SPECIAL GUEST BLOG By Pat O'Sulllivan, Strategic Change Mentor, Mentors.ie

In today’s economy, simply managing costs may not be enough to keep your company alive. What do you do when your business has already negotiated the best terms with vendors, stripped suppliers down to the barest of inventory to run the business, and cut operational costs to a shadow of their former selves?

Just as many home owners are in negative equity, many SMEs are left with debt that far outweighs the value of their assets. At a time when the company was valued at €10M, borrowing against future sales for expansion may have been a smart decision for both lender and borrower.

However, if an assessment in early 2011 has suddenly reversed this trend – your €10M company with €5M in debt has become a €2M company with €5M in debt – both borrower and lender are apt to panic. The borrower may be laboring under the burden of finance payments which current revenues cannot support, and the lender is not confident they will get all their money back if the borrower goes into receivership or liquidation. With such fears influencing the actions of both parties, is it any wonder that debt restructuring negotiations are often highly stressful and emotional processes?

One of the services we offer at Mentors.ie is to act as a broker or mediator during a debt restructuring negotiation. As an objective third party, we’re able to benefit both the borrower and the lender while removing personality conflicts, emotion, and unreasonable negotiation tactics from the situation. Our goal is simply to achieve a resolution that is fair and equitable for both sides. It’s simple to start with the common objectives of both parties – neither group will benefit if the borrowing company goes bankrupt. Therefore, both parties must negotiate restructuring taking into account new valuation realities and future projections.

Often lenders and borrowers are so fixated on the current mess that they fail to consider the future possibilities of a continued partnership, which a restructured debt may bring them. As management consultants, our job is consider resolving the current problems while advising both sides on how current challenges may result in future opportunities. Excessive emotion and stress and lack of relevant experience often preclude the parties from doing a deal that delivers the best possible result to both parties.

When cost management isn’t enough and you’re faced with the difficult challenge of debt restructuring, consider bringing in a good mentor to assist both parties and achieve the ideal outcome for all involved.