So Your Client is Killing Her Business?
Tell Her!

By Gary Goldstick
Vol. I, Issue 4

Can you imagine a doctor observing a cancerous tumor developing in a patient's body--and failing to warn the patient? Of course not!

Yet some professionals-accountants, attorneys, consultants--do the same thing when they fail to alert clients whose businesses are headed for financial trouble.

The most critical factor that ultimately determines the fate of an under-performing or financially troubled company is the early determination that "business as usual" is not working--and a strategic change is required. Early detection of financial problems prior to the onset of the death spiral provides the operating executives the most options. Financial distress, like cancer, is a progressive disease; the sooner its symptoms are noticed and acknowledged, the greater the likelihood that the business will survive and return to financial health.

Unfortunately, by the time many businesses acknowledge that they need help, it's already too late. Left unchecked, their little problems have turned into big ones--and their big problems have grown claws and teeth. An early warning from a trusted professional could have nipped the problems in the bud. But ironically, the same persons likely to notice the first signs of business illness--the accountants, attorneys and financial consultants--are often reluctant to speak up.

Why Do Executives Wait So Long To Seek Help?
Many factors may prevent a CEO from acknowledging problems or seeking help. An important one is her ego. The chief executive of a company, no matter how large or small, expects to resolve problems on her own. The business runs on her authority. If evidence develops that indicates a serious problem may develop from an error of commission or omission by the CEO, a subordinate will rarely expose it. If someone does speak up, the CEO is likely to discount it--after all, the subordinate doesn't really understand the business. The CEO needs to hear the "bad news" from an objective outsider whose expertise he respects.

Other Reasons CEOs Have Difficulty Acknowledging Serious Problems
Most CEOs and owners are operations oriented. They are concerned with the day to day tasks of identifying customers, delivering products and services, billing and collection, keeping the lights on, meeting the payroll, etc. Rarely is there the time, opportunity or motivation to objectively assess the results of operations from a detached and professional perspective.

Too often the colleagues, employees, and many professionals with whom the CEO comes in contact do not have enough of the facts to be able to offer constructive comments or advice.

The owners and CEOs of a deteriorating business are subjected to very high levels of emotional stress--because of the perceived threats to their financial future and their diminishing control over events which they interpret as assaults on their senses of self worth and self esteem. As a consequence owners/CEOs typically exhibit one or more of the following emotional maladies.

Denial - they avoid careful analysis of the problems because they are reluctant to deal with the consequences of the analysis.

Anxiety - they are frightened and devolve into a fight or flight mode; they frequently take precipitous actions that haven't been thought through and have unintended consequences.

They are depressed over their situation, become catatonic and are unable to make decisions or take decisive action.

They become delusional and create coping strategies that have a very low probability of success.

As a result the CEO/Owner is not in a very good mental or emotional frame to perform the hard work of analyzing the company's situation.

And Why Are Some Professionals Reluctant to Warn Clients of Impending Financial Trouble?
As many experienced professional advisors will attest, constructive criticism can bring on unintended consequences. Many have tried to warn their clients - with disastrous results. Sometimes their warnings are met with indignation ("So! You think I'm incompetent, is that what you're saying?"), followed by a terse letter terminating their services.

Often the professional is forced to listen to endless reassuring monologues - how the current problems will vanish when that multi-million dollar private investment deal comes through. You know the deal being pursued by the guy who knows a guy who's got a line on some money.

So Why Bother?
It's true that alerting an executive to the warning signs of an impending business failure can be an unpleasant task. Still, there are strong arguments for why each of us should.

1. As advisors and professionals, each of us is bound to a code of conduct--whether formal or informal--that obligates us to give our clients the best advice that we are capable of. Just as a doctor has an obligation to his patient to "give it to her straight," a professional advisor owes his client an honest opinion.

2. If you don't tell a business executive that her firm is headed for trouble, who will? Not her management staff, which may have caused the problems in the first place. Not her spouse or relatives, who know better than to question the authority of the family monarch. Not her colleagues at Rotary or the Chamber of Commerce whose understanding of the business--superficial at best--doesn't qualify them to criticize. In short no one!

3. Finally, when you do "what's right," you'll be doing what's in you own best self-interest. After all, if your client loses her business, you lose a client. But if the business remains healthy as a result of your expertise, you can look forward to earning substantial fees from the business during the life of the business relationship. Healthy businesses continue to make money and can afford to pay professional fees.

So What's the Best Way to Let a Business Owner or Executive Know that her Firm is Heading for Trouble?
First, consider making a periodic financial or operational assessment as a routine part of your client-professional relationship. Use an objective means of assessment--such as the self-scored Goldstick Business Health Index--to track the business's health on a regular basis. By steering clear of "opinion" and providing an objective means of diagnosis, you can help your client isolate and focus on the individual areas of the business that need work. And you'll minimize the probability that your client will perceive your well-intentioned warnings as a criticism of her competence and an assault on her ego.

Being the bearer of bad news is never pleasant. But by following the guidelines described above, you can alert your client to developing problems in a constructive and non-threatening way. You'll be providing him with an invaluable asset; the early warning that is a prerequisite for a successful cure.

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Other newsletters by
Gary Goldstick:
Revitalizing the Under Preforming Company

Five Crucial Questions You Need to Ask to Insure Business Success

Ten Dos and Don'ts to Keep Your Banker Happy

>The Business Health Index is a self-testing instrument that will provide a business owner a general diagnosis of the company's health. Take the test

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