Avoid Insolvency - Find A Specialist Turnaround Manager
There is no shame in attracting experienced help to manage through the worst recession of our generation.
Today, as business attempts to manage through a crisis made in poor government and weak regulation of financial services, new perils exist. For example, the 'light touch' of HMRC dictated by the Chancellor has allowed companies that would otherwise have failed to remain active and taking credit from other businesses. When HMRC does eventually begin collecting its dues, as it surely must, that credit which was provided in good faith will turn 'bad' and become uncollectable. New situations and unfamiliar conditions often results in the expert directors, that have successfully been running a business, becoming inadequate and lacking experience for the revised challenge. Smart directors recognise the issues early and seek to bolster the experience on the board to best deal with changed circumstances. When existing management doesn't possess skills to deal with decline that becomes a crisis, a firm of turnaround management specialist may be needed.
Most lending institutions see troubled borrowers as an unacceptable increased risk and look to their "work out" department to remove or minimise the risk. The specialist firm can add value by stabilizing a situation, bringing credibility and, thereby, making the credit more desirable to the same, or next-tier lender with an appetite for more risk.
The management skills necessary to rescue a troubled company are dramatically different from those needed to manage operations and growth in a healthy company. Strong businesses are managed with a focus on the long-term, on team building and coaching. In a financially distressed company, time becomes the enemy. As problems compound and cash flow evaporates, it becomes critical to act quickly and decisively.
Existing management is often in denial. They tend to blame their situation on external factors, rather than examining the way the company is managed. This is when the board should consider outside help to advise or run the company.
Turnaround specialists are either interim managers or consultants. The turnaround manager will replace the CEO and take control of decision making. Consultants advise management possibly the same management that got the company into trouble in the first place. The methods and tools deployed will depend on the point at which help is sought and the residual strength of the business. Sometimes, when closure is inevitable, the task is to optimise the wind-down of activity and unlock maximum value for the various stake holders. Forced liquidations normally leave stakeholders empty handed whilst administrators prosper.
A good turnaround specialist will possess the skills, legal knowledge and tools to deal with a financially troubled company. They will make the tough decisions needed during a recovery. Specialists are hired for their management ability; the ability to bring order out of chaos; the ability to marshal resources and maximize value from those diverse resources. If the company requires special expertise, then the turnaround specialist will attract that expertise. Remember, experience in dealing with crises and change may be more important than industry experience.
It is important that the turnaround professional be financially credible and honour commitments. Those commitments might not be those made by the incumbent management but new ones, determined by the turnaround manager and, made based on his realistic assessment of the company's affairs. The company, bank and other interested parties should be able to rely on the specialist to protect their interests while providing them with accurate information they need on a timely basis. When hiring a turnaround specialist, check references, determine what can realistically be accomplished, require engagement agreements, and hire the individual who will manage the activity not just his firm. Personal chemistry with the managers is critical.
The specialist offers a new set of eyes, skills and understanding of troubled situations to independently evaluate the company's circumstances:
* Is the business viable?
* What is the purpose of the business?
* Should it be saved? Why? Are those reasons valid?
* Is there a core business that can be the source for the emerging business?
* Are there sufficient cash resources to fuel the recovery?
* Which existing managers are capable of leading parts of the company?
It is important to be clear, not all businesses can be saved. This fact-finding, by producing a statement of affairs, must occur as quickly as possible so that a realistic assessment of the current state of the company can be prepared. The specialist's first priority will be to stabilise the company, usually by managing cash flow to stop the haemorrhage. Analyzing sales and profit centres, and asset utilization should indicate where the real problems, not the symptoms, are located.
Next, a business plan outlining and suggesting possible courses of action will be prepared. Once the course of action is chosen, implementation and monitoring can occur. The specialist should remain involved at least until the business is stabilized, and preferably until the transformation is complete.
A good turnaround specialist will develop a permanent management team within the company to preserve value, instead of hiring a large team of outsiders who, when they leave, take that value with them. The specialist should plan to work himself out of a job at an early stage to be most effective. This process will put the company back on a path to growth, profitability and independence.
by: Tim Meadows Smith
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