Financial Distress and Turnaround Assessment

Which statement best describes the current financial pressure on the business?

Severity determines the playbook: early strain is a management-led fix, sustained distress adds lender and supplier workstreams, and crisis triggers require restructuring counsel. Judge severity against evidence - aging reports, covenant calculations, and lender correspondence - not against optimism; ASC 205-40-50-4 frames the assessment around the entity's financial condition, its obligations due, and the funds needed to maintain operations.

No active distress - the work is early-warning monitoring of covenant headroom, runway, and trigger points (GAO Green Book Principles 7 and 9).

Official guidance: SBA guidance for managing finances

Do you maintain a rolling thirteen-week cash forecast - weekly receipts and disbursements reconciled to actual bank activity - showing projected ending cash against a minimum operating balance?

The thirteen-week forecast is the core instrument of any turnaround: it measures severity, sequences payments, and gives lender conversations a credible fact base. A monthly accrual budget is not a substitute - distress is decided in weekly cash timing, and Green Book Principle 13 makes quality information the precondition for every control that follows.

Principle 13 addresses using quality information; a reconciled weekly cash model is the minimum quality bar in distress.

Official guidance: SBA guidance for managing finances

• GAO Green Book - Standards for Internal Control

How developed is your inventory of cost and margin actions?

Payback discipline is what separates a turnaround from a panic: every action should state its one-time cost, its recurring cash benefit, and the months until it pays back, so severance-heavy moves are not taken for savings that arrive too late to matter. Actions without named owners and dates do not happen; Green Book Principle 7 frames this as designing responses to the identified risks.

Execute the inventory on a weekly cadence and hold owners to the committed payback dates. Quantify cash impact and payback per action before executing - sequencing without numbers wastes the strongest levers first. Build the action inventory before cutting - unstructured cuts damage capacity and rarely reach the cash target.

Official guidance: SBA guidance for managing finances

What is the current status of your loan covenants?

Test covenants against the forward forecast, not just the last certificate - a probable future breach is a today problem for both lender strategy and financial reporting. A breached covenant that makes debt callable pulls long-term borrowings into current liabilities unless a qualifying waiver is in place (ASC 470-10-45-11), and default on a loan agreement is itself an adverse event in the going-concern assessment (ASC 205-40-55-2).

Use the interactive tool above to see how this applies to your situation.

Official guidance: SBA guidance for managing finances

How are supplier payments being managed, and is any critical supplier at risk?

Vendor stretch is a financing source with a breaking point: map which suppliers are truly critical - sole-source parts, tooling holders, license and platform providers - and protect them first, because losing one converts a cash problem into an operations stoppage. Denial of usual trade credit from suppliers is listed among the adverse conditions and events in the going-concern assessment (ASC 205-40-55-2).

Use the interactive tool above to see how this applies to your situation.

Official guidance: SBA guidance for managing finances

Have you proactively given the lender a credible information package - the thirteen-week cash forecast, a covenant compliance calendar, and the turnaround plan - rather than waiting to be asked?

Lenders price surprise as risk: an early, well-supported approach preserves the full option set - waiver, covenant reset, amendment, or forbearance - while a breach the lender discovers on its own invites default remedies and tighter terms. Green Book Principle 15 frames this as communicating quality information externally; never hand over a forecast you cannot beat, because credibility is the asset being negotiated.

Survey refinancing and credit alternatives before lender discussions; a realistic outside option strengthens the negotiating position.

Official guidance: SBA guidance for managing finances

• SBA funding programs

Which of these is the most immediate threat within the next 30 to 60 days?

Any of these triggers means the business is past the point where management should act alone: restructuring counsel preserves the option set - standstill, out-of-court workout, sale process, or formal proceedings - and prevents unforced errors such as preferential payments or personal trust-fund exposure. Daily cash control with a single named approver starts immediately, and the reporting posture shifts toward the ASC 205-40-50-13 disclosure that substantial doubt exists.

Protect payroll and withheld trust-fund taxes ahead of every other payment - IRC Section 6672 makes responsible persons personally liable - and engage restructuring counsel now. Engage restructuring counsel before responding to the default notice - acceleration, setoff, and standstill decisions carry legal consequences finance should not navigate alone. Negotiate continuity with the critical supplier under counsel's guidance - a supply interruption can convert distress into failure within weeks. Route all creditor litigation through counsel and centralize payment approval - preferential or inconsistent payments can create new exposure.

Official guidance: SBA guidance for managing finances

Has management started a formal going-concern evaluation under ASC 205-40 - assessing, before considering mitigating plans, whether conditions raise substantial doubt about meeting obligations due within one year of financial statement issuance?

The evaluation runs in two stages: first assess whether conditions and events raise substantial doubt without considering mitigating plans, then count management's plans only to the extent it is probable they will be effectively implemented and probable they will mitigate the conditions (ASC 205-40-50-6). An unexecuted waiver generally cannot be treated as probable, which is why the negotiation calendar and the reporting calendar must be managed together.

Fold the documented ASC 205-40 evaluation into the lender package and align disclosure drafting with the waiver timeline (ASC 205-40-50-12 and 50-13). Start the ASC 205-40-50-1 evaluation now - a covenant breach is a classic triggering condition, and disclosure conclusions must be settled before issuance.

Official guidance: SBA guidance for managing finances