Save your Company from Bankruptcy

Sometimes business owners are too close to their companies to see things as they really are, and by the time they begin to understand why their company may be failing, the damage may be insurmountable. The key, according to “Deal Talk’s” guest on this edition, is to have someone (or a team) with no emotional attachment to drill down and discover the causes of financial losses that could result in eventual bankruptcy. How do you prevent bankruptcy, become profitable and rebuild lost value in your business? Find out during Jeff Allen’s chat with CPA and business advisor Charles Schnaid.

Questions Answered For You

I guess the first thing that they need to do, they need to be honest with themselves the owners, and really look at what's happening with their company.

- Charles Shnaid

Key Takeaways

  • If your business is doing badly you must exhaust all the possibilities you can, including looking introspectively at the cause of the failure.
  • An independent advisor such as a CPA gives you a much better view and enables you to be objective rather than emotionally involved.
  • It’s important to satisfy yourself that there's been no misappropriation of funds or embezzlement.
  • You need to develop a team of people who can run your business in the event that anything happens to you, or the business needs some fresh blood.

Read Full Interview

Jeff: Welcome to Deal Talk brought to you by Morgan & Westfield, I'm Jeff Allen. If you're looking to sell your company now or at some point in the future it's our mission to provide information and advice from our growing list of trusted experts that you and all small business owners can use to help you build your bottom line and improve your company's value.

For many struggling companies of any size and in any industry there often comes a time when owners are faced with some serious questions about their business. The most important of which can often be, "How can I save my company, or how can we possibly keep the doors open?" No matter the cause, no matter the environment, if your business is failing or has fallen on hard times such questions can lead to some really serious reality checks. But my guest on this edition of Deal Talk has an outstanding reputation for helping business owners figure things out and get their businesses back on the road to profitability. His name is Charles Schnaid. He's a CPA and business advisor in Southern California. He's worked with clients in a variety of industries all across the United States. Charles, welcome to Deal Talk sir, it's good to have you.

Charles: Thank you. It's good to be on the line with you, Jeff.


Jeff: You actually retired a few years ago but it needs to be said that you're still available for those situations where people are truly in need with respect to their business. Give us a brief snapshot, kind of a summary sketch of what you do, where you've been, and how you help your clients.

Charles: I became a chartered accountant in South Africa and practiced ... I served five years of articles working for a chartered accounting firm in South Africa which is required by the law. And then practiced in my own firm for 17 years before immigrating in 1980 to the US where I became a CPA. Three years ago I officially retired from my CPA firm that I was with for 25 years and I still consult for some of their clients and some new clients. And I'm happy to say that probably for the first time in my career of over 56 years since 1959 now I'm at the stage where people seek me out and if I’m interested I take it on, otherwise I'll refer it to someone else.


Jeff: Charles, we're very glad to have you on. It's an honor, sir, and we appreciate you giving us some of your time today because I know that you've got a busy schedule to keep with your own clients. I'd like to start off now by getting your feeling about whether or not you have seen that most companies or that many, I shouldn't say most, that's probably not the right word to use. But do you believe that many companies that file for bankruptcy do so too soon and that they probably aren't looking more deeply for solutions that can prevent them from having to go to that extent?

Charles: Possibly Jeff, possibly there are companies that go to the bankruptcy court too soon. And the way laws are, the bankruptcy courts are pretty lenient on that respect, especially in regard to chapter 11. I'm not talking about chapter seven which is a final, but chapter 11 which gives the company a chance to work out. However, having said that, there's a time and a place at which you do go for that. The first thing you need to do is you need to look at, I don't want to say you, I'm talking about the company itself, the owners, the board members, and the advisers. They must exhaust all the possibilities they can including looking introspectively at what was the cause of the failure or why are they failing? Why are they on the slippery slope where they're sliding downhill and not growing, the revenue is down, the expenses are up, the cash flow is down, the payables are up, the receivables are going up and taking longer to collect? They need to look at all these things and also satisfy themselves that there's no misappropriation of funds or embezzlement. Once they’ve eliminated all those possibilities, and that takes some time, then they need to prepare themselves for a chapter 11 filing. And it's not as simple as going to the bankruptcy, turning and filing. But the most advantageous time to do that is if you're sitting with cash in your bank having not paid your payables for a while and having collected as much receivables as you can so that if you can come up with a plan, and this has to be the case, you have to come up with a plan to the bankruptcy court judge to show them how you intend to get out of the bankruptcy and what are your plans going forward. So it isn't just a decision, "Let's file for bankruptcy." It's a decision that has to be carefully considered before it will be made. 

