Bankruptcy: A View from the Top

November 29, 2017


Robert Katz, a managing director in EisnerAmper’s Financial Advisory Services Practice, gives us a high-level view of the bankruptcy process: the keys to a successful restructuring, what to know about the post-bankruptcy phase, and how the process is impacted depending on your business sector. Robert takes you through an interesting case study and tells you how important bankruptcy is as a barometer of the economy.



Dave Plaskow: Hello and welcome to the EisnerAmper podcast series.

With clients of all sizes across all industries, we’re always interested in the latest trends and developments as well as any related business and accounting opportunities and challenges. I’m your host Dave Plaskow and with us today is Robert Katz, a managing director in EisnerAmper’s Financial Advisory Services practice. In this episode we’ll talk about some of the issues surrounding the bankruptcy process. Hopefully it’s information you’ll never require, but you’ll be so glad you have it should the need arise. Robert, welcome and thanks for being here.

Robert Katz: Dave, it’s great to be with you and thanks for having me.

DP: What are three questions a CEO should ask himself or herself if they’re considering bankruptcy?

RK: I’s not only bankruptcy but profit improvement and operating improvement. That’s a big part of our business. What do I want to accomplish at the end? What’s the goal? To me whenever you go into restructuring, performance improvement or anything, what are you trying to accomplish? Do you have the financial resources to do it? Do you have a runway, and do you have the operating expertise and roadmap to get there? I always say when I talk about financial resources it’s like, if you do home improvements and run out of money halfway through the project and the kitchen’s half done and the bathroom’s half done and it’s not functioning it’s a big problem. So you want to make sure you have the resources before you go in.

DP: So what are the keys to a successful restructuring?

RK:There are four keys. One is the vision. Successful businesses have a vision and an understanding of what they’re trying to accomplish and how are they getting there. Two, it’s the human capital. I’ve written articles that say if you don’t have enough human capital or the right human capital you’ll never have enough working cap. You have to have the right people to accomplish success. You have to have the resources and commitment, whether it’s operations, whether it’s a service business, the resources are important and the ability to execute. Not everybody’s going to be a soldier, not everybody’s a general, but you need the proper mixture of both to make it happen.

DP: Without mentioning any names, of course, have you had any interesting client case studies lately and, if so, what was the outcome?

RK: I can give you my most recent and probably one of my favorites. We started with a manufacturing distributer when they were in bankruptcy – 2008; the world was collapsing. They got money from a private equity fund to open up retail stores, which wasn’t part of their vision, and so they did it and it failed. So they went through a bankruptcy so that we could jettison the retail stores. They focused on manufacturing distribution, what they really did well,. We found them a new lender, which is part of our practice to make sure the financing’s in place, and in the last eight years they grew their business from $30 million to $130 million and just sold it for a valuation in the $50-$60 million range.

DP: So it was a story with a happy ending.

RK: It was not necessarily happy, but an awesome ending. And look, the true entrepreneurs – they’re still looking at the next level, not what to do with the money they’ve just received.

DP: Right. So it goes to show that bankruptcy doesn’t have to be the death knell of your entrepreneurialism.

RK:Right, it’s like I said, it’s about the plan. When the client went in we knew why they were going in, we had a short timeline on what we wanted to accomplish, we talked to the creditors beforehand so they understood why, we knew most would not be happy, so how were we going to repair the damage that was done over time. And you had an entrepreneur who was terrific. He handled all the tough questions, didn’t duck anything and they’re just doing terrific.

DP: Good. Now what about the post-bankruptcy phase? That might be a phase that when people are going into bankruptcy or considering bankruptcy they don’t really think about that end of the process. But tell us a little bit about that.

RK:The important things are you’re going to need time to recover. So when you come out, you’re still going to have the bankruptcy or restructuring stigma, and how do you deal with it? How do you re-nurture the relationships, thank your customers and vendors for working with you, and understanding that it’s going to take time. Nothing happens overnight. Nothing happens as quickly as we want, but it’s times and patience. As somebody once said to me it’s like turning the Queen Mary – it’ll happen, it just takes time.

