Turnaround & Distressed Playbook

The Distressed Opportunity

50% of small businesses are barely profitable
Owners desperate to exit = massive discounts
Simple fixes can double value in 12 months
Less competition from traditional buyers

Identifying Distressed Targets

The 12 Signs of Distress

Signal	What to Look For	Opportunity Level
Tax liens	IRS or state filings	URGENT
Lawsuits	Multiple vendor suits	HIGH
Lost key customer	>30% revenue gone	HIGH
Owner divorce	Court records	MEDIUM
Health issues	Industry gossip	HIGH
Lease expiring	<6 months left	MEDIUM
Equipment repos	UCC searches	URGENT
Payroll delays	Employee turnover	URGENT
No marketing	Dead website/socials	LOW
Price cutting	Desperate discounting	MEDIUM
Vendor COD	No credit terms	HIGH
Family fight	Partnership dispute	HIGH

The 90-Day Turnaround Plan

Days 1-30: Stop the Bleeding

Week 1: Cash Triage

Daily cash report implementation
Collect all receivables (offer discounts)
Negotiate payment plans with creditors
Cut all non-essential expenses
Layoff underperformers immediately

Week 2-3: Revenue Recovery

Call every past customer
Win-back offers (50% off first service)
Referral bounties to employees
Fix Google listing and reviews

Week 4: Quick Wins

Raise prices 10-20%
Upsell existing customers
Launch flash sale campaign
Restart dormant services

Days 31-60: Rebuild Foundation

Implement basic CRM/systems
Hire A-player to replace weak manager
Renegotiate all vendor contracts
Relaunch marketing (digital focus)
Create employee incentive plan
Document key processes

Valuation & Deal Structure

Distressed Pricing Formula

Traditional Business:

3-4x EBITDA typical
Based on trailing 12 months
Normal working capital

Distressed Business:

1-2x EBITDA maximum
Based on "normalized" EBITDA
Asset value floor
Heavy seller financing

Example Deal:
Historical EBITDA: $300k
Current run rate: $50k (broken)
Purchase price: $150k (0.5x historical)
Terms: $50k down, $100k seller note
If fixed: Worth $900k+ in 18 months

Creative Deal Structures

Structure 1: The Revenue Share

No upfront payment, share revenue until target hit:

You: Keep 70% of revenue
Seller: Gets 30% until receives $X
After target: 100% yours
Seller wins: Gets something vs. nothing
You win: No cash needed

Structure 2: The Workout

Take over operations with option to buy:

Manage business for 6-12 months
Pay yourself management fee
Option to buy at fixed price
Walk away if can't fix

Structure 3: Asset Purchase Only

Cherry-pick the good parts:

Buy customer list and equipment
Leave liabilities with seller
Hire best employees directly
Rebrand under your company

Common Turnaround Opportunities

Case Study: HVAC Turnaround

Problem	Fix	Timeline	Impact
No systems	Basic CRM/scheduling	30 days	+20% efficiency
Underpricing	Immediate 15% increase	1 day	+15% revenue
Bad employees	Fire bottom 20%	1 week	+10% margins
No marketing	Google Ads + SEO	60 days	+30% leads
Customer churn	Service agreements	90 days	+40% retention
Cash collection	Terms + follow-up	30 days	DSO cut 50%

From Bankruptcy to $2M Exit

Situation:

$1.5M revenue HVAC company
Lost biggest customer (40% of revenue)
$200k tax debt
Owner health issues
Breaking even at best

Deal Structure:

Purchase price: $100k
Terms: $25k down, $75k over 3 years
Assumed $50k of "good" debt
Left tax debt with seller

Turnaround Actions:

Month 1: Cut staff from 12 to 8
Month 2: Raised prices 20%
Month 3: Launched maintenance plans
Month 4-6: Rebuilt commercial sales
Month 7-12: Geographic expansion

Results:

Year 1 revenue: $1.8M
Year 2 revenue: $2.5M
EBITDA margin: 18% ($450k)
Sold for: $2M (4.4x EBITDA)
Total return: 1,900% in 24 months

Turnaround Financing Options

Where to Get Capital

1. Seller Desperation Financing

90-100% seller note common
Payments from cash flow only
Personal guarantee avoided

2. Asset-Based Lenders

Lend on receivables/equipment
Higher rates but flexible
Good for working capital

3. Revenue-Based Financing

No personal guarantee
Percentage of revenue payback
Expensive but available

4. Partner/Investor

Industry veteran as partner
Split equity for expertise
De-risks execution

Legal Protections Required

⚠️ Critical Deal Terms

Asset Purchase Only:

Never buy the entity in distress
Cherry-pick assets needed
Leave all liabilities behind

Representations & Warranties:

Full disclosure of all debts
Tax clearance certificates
Lien searches completed
Survival period extended

Escrows & Holdbacks:

25-50% purchase price held back
Released based on performance
Protects against surprises

Operating the Turnaround

Week 1 Checklist

□ All-hands meeting (inspire hope)
□ One-on-ones with key people
□ Customer calls (top 20)
□ Vendor renegotiations
□ Bank account controls
□ Daily cash reporting
□ Quick wins identified
□ Dead weight cut
□ Price increase announced
□ Emergency marketing launched

The Psychology of Distress

Understanding Desperate Sellers

What they're feeling:

Embarrassment and shame
Fear of losing everything
Exhaustion from fighting
Just want it over

How to approach:

Lead with empathy
Focus on their fresh start
Make it easy to say yes
Solve their biggest fear
Move fast before they change mind

Magic words that work:

"I know this is hard. Let me take this burden off your shoulders. You can walk away clean and start fresh. I'll handle everything from here."

Post-Turnaround Exit

Maximum Value Creation

Year 1: Stabilize

Prove the model works
Clean up operations
Build recurring revenue

Year 2: Scale

Geographic expansion
Add service lines
Acquisition opportunities

Year 3: Exit

EBITDA normalized
Growth story clear
Multiple expansion
Typical exit: 10-20x money invested