Solutions Management .............
     a new approach to the troubled company.

Chapter Two: Symptoms of an Under-Performing Business

I. INDICATIONS TO INVESTORS OR LENDERS

The ideal candidate for OEM Capital Corp.'s asset recovery and restructuring services is performing at well below its potential profit level.  The basis for the original investment may have been sound, but the company has not performed as planned.

Usually the candidate has one or more of the following characteristics:

• interest on subordinated debt is in arrears;
•   the company is having difficulty raising additional capital; and
• the investor or lender, having suffered at least one financial surprise, no longer trusts the financial reports, expense budgets or sales projections.

These may be the first indications that are seen.  Some of the other signs are:

• a decreasing trend in orders and shipments;
• a decrease in receivables collections;
• a decrease in inventory turns; and
• an increase in the aging of trade payables.

II. OPERATING MALAISE

As working capital becomes scarce, managers have less time to be concerned about customers.  Work becomes agony, and many hours are spent on :

• soothing angry trade creditors;
• reassuring secured lenders who are worried about maintaining the value of their collateral;
• dealing with unsecured lenders and shareholders who see their investments in a meltdown; and
• counseling employees who may be concerned about job security.

In an under-performing business, management is often doing everything except what it should be doing - running the business.

When managers are harassed and distracted, they begin to make mistakes.  The cumulative effect is to reinforce a downward trend that often goes unnoticed during the early stages when corrective action is easiest.

III. MANAGEMENT RATIONALIZING

If we can hold on until the economy improves, our sales will shoot up, and our problems will be over.

If only we could find less expensive suppliers, we could make money.

If we could only raise prices by a few percentage points, it would wipe out our losses overnight.

Our operating results are really pretty good for our industry, we just have too much debt.  The interest is killing us.

It's not our fault, the company's problems were hidden by previous management.

When you strip away ego and self interest, the truth is that many of the problems of an under-performing business have been incubating for some time.  An action-oriented approach is essential. The business must be kept alive while each problem is resolved in priority order.