This paper explores the basic procedure and provides two templates for the initial screening of a company in distress. The tool consists of guidelines, a case and two templates: A template for the initial phone call with the company owner and a template for the screening meeting between the company owner and the business consultant from the Early Warning organisation.

Guidelines: Key points to consider 
The initial screening is very important for the choice of actions and – if relevant – the matchmaking with a volunteer mentor. Helping a company manager, who is also the owner of the company (owner-manager), is extremely challenging compared to (larger) companies, where the manager is working on behalf of the owner(s). Some of the specific barriers to a successful intervention in a crisis-situation include:

  • Owner-manager often have a close, personal relationship with the employees and this may keep them from making any decisions that result in redundancies. 
  • The identity and self-image of owner-managers, especially male owner-managers, is often based on their ownership and management of a company, and this can make it very difficult for them to accept the realities and ask for help.
  • Owner-managers often feel that they have done everything they could to avoid/deal with the crisis, and this may result in apathy.
  • Getting help and advice from other people may cause anxiety and resentment, which can make it difficult for the owner-managers to act rational and/or implement actions according to recommendations by the EW consultant.
  • His/her family is often deeply affected by a crisis, and dealing with an owner-manager in a crisis-situation will therefore also involve dealing with conflicts in the family such as potential conflicts between the owner-manager and his wife/her husband.

It is important that business consultants and mentors are sufficiently prepared to deal with these issues and situations, and that they have the right skills, experience and tools available. The most important skills/qualifications include: 

  • The ability to analyse in detail the financial situation of a company
  • Knowledge about turnaround management
  • Knowledge about funding opportunities and requirements
  • Knowledge of insolvency law
  • The ability, knowledge and will to have an open and respectful dialogue with a company owner in a severe economic and personal crisis

See also tool [XX] concerning the training of business consultants and mentors. A key point is that the business consultants need to be able to quickly identify and distinguish between economical/financial problems and psychological problems.

Case: Screening of companies in distress in Denmark
Most of the companies that contact the Early Warning programme are in an acute crisis and close to being declared bankrupt. The means that time is crucial and that the business consultants need to react as fast as possible.
Company owners that reach out to the Early Warning programme for help will be contacted by phone within 24 hours. The telephone conversation will help provide the business consultant with an overview of the situation as well as provide the company owner with some peace of mind. The EW consultant will ask the owner of the company to forward relevant information, and - depending on the specific case - the EW consultant will also set up a meeting with the company owner within 1-5 days after the phone call.

The meeting with the company owner usually takes no longer than 2 hours. During the 2 hours, the EW consultant will perform a screening of the company and analyse the situation. The screening ends with the EW DK consultant together with the company owner discuss the actions to be taken: What can be done in the short term, and what kind of fundamental changes is needed in the longer term. In a lot of cases, the main causes of the crises are clearly identified and the company owner will have a more realistic understanding of the situation of his/her company and of the main actions to be taken.

The results of the initial screening are reported in the CRM system [link to tool] by the business consultant. If it is possible to save the company, the business consultant will start a matchmaking process to find the most qualified volunteer mentor [link to tool]. The mentor will need to have knowledge and experience which matches the specific situation of the company. 

The business consultant can also set up a meeting with a lawyer to get legal advice on ownership issues, reconstruction of the company, etc. The meeting with the lawyer usually takes place within 1-3 days after the screening.
If the company cannot be saved, the business consultant will ask a lawyer to provide advice on how to best close the company, for instance by filing for bankruptcy. The business consultant will provide professional and personal support to the company owner until this process has been finalised.

Template: Initial phone call – main steps
The phone call between the company owner and the EW consultant should take place within 24 hours of the initial contact.
The first step is to identity the person, who has contacted the Early Warning programme

is it the company owner or is it someone else e.g. husband/wife, employee, manager, etc? The contact person must be the company owner or a person who has been mandated to speak to the Early Warning consultant on behalf of the company owner.

Second, the EW consultant will ask the contact person to provide a short description of the company and the financial situation of the company as well as the contact person’s own assessment of the main causes of the crisis:

  • Short description of the company (main products/services, market situation, ownership structure, management structure, etc.)
  • Assessment of the financial situation (liquidity, assets, cash flow) to get an understanding of the nature and extent of the crisis 

The EW consultant will also ask the contact person to – if possible - forward relevant information including balance sheets, financial reports, audit reports, list of creditors, etc. prior to the screening meeting. This will allow the EW consultant to make a preliminary analysis of the situation. If this is not possible, the information should be provided at the face-to-face screening meeting between the EW consultant and the company owner.   

Third, the EW consultant will provide a brief introduction to the different steps of the EW procedure, set a date for the screening meeting, and discuss the expectations, agenda and expected outputs of the screening meeting.

Finally, the EW consultant will try to build trust and provide some comfort to the contact person, who is often deeply affected by the crisis-situation. This will often be the case with owner-managers and their families. It is extremely important to allow the contact person enough time to explain in detail the situation and talk about the problems and their concerns. The contact persons are often dealing with a lot of stress and anxiety, and it is important that the interaction with the EW consultant does not put additional pressure on them.  
Template: The first meeting with the company owner
In Denmark, the screening of a company in distress is performed by experienced business consultants and the screening takes into consideration a range of financial, organisational, managerial and psychological factors. The screening is performed based on a face-to-face meeting with the company owner and additional research with a focus on annual accounts, audit reports, etc. The meeting usually takes place at the company, but in some cases the company owner will request another location for the screening meeting in order to not cause any concerns among employees. 

A template for the screening of companies has been developed for the Early Warning Denmark programme and it is being used by all EW DK consultants as a checklist during the first meeting with the company owner. The template is designed as a 360-degree review of the company and includes questions relating to the financial situation of the company (assets, cash flow, state of operations, debt, creditors, etc.) and the main causes of the crisis:

  • Ownership, management and organisation (e.g. lack of managerial competencies, disagreement between owners, etc.)
  • Production, procurement and costs (e.g. quality, planning, facilities and equipment, etc.)
  • Administration and finance (e.g. expensive loans, financial losses from debtors, insufficient financial management, etc.)
  • Strategy, sales and marketing (e.g. market developments, insufficient marketing, lack of strategic focus, etc.)

Moreover, the business consultant will analyse the personal situation and personal relations of the company owner. Some of the main distress signals in that regard are:

  • The company has stress symptoms, is depressed or ill
  • Relations with close family (husband/wife) are severely strained
  • The company owner does not assume responsibility for the situation
  • Relations with key stakeholders (bank, accountant, board members) are strained

Personal questions can be difficult to ask directly e.g. “are you depressed?”, but often ‘open’ questions such as “How would you characterise your current personal situation?” can help start a conversation concerning these issues. 

Experienced EW consultants usually do not need the template/check list because they can quickly identify the main causes of the crisis and thus start focusing efforts on identifying and supporting the implementation of relevant actions.