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Bankruptcy Professional: Spotlight |
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By Nicholas Jalowski,
Founder, Managing Director, CTP, CMC |
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Management consulting firm Cambridge Financial Services specializes in the financial matters of
commercial businesses. The firm’s consultants put their individual expertise as bankers, chief financial officers
and entrepreneurs to use—providing not only the resource of financial expertise, but also a network of “back-office”
professional contacts that can supply the support necessary to take advantage of opportunities.
With clients that range from smaller businesses
to multi-tiered enterprises, Cambridge Financial’s consultants
allow their clients to focus all effort on running their
business and also offer knowledge of and familiarity “with the ‘modus operandi’ of financiers and financial
institutions.”
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Among others, Cambridge Financial offers the
following services: Turnaround Management Advisors
and Loan Workout Consulting, Financial Restructuring
and Placement Services, Financial Planning Services,
Interim Financial Personnel Services and Litigation
Support. In short, the firm asserts, “Often, the engagement
of a specialist such as Cambridge Financial will immediately
enhance credibility and assist the firm in
negotiations with lenders and suppliers to restructure
terms and weather the financial storm.”. |
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Nicholas (Nick) B. Jalowski founded Cambridge
Financial Services in 1985 and has served as a Managing
Director since its inception. In addition to his role in overseeing
management, he is also a practitioner, specializing
in strategic consulting to firms in need of guidance in
turnaround management, corporate revitalization,
financing negotiations, loan restructuring and/or workout
management. Nick achieved the “Certified Management
Consultant” designation from the Institute of Certified. Management Consultants and has also attained the
designnation of “Certified Turnaround Professional” from
the Association of Certified Turnaround Professionals. |
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Formerly a corporate banker with Bank of New
York and Fidelity Union Bank in New Jersey, Mr.
Jalowski also has first-hand experience as an owner in
various businesses. We spoke with Nick about entrepreneurship,
small vs. large firms, financing challenges and
more. |
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BP: Before founding Cambridge Financial Services, you
worked, among other roles, as a corporate banker. What
inspired you to strike out on your own, and what differentiates
your firm from competitors? |
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NJ: In 1984, I was a Vice President of Fidelity Union
Bank in New Jersey and they had just merged with First
National State Bank to become First Fidelity Bank. My
bank’s merger was just one of many at the time. I was
aware that many small to medium size businesses had
come to rely on their banker as an integral part of their
financial planning process, and they were now losing
those contacts as bankers were laid off as victims of the
mergers. That led to the idea that there may be a niche for
me to play the role of “part time CFO” for these
businesses on a fee for service basis. That’s how an
accountant friend and I started the practice and we
actually still provide those services today. |
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That was in 1985. But as the savings and loan crisis hit in
the late 80’s, we were thrown into another position by
default. We knew what the bankers were dealing with
from regulators and how that would guide their actions
with borrowers that were having difficulties. So we wound up gaining business by shepherding debtors
through the loan workout process. In many cases, we had
to arrange alternative financing to take advantage of
restructuring strategies. And that led to my deep involvement
as a strategic consultant in the restructuring and
corporate renewal industry. |
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As far as what differentiates us from the competition, I
think it is the market that we target. Our business model
focuses on middle market businesses; not the large
conglomerates that make most of the news in downturns.
Our clientele are often family owned, private companies,
and while we occasionally are engaged by larger publicly
owned companies, our bread and butter client is
considered to be in the middle market. |
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BP: What can Cambridge Financial Services offer that the
larger firms cannot? |
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NJ: We are a boutique firm with only a few owners and
lower overhead than the large firms. As I mentioned, we
make our market with companies that have sales of a few
million to about $100 million. As such, we provide an
advantage to these clients, as we can charge a much lower
fee for service than the larger restructuring firms. In
addition, when you hire our firm you get one of the
owners directly involved in the account. We do not assign
less experienced associates to lead an account. |
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BP: Hilco Trading’s C.M.O., Richard L. Kaye, recently
told Bankruptcy Professional, “Entrepreneurship isn’t for
everyone. In fact, it’s not a good idea for most people,
which is why so many start-ups fail before the fifth year.
Experts say most companies fail for lack of capital.
Maybe, but I’d bet that more often than not, it’s for lack
of drive, a sub-par work ethic, poor management skills or
poor people skills.” Having started your own ventures and
counseled clients through tough times, what do you view
as the leading cause of business failure? |
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NJ: I can see Richard’s point. There are many failures that
occur due to inexperience, inadequate planning and poor
skill sets. Many of those businesses will fail within the
first year or two. |
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But I also see many ventures that have the various elements
for success, but do not set the financial plan on a
conservative basis. They believed that all will go as
planned and they maintain the eternal optimist. And that’s
when you see the lack of capital become an issue in
failure. In my opinion, businesses that last a few years and
then fall into trouble are more than not due to a lack of
available capital to manage through setbacks. |
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BP: Cambridge Financial Services bills primarily on a fee
for service basis, but your corporate site specifies that
“engagements are flexible.” Have you noticed an uptick
in flexible billing requests in light of the current economic
situation? |
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NJ: We usually bill on an hourly basis or monthly retainer
for services. On occasion, however, we will engage on a
value added compensation package that pays us a fee if
we can achieve a result that is beyond what is expected.