So it isn't just a decision, "Let's file for bankruptcy." It's a decision that has to be carefully considered before it will be made. 

Jeff: Very good points, and from your experience, Charles, and your conversations that you've had with probably thousands of business owners throughout your career. Where do most things start to go wrong in a business that is showing signs of real financial stress or ultimately failure?

Charles: I guess the first thing that they need to do, they need to be honest with themselves the owners, and really look at what's happening with their company. They need to do record keeping. They need to wonder why or they need to stop ignoring any warning signal such as I said early on all of a sudden the bank balance is reduced, the payables are going up, the receivables or collections are extending longer and longer, and trying to find out why is that happening. Is it, is it the outside world, is it because of recession, is it because of competition, are we making the wrong product, has the product run out of its life, does our product need refurbishing, does our service need to be refurbished? These are the things they need to be looking at and really being honest with themselves.


Jeff: You and I had the chance to talk, Charles, sometime before we sat down here today to do this program together. You had talked to me about some interesting instances throughout your career where you sat down with a business owner and you'd mentioned earlier that they didn't have a clue and they seem surprised by your findings. How is it that you can go into a company and you can see these things that are right there, are pretty obviously dragging the company down, but the business owner doesn't really have a clue or in understanding of these things that are dragging his business down?

Charles: First of all a CPA has to be considered independent. And that gives you a much better view and enables you to be objective than to be emotionally involved. I think of a company back many years ago where the young man, his father died and he took over this business which was very, very successful. The business was where they would buy up from Goodwill and all these places, the clothing and articles that were contributed by donors. And then they would buy them up, they would sort them out, they would try and find the good with the bad. And then they would sell them to underdeveloped countries and other countries. And what was happening was the yield that they were getting, because they were buying sight unseen, they were buying a truckload, a whole bunch of stuff together, they couldn't pick and choose. And if they were buying badly then the yield was down, if they were buying well then the yield was good. What was happening was the yield was going down irrespective of how they were buying. And the gentleman I was with, I got the impression that he was not really happy, he was highly qualified. He had taken over this business but he wasn't qualified and wasn't enjoying this particular business, he was doing it because it was a family obligation. And he was ignoring really the basic essentials in a business like this. In other words he wasn't looking at what internal controls that he had from the time that he purchased the truckload to the time it came into his warehouse, how is it being sorted, what is happening with the clothing or better stuff that was not being retained, what was happening with that? And I would ask him these questions and he would say he has an office which overlooks the warehouse. There's a big window, he can see what's going on. His big window wasn't big enough. In fact it was probably too big and he had a vista of a complete factory but not looking down to the individuals. And I asked him one day if I could come along to his warehouse, just kind of stand around and observe. And I stood around and I watched them. There's one particular woman who was sitting on a bench and she had a tray or a basket of used clothing and she was putting one at a time, looking at it, putting it into a separate basket which obviously was the one she would keep. And then another one for the rejects. I noticed that she was putting one into the basket, one into the reject, and one was going on the floor. And I thought, "That's strange. Why was that happening?" I kind of moved a little closer and I saw the pile on the floor was building up. And I asked him, "Why do people put piles of clothing on the floor?" He said, "I don't know. I never noticed that." I said, "If you have a pile of clothing on the floor, how much would you say that pile is? And I pointed it out to him, "What's the value of that?" He said, "$5 to $10." I said, "If you multiplied that for the number of workers in your warehouse and by the number of days in a week, by the number of weeks in a year, that's a pretty substantial sum. He said, "You're right. I'd never, ever thought of that." So that was something that somebody was independent, somebody who was not training, inexperienced, was able to look at it. He was wearing rose-colored glasses and he wasn't looking really at the finer detail and that was the problem. He should've considered at some stage if the business is not something he wanted to be in, he could've sold it at a significant amount of money at the time that he was riding the crest of the waves. It was one of the oldest in the city. And he eventually sold it but for a pittance compared to what he could've sold it.

