The Turnaround Adviser’s Responsibility

The ability to turn the company around quickly without getting it bogged down in the minor setbacks is a hallmark of a good turnaround adviser. Emphasizing a solution-oriented approach, the adviser can rise above circumstances and fight another day;  such determination distinguishes the true turnaround expert from the would-be practitioners of company revitalization. Rather than dwelling on problems and making too much of an ultimately inconsequential event, effective advisers confront each challenge ready to overcome the odds stacked against them.

For example, a company may become delinquent with creditors and be unable to pay them in full in the near future. Under those circumstances, a partial payment plan can be worked out, but only if all creditors agree. Non-compliant creditors should then be segregated and handled separately. Whether they are paid at all during the turnaround is an issue; it may be better to let them file liens, since the liens can be repaid according to a schedule that is devised later at the magistrate’s office or in a court of law.

Primary Responsibilities

It is the turnaround artist’s primary duty to critically assess the executive team’s vision for the company and create a recommended course of action for realization of a mutually agreeable vision. In light of this duty, the adviser has three primary responsibilities:

  1. analyzing problems,
  2. drafting a turnaround plan for marketing, operations, and finance, and
  3. implementing the plan.

Therefore, the adviser should not be confused with consultants who merely offer advice. he must necessarily preside over plan implementation and be prepared to modify it as changing conditions demand.

Analytical Responsibilties

The analytical role includes the gathering and analyzing of marketing, operations, and financial information. Both internally produced reports and externally researched intelligence should be scrutinized in creating the turnaround plan. Any errors and omissions in the compiled plan must be noted for further investigation. From this analysis, the adviser develops the road map–a basic critical path of action.

Critical Path of Action

First, crucial points of action within the critical path are prioritized, such as completing a project for billing or getting to a key milestone on another before a window of opportunity is missed on behalf of the client. Personnel are then assigned responsibilities based on the established priorities, which are time sensitive. The turnaround adviser conducts regular debriefing meetings to update all affected parties on turnaround progress and the focal areas for the upcoming time period. As problems surface, the managers responsible for prioritized critical points, rather than the top executive, conduct troubleshooting sessions. If the sessions require negotiations with third parties, the turnaround adviser initiates these negotiations. For example, if lenders turn up the heat, the turnaround adviser must assuage their fears. Clearly, it is the  adviser’s general job requirement to put out all fires or make sure that someone else does.

Education

The turnaround adviser’s final responsibility is to educate the top executive, her team and other managers in the principles of sound business judgment and practice. If the group can observe the adviser’s actions during the renewal process, its members will learn a great deal about management techniques and strategies. When the adviser leaves, he or she should feel that the existing team is capable of steering the company through any weather.

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Finances, Debt & Analysis in the Turnaround

A company’s financial picture at any given time is vitally important to all stakeholders, and never more so than during a turnaround. Financial results are the yardstick by which the business is measured. Outside lenders, creditors, and buyers continually desire affirmation that the company is viable and will be able to continue to meet all of its obligations, including non-financial commitments. Additionally, management relies on this financial information to plan the strategies for the turnaround and future business growth.

Most financial information available has historically been of a reporting nature–it reports prior performance by means of accounting information. The assembly of reliable predictive information on a regular basis is an important step toward profitability; reports such as accounts receivable, accounts payable, cash flow projections, vendor analyses, equities, return on cash, and profits from sales must be generated.

The company’s cash position can be summed up as follows: the money in the bank plus anticipated revenues from sales and financing activities minus any expected payments for direct costs, indirect costs, and general and administrative expenses. The accounts payable portion of the cash position measures the company’s ability to pay current vendors and repay creditors for goods and services delivered. The accounts receivable position is a tabulation of expected sales and fees to be received during a given period. The difference between the two types of accounts is a quick, short-term indicator of the current financial condition of the company.

Complete listings of all bills owed and obligations accrued must be made prior to the release of monies from sales and financing activities. These bills are prioritized for payment–especially payroll, taxes, utilities, and subcontract labor. Secondary obligations are suppliers (unless sole sources), interest due lenders, retirement plan funding, leases, and equipment payments. Cash is only to be disbursed according to priority payment schedules; failure to abide by this rule, regardless of circumstances, will cause problems in restoring positive (or enhanced) cash flow and reduce the likelihood of successful implementation of the turnaround plan.

Debt Structure

A business’s debt structure dictates the profit necessary to amortize it. Accumulated debts to suppliers, lenders, and financing sources need to be determined and paid form the gross profit streams. Paying past-due accounts from loans leads to business failures. For this reason, the gross profit must be managed with extreme care. First, management must estimate the amount of money to:

  • repay creditors over a reasonable time (reasonable = 7 years for structured debt, biweekly for contract labor, monthly for suppliers, and quarterly for taxes),
  • pay creditors for the current portion (<45 days), and
  • pay past-due creditors while remaining current to maintain credibility.