That could be a success fee for arranging a financing on
terms better than expected, or an excess profit fee that
pays us a percentage of enhance profit beyond a target, or
a debt compromise fee that pays when a settlement of a
debt is exceptional. That’s what we mean by “flexible.” |
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We try to tie compensation into “value added” services.
Requests for purely contingency arrangements increase
when clients are tight on cash, as is the case now. But if
the odds of achieving success in a case are not visible, it’s
hard to accept an engagement on that kind of basis. I’d
rather take a pass than bolster unreasonable expectations.
That’s why our reputation is intact for over twenty five
years. |
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BP: Your corporate site indicates that “many other professionals
(e.g., lawyers, accountants, brokers) consider
Cambridge Financial Services a strong addition to their
network of professional services to assist their clients.” How are your services used in this way, and can you
discuss some recent engagements? |
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NJ: That again goes to where we choose to make our
market; in small to medium size businesses. In that size
company, owners rely heavily on their accountant or their
attorney to refer them to other professionals that can assist
them when the situation calls for it. |
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If a business begins to have financial problems, one of
their existing trusted advisors may refer us into a case to
be of help. When we do a professional job that results in a
good outcome, that reflects positively on the professional
that referred us into the case; and he or she may get more
business from the client as a result. It’s kind of like when
you have a specific health problem and you go to your
regular doctor to recommend a specialist. If the specialist
does a great job, you have a better opinion of your regular
doctor. We are that specialist, only in the role of a
business doctor. |
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BP: Your firm’s consultants “put their experience as
actual former lenders into tailoring a credit proposal that
has the best chance of gaining approval.” Do most of
Cambridge Financial’s professionals share your banking background, and how does that experience measure up to
someone with a foundation in law? |
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NJ: There are currently three owners of our firm. Two of
us were former bankers. (There was a fourth owner that
was a former banker that is now in another position.)
Now, more than any time in my career, it is important for
a trusted advisor to a company on banking matters to
understand what a banker has to deal with in underwriting,
credit review and ongoing maintenance of a
borrower account. |
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If you are a lawyer, if you are an accountant, if you are a
former business owner—but do not have that experience
of actually being a lender or banker—it is more difficult
to understand the dynamics and form the strategies and
structure that will work successfully in putting together a
proposal that garners support for a credit approval. |
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Knowing if you are dealing with a committee approval
process or requisite signing approval is important.
Knowing the intricacies of the underwriting process in a
community bank versus a regional bank or a national
banking institution is extremely important in improving
your chance of success in arranging the financing. |
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There are a multitude of questions that should be
addressed in soliciting a bank. Is the credit too large for
this particular bank, or is it too small to gain interest? Will
the request be underwritten by a credit scoring process, or
will an actual loan officer review the deal? Is the client
out of the geographical territory of the lender? Can the
bank structure the deal as an asset based loan? |
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There is just no better advantage than having been in their
shoes. And quite frankly, the bankers appreciate that we
understand their issues, and can empathize with their processes
and procedures. |
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BP: What financing trends have you seen and what do
you anticipate in this era of tight liquidity? |
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NJ: The most prevalent trend is the increase in alternative
financing sources that are coming in the market. Banks
are currently caught in a Catch 22. They are getting
hammered by the public right now for not making loans.
But if they make the loans to businesses that have
suffered setbacks, they get hammered by the regulators to
immediately classify the loan and increase reserves.
Therefore, the safest route for the bank is to only lend to
pristine, financially strong companies, or not at all. And
unfortunately, it is the small and middle market businesses
that need the capital right now as they make their
comebacks. |
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I don’t see this trend changing in the near future. But the
void is being filled with higher rate capital. Asset based
lenders are increasingly lending in the market, new
factoring companies are coming into the market, purchase
order financing is increasing and new funds are popping
up to purchase distressed debt and work restructurings. |
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Unfortunately, the higher priced capital will be the route
small and middle market companies will have to deal with
until the banks loosen up credit quality. And trust me; that
will happen again. It is always a cycle. |
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BP: Your bio indicates that you are sometimes engaged as
an expert in financial issue-related litigations. Have you
seen an uptick in this type of litigation, and what are your
predictions in this arena for the coming year(s)? |
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NJ: Expert witness engagements have been sparse over
the past year or so, but they are starting to pick up again. I
think the reason is that commercial banks became very
savvy on lender liability issues and consciously set policies
to avoid becoming a defendant in this type of litigation. |
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The increase in private funds that have encroached on
bank lending however, do not have the same experience
with lender liability actions. More and more we see them
ignoring lender actions that may give rise to liability on
their part. I think you will see an uptick in cases against
such private lenders in the next few years. And there is
always a need for experts on both sides when those kinds
of cases get litigated. |
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BP: Of the many cases you’ve worked, which has been
the most rewarding and why? |
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NJ: I don’t think I can give you one that is “most” rewarding.
