Financial consultants worth their mettle should be able to penetrate a company’s financials and know whether they will be paid at the end of the day. They will know pretty quickly if cash flow is tight, collections are slow, or bank financing has dried up, and can bow out gracefully before they are left in the lurch.

“But when consultants are working on the non-financial side, in marketing, manufacturing, or advertising, they are not privy to that information,” says Frank De Luca, managing consultant and partner at Cambridge Financial Services in Edison. “And if they don’t know what to look for, they can be seriously affected.”

The continuing credit crisis and economic downturn requires consultants to be more vigilant in looking for signs that a company they work with is in financial trouble. De Luca distinguishes the current situation from a less precarious past when banks were lending, had less stringent procedures for credit approval, and were more willing to work with companies. These tight strings put not only the company in jeopardy — as banks refuse to renew lines of credit and even asking people to find new lenders — but the consultant too.

De Luca will speak on “Understanding the Warning Signs of a Company in Financial Trouble,” on Monday, May 18, at 5:30 p.m. at the Marriott-Forrestal Hotel. The event is being offered by the Institute of Management Consultants, New Jersey chapter. Cost: $50. To register, go to

Consultants on both the financial and non-financial sides need to be on the lookout for any sign that a company is in trouble. “You want to make sure, whatever your particular assignment is, that the company has the ability to fund it,” says De Luca. “Don’t take it for granted if someone says ‘We’re fine.’”

What to watch out for:

Inventory levels not what they should be. For a manufacturing company, either too little or too much inventory is a problem, and financial consultants are privy to the numbers that tell the story. They need to look at the inventory numbers in relation to current and past sales and purchases and to the industry as a whole.

“If they are purchasing more inventory than they are selling, it means that the inventory is not moving and they are purchasing new inventory to sell for current sales,” says De Luca. “Maybe there is inventory on the books that has no value.” This may be a clue either that the company’s market has changed or some of the current inventory was incorrectly bought.

Employees are disgruntled. Employees are the first to know what’s going on in their own departments, and they are usually willing to talk about problems that affect their work on a daily basis. An example might be production employees unable to purchase needed inventory. “People will tell you that they can’t do their jobs, “ says De Luca.

Customers are complaining. Customers speak through their actions. “If customers are not satisfied,” says De Luca, “they will either not pay on time, or ask for discounts, or send something back.” When many customers are returning products, the logical deduction is that there are problems with the product, and if the company does not solve them, it is in big trouble.

Market is changing. Sometimes the issue is as simple as reading the business page every day. For any business today involved in the automobile industry, sales are likely to be affected negatively. “If, say, they are selling cars, you know they are not selling,” says De Luca. “If they are saying they will make their monthly numbers, you know it will not happen.”

De Luca earned a bachelor’s in business management and finance from Rutgers and an MBA focusing on economics from Fairleigh Dickinson. He began his career in corporate banking, first in New York for Banker’s Trust Company and then for Irving Bank, where he was manager of its New Jersey commercial lending.

After 21 years in banking De Luca joined Cambridge Financial, a turnaround management consulting firm, where he has been a partner for 20 years. He goes into struggling companies, often referred by a bank or a corporate lawyer. After assessing companies’ operations he will recommend how they can restructure operations to get the financing they need to continue. “Lots of times companies are in denial and can’t see the forest for the trees,” he observes. “But if they are willing to work with us and to understand that sometimes the problem is them, we can usually help them out.”

Sometimes consultants will find, simply, that a company is not cooperating with them. They may not be able to get the resources they need to complete an assignment, or they may find decision makers in denial and unwilling to follow their prescriptions. “They say, ‘We’ve always done it this way; it’s worked before, and it will continue to work,’” De Luca says. And he adds that consultants are like doctors — they can offer prescriptions, but can’t ensure that the patient takes the pills.

De Luca offers an example from his own work, a manufacturing company whose bank was unwilling to lend it the money it needed. With his help, the company was able to slim down; it got rid of items not making the necessary profit margins, sold off some inventory and obsolete equipment, and then eliminated employees no longer needed. Then the company was able to get a second lender to supplement its funding from its existing bank.

When a consultant is working for a company that has serious problems, De Luca says, “At some point you have to judge what the value to you of the assignment is.”

Consultants are, for all practical purposes, extending credit to a company. In the face of any discomfort over whether a company will be able to pay them for their work, De Luca suggests that they ask to be paid daily or on retainer.

Or they may want to politely take their leave, suggesting that their opinions and management’s are too different for them to be effective.

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