Los Angeles, CA

Wednesday, October 28, 2009

That's a scary thought for any entrepreneur or business owner. But there are good bankruptcies and bad bankruptcies, or rather companies that should consider filing and companies that would not be improved by filing. What's the difference?

Gene Siciliano, a Los Angeles based Financial Management Consultant known nationally as Your CFO for Rent,® discussed this issue. "According to a study completed early this year by University of Utah researchers and based on an examination of over 500 actual bankruptcies, telling the difference is not hard."

"The concept," says Siciliano, "is that good bankruptcies are those that can rehabilitate a company by removing leverage from their balance sheet. In other words, if the company would be profitable without the demands of servicing debt, removing that debt can make the company whole again. The researchers called these companies 'financially distressed.' By contrast, a company that would still be losing money even without the leverage is still a loser, and a fundamental revision of its operating model is needed before removing debt will restore its viability. These companies were labeled 'economically distressed.'" Siciliano notes "Not surprisingly, the Utah study found that economically distressed companies lose about half of their assets in the bankruptcy process, are three times more likely to file again within three years and six times more likely to ultimately liquidate."

Siciliano says "This speaks volumes about cleaning up the shop before you clean up the debt. Also about hope for companies that are sound but deeply in debt." He went on to add, "Our own research tells us the highest bankruptcy statistics are yet to come for this recession, with more companies failing as the economy recovers and their competitors use dry powder to steal market share. It's safe to say those historically valid statistics are populated with companies the Utah researchers would label 'economically distressed.'"

Gene Siciliano, CMC, CPA, is an author, speaker and financial consultant who works with CEOs and managers to achieve greater financial success in a dramatically changing economy. As "Your CFO For Rent" and president of Western Management Associates, Siciliano has spent more than 20 years helping his clients build financial strength and shareholder value through applied knowledge and process improvement. His book, "Finance for Non-Financial Managers," (McGraw-Hill, 2003) is available in bookstores and online. More information and free articles are available at www.GeneSiciliano.com.

Mary Baldwin DeHaven

Public Relations Director

Western Management Associates

Los Angeles, CA

310-645-1091

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