DP: And is that part of your charge as a business advisor to maneuver that ship through the post-bankruptcy phase as well?

RK: It is, and look, the client I was telling you about, one of the things that we do is my relationships are four, five, six years, where after we’ve – whether it’s in or out of bankruptcy – when we’ve helped them with the intensity of a project, we keep providing consulting services to help them hopefully grow.

DP: So you’re really integrated with those entrepreneurs and business people.

RK: Yes.

DP: Talk about different industry niches. Do you approach the process differently for different business sectors?

RK: There are some but at the end, and not-for-profits always have a different dynamic because when you’re mission driven it’s different then when you’re totally financial driven. But as I said to somebody, not-for-profit doesn’t mean not-for-cash. So if you don’t generate cash you can’t support the mission. And it’s all about the operations and generating cash flow. Again, whether it’s a service, a manufacturer, the retailers, the not-for-profits. So the industry, while some will tell you it’s critical, it’s less critical.

DP: It used to be that the number of bankruptcies was a good indicator of the economy. Does that still hold true and, if so, where are we now, what are you seeing?

RK: I’m not sure. Look, certain industries – we were just talking about Toys R Us and the dynamics of it so everybody knows retail is struggling, the housing crisis, you know, real estate is somewhere between OK and on the rebound. And so, I think, it’s more the industries, that affects the ultimate consumer.

DP: If you had to look into your crystal ball, what… I mean retail obviously has gotten hit really hard with online shopping and some companies are really you know, in trouble, Penny’s and Sears and so forth. What do you see? Looking down the road, what do you think will happen there?

RK:So some companies are significantly better at being flexible and adapting than others. And how capable is the management team or the executives to be flexible and adapt? And back to what we started is do you have a runway - financial and otherwise - in place to accomplish whatever your goals are. And I think they become some of the most critical things. Do you have the vision? Do you have the people who are willing to make the time, the effort and the commitment to do so? And if you don’t, you need to switch them out very quickly.

DP: This isn’t one of our tax podcasts, but we have been talking a lot about tax reform and regulations that are coming down the road and their impact. What about in your world – in the bankruptcy world and restructuring? Any regulations on the horizon? Anything of a legislative nature that our listeners should know about?

RK:I think with what people are looking at is that the middle market non-public bankruptcy is a different animal than large public companies. Everything today is a question of what’s it going to cost, and for the most part people say whatever it is it’s always too expensive. So how do you keep those things in place knowing that that’s something that people are always going to focus on.

DP: If a company is considering bankruptcy, what should they look for in a business advisor such as yourself? I mean obviously you want to be sharp and know the codes and the rules and that kind of thing. But how much does personality play into it that you’re in tune with the person. I mean if I’m looking for help in that area should I look for in an advisor?

RK:So great question David. I think one, to me, initially it’s empathy, right? You want people that are going to understand what’s going on and that you get along with - bond with may be too strong. But look, you’re going to be working a lot, most of the time it’s in a very intense situation and environment, and you want to surround yourself with people who are going to help you accomplish the goal. And I always say there are going to be people who when you go through tough times, whatever they are, they’ll come up way bigger than you ever thought possible or way smaller than you ever thought possible, and you never forget both. And when you sit down with people, however you decide to size them up, you want to make sure you’re with people who you think are going to come up way bigger than you ever thought. And if they don’t, then that you can tell them that and they’ll accept the commentary without being defensive. Because it’s not about pointing fingers, it’s about how do you get to the goal.

DP: Those are some good words of wisdom to end on. Robert, thanks for this great insight and your time.

RK:Dave, thank you.

DP: And thank you for listening to the EisnerAmper podcast series. Visit for more information on this and a host of other topics. And join us for our next EisnerAmper podcast when we get down to business.

About Robert D. Katz

Robert Katz CPA is a Managing Director of EisnerAmper Financial Advisory Services Group, and works with public and private companies, in and out of bankruptcy, to create and execute the strategy needed to restructure or improve operating performance.