Every case is different and can have interesting
nuances and circumstances. I have literally been involved
in hundreds of cases across a wide range of industries.
I had one client where I was his trusted advisor for the
entire life cycle of his business. It was a wire manufacturing
and plating company. I helped him arrange his
early financings when he started the business. I advised
on his merger with another firm, and I assisted him in the
sale of his business when he decided to retire. We had an
over twenty-year relationship as client and advisor, as
well as becoming friends. That was great. |
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Cases that end with a successful restructuring and the
saving of jobs mean a lot. I remember one packaging
company where there were over 200 jobs at stake. We
successfully worked through a turnaround and the company survived. Most of those jobs employed regular
middle class people that would have been devastated if it
failed. |
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Also, any client where we successfully advise through
Chapter 11 bankruptcy reorganization is particularly
rewarding. Due to the high administrative costs and economies
of scale, those cases are very difficult for smaller
companies and rarely do they achieve a successful reorganization.
We just had a jewelry designer and distributor
client have a reorganization plan confirmed out in Long
Island. That was a great outcome. |
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BP: How about the most disappointing? |
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NJ: Two jump out at me. In one case, the client was a metal
fabricator that had some potential, but serious financial
issues. Instead of following our advice to cut losses and
regroup as a smaller firm, the owner chose to take on
more debt and force a plan to grow the revenue base. We
were pushed aside early on in the case, but stayed
involved on the periphery. |
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In the process of raising more capital, he mortgaged not
only his home, but his parent’s home, his siblings’ home
and the home of just about everyone else in his extended
family that bought into his optimism. |
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When it finally came crashing down, it also took down
every person that could have served as his emotional
safety net in the event of failure. The last time I saw him
was at a meeting with the bankruptcy attorney to discuss
alternatives and he was just about catatonic. He was
vilified by his family and friends. To top it off, he
engaged in some fraudulent activity that became a
problem. That was years ago, but it still sticks with me
about how far you can fall. |
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The other case was over ten years ago when I was an
expert witness in a criminal case. (Interestingly, and to
date, it is the only time I have been an expert witness in a
criminal case.) It involved an accounts receivable fraud
case, where our client, a sales person, was being made a
scapegoat by the CFO in exchange for his plea deal. |
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The defense attorney was pretty well known and somewhat
of a celebrity. After I performed my research and
analysis, he said that I did such a thorough job that my
report would unveil more information than the government
knew, and he was going to keep me as a wild card.
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I interacted with the defendant and got to know him pretty
well. To this day, I am sure that he was innocent of the
charges. He was facing seventeen charges and he got off on sixteen. But guess what? The conviction of one charge
of conspiracy cost him three years in prison. It was a very
depressing outcome. |
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BP: What does your crystal ball reveal about the future of
corporate restructuring? |
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NJ: It is a business segment that is here to stay, and I dare
say that you will see it grow as a field of study in the
academic world. |
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I am actively involved in the Turnaround Management
Association, which was formed in 1988. The founders of
this association saw that the same themes and skill sets
were apparent across all industries and cases. They
decided to promote the corporate restructuring and
renewal industry as a specific field of business, and it is
only gaining traction as time goes on. They have a
certification process for interested professionals and it is
very challenging. But if you can meet the requirements,
you can gain the certification of CTP, or ertified Turnaround
Professional, that is increasingly being recognized
as the standard of excellence in this industry. |
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It’s not for everyone. You have to have good skill sets
across disciplines such as accounting, finance, management,
and bankruptcy and contract law. Experience is
invaluable, as are interpersonal skills. You have to be able
to assess situations and act quickly, and endure the stress
that can come from working with companies, owners and
managers that are in financial distress. Sometimes you are
not going to be able to turn around the business. ometimes
it is just not viable. In those instances you help
preserve value in liquidation. |
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The closest analogy I can make is that of a medical
doctor. Like a patient, the business is suffering an illness,
and the consultant is brought in as the business doctor.
Sometimes your expertise can cure the patient; sometimes
you just make them comfortable as they pass away. But,
like medical doctors, there will always be a need for
restructuring professionals. |
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BP: If you had it do over again, would you still choose the
same career path? |
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NJ: Well, let me heave a big sigh here. I know what you
want to hear. But personally, I think I would have been a
pretty good singer/songwriter if I didn’t have to go to
work right away to pay back my college loans. |
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Other than that thought, the career path I trod was not
planned. I kind of evolved into the restructuring industry
by way of corporate banking, and I happen to be pretty good at it. I think my creative bent helps me in devising
unique strategies for clients. And I know that my own
business setbacks in earlier years allow me to empathize
with clients as they struggle with their problems. |
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Early on, there were many other professionals that said I
was crazy to start the business, and advised me to go back to banking. But seeing where I am now, I have no
complaints. I have a beautiful wife, two healthy sons, the
freedom that comes with being your own boss and I have
enjoyed a long career that creates, restores or preserves
value in businesses. |
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What is the phrase? It could be worse. |
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View the original article |
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