He had taken over this business but he wasn't qualified and wasn't enjoying this particular business, he was doing it because it was a family obligation. 

Jeff: And so the problem was really right under his nose. He didn't recognize it, he didn't see it. And that's where of course your objectivity came in because you came in with a fresh set of eyes and you had no agenda. You came in and you found the issue, you brought it to his attention and there it is. Stagnation underperformance, or worse, you can turn things around, according to business consultant Charles Schnaid. And he's our guest today. Charles and I will continue our chat when Deal Talk gets back after this.

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Jeff: Welcome back to Deal Talk. I'm Jeff Allen with my guest Charles Schnaid, CPA and business advisor talking about how to turn your business around, avoid bankruptcy, and become profitable. And really we've talked a lot I think so far, Charles, about the warning signs or certain things that may cause a company to see that they're having some true issues. So they now recognize their problems. The real key now is how to fix these issues. What would be your advice to any business owner concerning avoiding bankruptcy or at least when he or she gets to a point when they know that they have some work to do and they've got to fix things. What is the first thing that an owner can do to turn around his or her own company and who else needs to get involved if they need to call upon somebody else to help them?

Charles: I think the owner should take a careful look around themselves and see who’s a trusted adviser that has the expertise to help him. Someone that he can pour out his or her heart to, can show them the information that he has, share his concerns, and so on, and not be concerned about competition, or leak of information, and so on, an objective, independent, trusted advisor. That may very well be his own CPA or it may not be because possibly the CPA, depending on the level of service that he or she has provided over the years, it may be just a tax return or it may be a compilation, or maybe a review, none of those would really get into - the review maybe, or most likely. But the other two wouldn't get into the causes of the problems. The audit may reflect some issues that they should be doing if they were having that. But generally unless the business is reliant on bank credit or large enough they usually would have a compiled financial or prepared by an accountant, or a reviewed financial statement reviewing the financial they have internally prepared, plus of course the tax return.

If they go to their accountant to discuss it, it's possible the accountant may feel maybe they overlooked something and maybe they shouldn't have overlooked it or whatever. It's possibly a good idea to call in an independent consultant, have them review what's been going on, look at the past three years’ worth of tax returns, look at the past three years’ worth of financial statements, look at the business plan if there's one and there should be one. And look at the steps the owner has taken so far in time to excavate themselves from being stuck in the mud. The consultants can always talk to the accountant, can always talk to the legal advisers, but can really be the quarterback that's driving this. And also I think that once they've identified the issues, they may want to bring on board an advisory board. Not directors of the company but the independent group of people who are in some sort of retainer basis or these go-to people for advice. And there are also several peer group organizations that he can join with that meet once a month, they charge a fee, I know a particular one that's really good. And they charge a fee of say $1000 a month limited to about 15 people, CEO's usually. And they get to meet once a month and talk about the issues and the problems in their business. And they try and solve the issues amongst themselves. That's been very effective. So those are the kind of things I would be recommending.


Jeff: What would you say to someone though who was just starting out? Maybe they've had their company. They may have been on operation for one to three years and things seem to be working out all right for them but they like many business owners have their concerns. They're bright people and they know that somewhere down the line, whether it's due to a bad economy or maybe new competition has moved onto the block and there are challenges to their business. What would you say to that young business owner, the person just starting out about what they can do to prevent those types of pitfalls, or to avoid those types of pitfalls that could most lead to a business going sideways on them?

Charles: I think ego plays a big part in it. Because when a business owner has started a business they're obviously very excited and very go-go about their product or their services. So this was the panacea and the most important thing in the world. Unfortunately, the world keeps evolving and technology keeps evolving. And if you don't keep up with all that technology and with the change in infrastructure, change in financial structures, and competition, you are going to run into problems. You're get into this situation of just being going along and things seem to be working out, profits are there, cash is there, but you haven't really looked at, for example, expanding your product base or looking at different ways of marketing your products, or looking at different markets for your products. And so I would say that they have to be continually vigilant of how their company is operating and how they're going. And they should've had some sort of a business plan at the outset, including budgets. And they should be looking at that business plan and budget and comparing what their goals were at the time they prepared that with actuals. And if it's deviating from the budget and the business plan the question then should be is it good or is it bad, or do we need to revise our budgets and our business plan, which they should be doing anyway on a continuous basis. Most people prepare a business plan and it looks very good and they present it to the bankers and to the investors and so on. And then it goes in the drawer and they never look at it again. What they should be doing is reviewing it from time to time and seeing where they’re on-target with that business plan.