Suppliers, 1099s, direct costs, and indirect costs should be paid from operating funds–not loans. General and administrative expenses should be paid from gross profits.

Creditors should be made a part of the turnaround plan. Analyze and prioritize all debts, contact them, and discuss the projected payment plan for the debt owed. Amortization schedules for their accounts need to be explained and agreed to. Input from other creditors can then be used to draft a scheduling document to complement the accounts payable plan. Taken as a whole, the schedule will aid management in disbursing funds.

Management Analysis

Accumulating data can be a time waste if not turned into timely, useful information. As marketing, operational, and financial numbers are compiled, it should form the basis of the management information system. The resulting analysis will test and challenge beliefs about the company’s competitive position. Critical assessment of trends, patterns, and tendencies can generate ideas to further one’s mission, goals, and objectives. 

Analysis and action should commence hand in hand as the return-to-growth process unfolds. Merely stabilizing is not a permanent solution, but rather a step in the process toward profitable growth. As analysis is performed, opportunities are generated by involving key personnel in problem-solving meetings on a regular basis–the team management concept. For example, a change in product quality to match buyer demand–such as reducing product size while adding features–may be an opportunity discussed in problem-solving meetings.

Shark Tips For Second Career Entrepreneurs

“The best advice I would give to somebody is, don’t ever start a business that you are not incredibly and deeply passionate about,” said Robert Herjavec, one of the “sharks” on ABC’s hit TV show, Shark Tank. “It is hell, and you will spend more hours with your business than you will with your family and friends. You will have horrible days that will make you want to quit and question everything you have ever learned. Along that journey, if you don’t absolutely love what you do there is no way you will survive.”

Many people who are looking at starting a business as a second career are intrigued that, if it works out, they can create a new source of income in addition to the retirement income sources they’ve worked on for years. True entrepreneurs, however, don’t start businesses to produce money. What?

“The biggest mistake I see people do is they start a business to make money,” said Herjavec. “The problem with that is on those cold days, money doesn’t keep you warm at night. For me, it is impossible to expend the effort required to start a great business because you want to make more money.”

Passion is what is critical to successful entrepreneurship. Some would even label it fanaticism. When one is in the midst of a dogged pursuit of what is primal, success looms in the not too distant future. It is as though a deep seated conviction drives one to pursue what is the convergence of talent, inspiration, and motivation. Not everyone, though, even considers that starting a business is a possibility. Some were just not raised to think entrepreneurially.

“When I was younger, I didn’t know that people could start a business, and I always say now that if I knew what I know now, I would have dreamed bigger,” said , CEO of Canadian-based information technology company The Herjavec Group. “I don’t have an MBA, or a business degree, and I wasn’t very good at accounting. I remember when I wanted to start a business; everybody said to me, ‘you can’t do it.’ Fundamentally, I owe my success in business to the fact that I really love what I do.”

“It was really interesting because, where I came from, we lived on a farm and my grandmother raised me and everybody lived like us,” said Herjavec. “Then, we came to North America and it was my first impression of not being well off. I realized that compared to everybody else, we were really poor.”

To make a living, Herjavec began working as a newspaper deliveryman and waiter in the early 1990s.  He was able to make ends meet and learn important business lessons at the same time.  The biggest, perhaps of all, was noticing what was on the mind of his customers.

“The most important relationship in business is the one between you and your customers. All my experience is customer-related. When I was delivering newspapers, you used to have to collect the money,” Herjavec said. “When I was a waiter, it was all about maximizing a tip and ensuring enough turnover. All these odd jobs always related in different ways to customers.” 

Knowing what customers want and creating a strategy to meet their needs is critical path stuff. What else is desirable in terms of an entrepreneur’s worldview? Flexibility and good analytical skills rate highly for Herjavec.

“People ask me if there is a quality or characteristic for entrepreneurs, are they born or made?” he says. “The one characteristic that I find in most people who start a business is, they are very comfortable and adaptable to change. I always say my greatest skill is if you throw me in the middle of the forest, I’ll figure out the game.”

Finally, it is crucial that a business founder have a distinct competitive advantage. Whether taking on the 100 ton gorilla (market leader) or a local competitor, it is key to know how you are differentiated from the others. One of the best ways to stake your claim is through unique knowledge or processes.

“The other thing I notice is that lots of other entrepreneurs make the mistake of changing fields all the time and start businesses where their knowledge level isn’t very high,” said Herjavec. “I always say to my kids, become an expert at something and become such an expert at it that you can walk into a room and people will pay you for your knowledge.”

In summary, here are lessons we can learn from Robert Herjavec, aka the Shark:

  • Be extaordinarily passionate
  • Start a business because you believe you were meant to, not for income only
  • Know what the customer wants and deliver
  • Be flexible 
  • Hone your analytical skills
  • Be a lifelong learner and master of a unique subject matter