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Michael Yarmo explains how distressed turnarounds work in small and mid-sized businesses, including how lenders, creditors, and court processes create opportunities to recapitalize or rescue companies. The conversation centers on two turnaround case studies: a CPG brand hit by COVID-era channel collapse and a legacy Midwest retailer crushed by inventory, operations, and competitive pressure.
Operators, lenders, and acquisition entrepreneurs who want to understand distressed small-business investing, especially how turnarounds differ from standard SBA-style acquisitions.
Distressed turnarounds often start when a senior lender or insolvency attorney calls in specialists after the business can no longer service debt.
A subchapter V filing can let a small business keep management in place while forcing creditors into a court-approved repayment plan.
Turnaround investors need a short time horizon: management typically has about 6 to 9 months to prove cash-flow improvement in a court process and roughly 12 months in out-of-court situations.
A business can look salvageable even with terrible financials if the operating problem is specific and fixable, such as broken inventory management or channel mix collapse.
Inventory, foot traffic, and category fit matter more than broad retail headwinds when evaluating a legacy store chain for turnaround potential.
In distressed situations, the bank’s willingness to foreclose versus extend time is often the key leverage point that determines whether a recapitalization happens.
The best turnaround opportunities often come when the business has real assets, a workable core customer base, and enough operational slack to improve quickly without major CapEx.
A business can be distressed because it has too much debt relative to assets, or because operations do not generate enough cash to service even reasonable debt. Yarmo treats these as the two core failure modes that drive restructuring work.
When to use: Use this framework when diagnosing why a company is in trouble before deciding whether a recap, refinancing, or court process is needed.
Yarmo’s firm works on companies roughly from $100 million down to about $5 million in top line, or about $20 million in senior debt or less.
He describes New Point Advisors’ sweet spot for turnaround engagements.
Peeled Snacks reached about $25 million in revenue in 2019 before falling to roughly $10 million to $12 million during COVID.
He uses the brand as a turnaround example.
Peeled Snacks went from roughly break-even to about a $2.5 million annual loss after COVID hit.
The company’s channel mix collapsed as airports and hotels shut down.
Peeled Snacks carried about $7 million in total debt, just below the roughly $7.5 million threshold that would have pushed it into subchapter V eligibility limits he referenced.
He explains why the court process mattered for the file.
The CPG company was spending about 70% of revenue on marketing.
Yarmo cites that ratio as an obvious red flag for the brand.
The Midwest retailer fell from about $40 million in revenue to about $30 million over two to three years.
He contrasts that slower decline with the faster COVID shock in the CPG case.
The retailer had been generating about $4 million to $6 million of bottom-line earnings in good years, then shifted to roughly a $2 million to $2.5 million annual loss.
He uses this swing to show why the bank became concerned.
The retailer was turning inventory only about once per year, while Home Depot turns inventory 12 to 15 times annually.
He uses inventory efficiency to illustrate the operational gap.
In out-of-court turnarounds, Yarmo says you often have about 6 to 12 months to show real progress.
He contrasts this with the faster court-driven timeline.
Start with industries you understand deeply if you want to do your first turnaround.
Why: Industry familiarity helps you spot broken KPIs quickly and distinguish a fixable business from a structurally broken one.
Look for situations where the bank is under pressure and the owner has personal guarantees.
Why: That combination creates leverage for a recapitalization or rescue deal because the lender wants a resolution.
Model a turnaround assuming you only have 6 to 9 months to improve cash flow.
Why: Court processes and creditor patience force speed, so slow fixes are usually not enough.
Prioritize businesses where operational fixes do not require major CapEx.
Why: Short-horizon turnarounds are easier when value can be created through inventory, merchandising, or process changes instead of expensive rebuilds.
Use a lender or restructuring specialist to create deal flow if you are new to distressed investing.
Why: These specialists already have relationships with special-situation bankers, attorneys, and creditors who surface the opportunities.
Track retailer foot traffic and average basket size separately.
Why: A store can keep traffic relatively stable while sales collapse because customers are buying less, which changes the turnaround thesis.
A CPG brand built around organic dried fruits and snacks had grown to about $25 million in revenue, but COVID wiped out airport and hotel sales and exposed poor margins. The company also had about 70% of revenue going to marketing and roughly $7 million of debt, which led to a subchapter V restructuring and a court-supervised turnaround plan.
Lesson: A business can look like a growth story until a channel shock reveals that the economics were never durable.
A 50-year-old regional retailer with about 10 locations had good years at $40 million in revenue and $4 million to $6 million in earnings, but then slid to $30 million in revenue and losses as inventory aged and competition intensified. Yarmo says the fix came from cleaning up operations, restocking, and leveraging niche categories like chicken roosts that big-box competitors would not carry.
Lesson: Legacy retailers can still be salvageable if they own niche demand and the core operational problem is inventory discipline rather than a broken market.