawyer on a regular basis with the with the exception of creating an estate or a will or handling kind of the affairs of a of a deceased parent usually people would recognize that having a lawyer in their life is not a positive thing and so we have a tremendous amount of experience in navigating litigation as well and how to understand the cost benefit analysis of of either continuing litigation understand settlement opportunities dealing with situations on helping business owners rationalize the expense and where’s the goal it’s again litigation may not always be kind of a black and white issue you know there’s certain things to understand so inherent in some of the advice that we provide to companies related to how or why they get themselves in these issues is the idea that we can potentially help them navigate and deal with threats from litigation against the company or or how to you know manage
Armando (57:49 – 58:04)
Those expectations appropriately yeah i’m so glad you mentioned that because I don’t know that we touched on that before but i’m so glad you mentioned that you’re able to navigate that because you you understand enough about that about that that you can help them get out of that in uh
Jerry (58:05 – 59:35)
With I guess more skin on their back yeah yeah no it’s and and i’m you know given the career that i’ve chosen we understand the nature of how attorneys operate why they do the things they do many people don’t seem to they I don’t want to say they vilify attorneys but I mean there’s really good people in that profession and I for the large degree they they perform a very valuable service but you know if if you’re in a contentious litigation the adverse party is going to be zealous in their pursuit and defense of their client and so sometimes it’s easy to not enjoy that process and it’s easy to not understand their motivations and how it lands on you can be incredibly emotionaland so it’s it’s also helpful to have a non-emotional party that can say yes I understand that you want to make this a personal vendetta but look is this is this small exercise you know are you going to spend way more than you’re going to get as a benefit is there a settlement opportunity is there a scenario under which you understand what the goal of this is are you able to kind of remove an impediment in the business operations I mean you know does your business run smoother better more um you know more efficiently as a result of getting this off your plate that type of thing because litigation is a wildly emotional scenario and many people don’t factor that into when it happens or in the event that their counterclaims that come the other waythose types of things are critically important and I don’t many many people don’t
Armando (59:35 – 59:40)
Appreciate that I think you mentioned before that you’ve got forensics people on board as well
Jerry (59:41 – 1:00:48)
We do yep we’ve got i’m very very fortunate to havethree talented individuals on our team that are all certified forensic examiners and so therefore you know in part what we do is the opportunity to kind of talk about how did we get here you heard me reference that in the conversation you know we do that through a review of the financials as well to try to provide clues and insights sometimes when there’s not people around you know where did many millions of dollars invested into said company go and for what purpose and was itwas it for the right purpose or was it used to enrich certain individuals or was it used to um you know foster the mission of the company or was it used in probably places it shouldn’t have been and does that create liability or does that create an issue so um you know those are more quantitative kind of skills that we have but very fortunate to have three very talented women on our team that really love that aspect of our business and you know that can exist in a variety of ways but happy to say that it’s a core
Armando (1:00:48 – 1:01:04)
Competency of us as a firm yeah yeah and that can be tremendously helpful to have those folks on board especially with some kind of litigation or accusations where you might need to prove as you said where did that money go how was it spent and was it spent for the intended purpose or not
Jerry (1:01:04 – 1:01:43)
And it’s interesting you know it’s funny for all the talk that we have about the things we do from a restructuring and reorganization standpoint some of the more interesting conversations come out of this forensicswe were engaged by a county attorney to help identify motivations of a murder trialin terms of and we’ve done everything from there all the way through to a partnership dispute and employee embezzlement so you know unfortunately money is at the core of many people’s behavior and so the ability to kind of build the record to then inform the story is how our team functions related to trying to look back and say how did you know how or what
Armando (1:01:43 – 1:02:04)
Happened yeah good well jerry this has been fantastic thank you so much for sharing your expertise and helping give a sense of of what resolute commercial does and how you help your youryour clientele if somebody is listening and and just wants to have a conversation with you how would they do that through an email through your website calling you what’s the best way for
Jerry (1:02:04 – 1:03:01)
Someone to get in touch with you yeah first and foremost armando thank you so much this has been a pleasure and I appreciate the opportunity to speak to your audience and thank you for being a gracious host and prompting me through some easy discussions on my behalf but i’m hopeful that individuals in your world find this helpful but in the event that they choose to want to reach out to me individually I can be reachedyou know my phone number here at the office is 480-947-3321 my email address is jfoster at resolute r-e-s-o-l-u-t-e commercial c-o-m-m-e-r-c-i-a-l.com and then obviously that’s also our website so resolutecommercial.com any one of those three should give you an opportunity and I welcome an opportunity to connect with individuals that have things on their mind or had want to explore ideas or
Armando (1:03:01 – 1:03:44)
Ways we could be of assistance yeah that sounds fantastic and it seems to me jerry that anybody who’s got some kind of a loan on their books now in their business and maybe they’re just not quite sure what the future holds for them with the economy or their revenues or what have you if they’re thinking they might be headed towards not such a rosy picture with the business they might want to be they might want to get ahead of it be preemptive and maybe just reach out and have a conversation with you to see how you might be able to help navigate them help them navigate them yeah just to re-emphasize the point to meet our business clients at their earliest point of distress gives us the most options for help so excellent well jerry thank you so much for this
Armando (1:03:44 – 1:04:30)
conversation really enjoyed it and let’s hope that the right business owner is listening and can reach out when they can use your help wonderful thank you again yep my pleasure hope you enjoyed this episode of the founder’s guide post whether exit is on your immediate horizon or maybe 10 years down the road there’s something here for you and remember we all have an expiration date we just don’t know when that will be which is why planning ahead is critical and if you’re if you’ve missed anything in your planning contact me to schedule your founder’s strategy call you may call our office at 480-367-900 or schedule a call at axiomcorp.com here’s to your american success story.
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