During ten years as an executive and an additional twelve years as a member of the board of directors, Milo Smith performed his first turnaround with this business.  The real reason we were able to turnaround the company was because of its network of committed franchisees.  The company had operations in Canada and the United States.  

At the depth of its problems the situation could be summarized as follows:

Bad News:

A review of the assets relative to the net worth indicated the company was technically insolvent.

Lenders were looking to recover $7.4 million in loans.

Any money owed in Canada was secured with sufficient assets to give the Canadian lenders comfort.

Ten trade creditors were owed amounts in excess of $100K each and were called each week with a progress report on making payments to eliminate the debt.

The company was in default with a Canadian government agency in the amount of $250K because it could not perform under the terms of a grant.

The company had to obtain permission from two governmental authorities in order to liquidate the facilities.

The company had 144 lawsuits from customers and distributors to resolve.

The company had done a sales leaseback transaction on its Canadian display centers to raise cash that had been spent.

The company had a going concern opinion on its financial statements that created problems with franchise regulators.

    Good News:

The company had a core of 125 franchised distributors with an investment of $500K to $750K in a display center.

The distributors had to sell homes in order to rationalize their investment - - and they did.

The selected management team approved by the lenders built the systems and procedures to make the business work.

 From a franchising perspective we did the following to correct our situation.  We completed negotiations with the U. S. Federal Trade Commission on a franchise complaint.  We reorganized our training program to really teach the business that resulted in a 500% improvement in franchisee productivity.  We rebuilt our franchise system to 350 franchisees.  We settled 137 of the 144 lawsuits without going to court.  We installed a customer service operation that reduced customer complaints to a manageable level and we settled almost all complaints in favor of the customer.  

The results were a quick return to profitability, substantial pay down of debt and a cash flow understanding of the business that resulted in no further short-term borrowing on the company's line of credit.

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Copyright 2002 - 2006 - M. D. Smith & Associates, Inc.
Last Modified:  April 17, 2006