 I think the owner should take a careful look around themselves and see who’s a trusted adviser that has the expertise to help him. Someone that he can pour out his or her heart to, can show them the information that he has, share his concerns, and so on.

Jeff: It seems like basic information and advice. But you know something, to be honest with you, I think people, Charles, get caught up in running their business. They start working in their business rather than on it. And I think sometimes that's kind of a result or a product of just passion, of really liking the work itself and being involved in it. It's your baby so to speak. But I think that sometimes we forget to take that elevated look or we forget to observe our business and what is going on in it, and we don't often go back to that business plan like you talked about and compare where we're at with the objectives that we stated in that plan so specifically at the very beginning. Very, very good advice indeed. One thing we should probably mention about Charles Schnaid is that he has a tremendous depth of expertise with respect to licensing and royalties, and we're talking about having him on a second show to talk specifically about that. If you deal in products where you're using other people's intellectual property, or considering that, if you're a company that has a well-recognized logo or corporate signature of some kind and you're looking at the protection of that intellectual property, making sure that no one uses it illegally, I think that a conversation with Charles on these points, and we can go into many others, Charles, would be well worth the experience. And I think that we're going to have you back on to do that again very, very soon, and we'd look forward to it. Final thoughts today Charles ...

Charles: Just one thing on that, Jeff, there are many companies that over the last few years realized that they've been in business for 150 years and their name has actually become a household name. And they haven't used the brand that they have developed to its fullest extent, and that's where licensing comes in. They can take advantage of that.


Jeff: You don't want to leave money on the table. And I think it's really important that we explore that in greater depth. Charles, as we wrap things up on this segment of Deal Talk, final thoughts, if you could just very quickly in about 60 seconds some final tips or guidelines, or just plain guidance, words of wisdom you could share with our audience if they have concerns about those uphill struggles that could define whether or not they remain in business or they have to shut down or reorganize, just final thoughts here, take aways if you would.

Charles: I think that any business owner that feels they're indispensable to the business and that the success of the business depends only on them is in for trouble. I know many that have been very, very successful and are still very successful that can't afford to take a day off once a month, for example, to go to these peer groups and then compare with their peers as to how they're doing and discussing issues about their business and learning what other people's issues are. Because they feel if they leave their business for that one particular day things will go wrong. I think that if you're in that trap you're in for a lot of trouble because everyone is vulnerable, people can get sick, family can get sick. You need to develop a team of people who can run the business in the event that anything happens to you, or the business needs some fresh blood, possibly it's family, it's a generation, transferring from generation to generation. It's a whole bunch of things. One can never, ever feel that you are indispensable to your business.


Jeff: Very good. And we'll leave it right there, Charles. I have just one final question for you. If you would be willing we may have some listeners out there who run some businesses who may be in a position where they would need a professional's help, whether that person would be you and we know that you can choose your own clients at this point, or whether that might be someone that you would be able to refer them to. To start with, if they need to reach out to you for a referral or to answer questions that they might have, how can they reach you?

Charles: My name is Charles Schnaid. I'm a CPA. I'm a Chartered Global Management Accountant. My phone number is 818-906-7277. My email is

You need to develop a team of people who can run the business in the event that anything happens to you, or the business needs some fresh blood, possibly it's family, it's a generation, transferring from generation to generation.

Jeff: And that last name is Schnaid. Is that correct, Charles?

Charles: That is correct, yes.


Jeff: Very good. Charles Schnaid, it's been a true pleasure, sir. Thank you so much for taking time out of your personal schedule today to join us and we appreciate all of the input. That's Charles Schnaid, CPA and business adviser. He's been our guest today on Deal Talk.

Deal Talk has been presented by Morgan & Westfield, a nationwide leader in business sales and appraisals. If you're thinking about selling a business or buying one call Morgan and Westfield at 888-693-7834 or visit And for more valuable information and insight from our growing list of small business experts make sure to join us again here on Deal Talk. I'm Jeff Allen for Deal Talk, thanks again for listening. We'll talk to you again soon. 

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