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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Qualifications of a Turnaround Adviser

An effective turnaround adviser must be uniquely qualified to deal with crises and prepared to assume responsibility for the company’s success. The three most important background credentials for an adviser are as follows:

  • an identification with the needs of declining companies
  • specific industry expertise in your industry or a related one, and
  • a track record of overcoming adversity and making the most of poor situations

General Requirements

When evaluating possible advisers, teams should look for someone with both practical, hands-on capabilities and an educational or research-based knowledge of the issues at hand. Make sure you do not have a novice attempting on-the-job training at your expense. It would be wise to find someone who has performed at least a dozen turnarounds individually and who has access to other personnel with the same or greater levels of experience. Furthermore, familiarity with research and educational publications within your industry that highlight concepts of turnaround practice gives an adviser a more objective view of workable solutions to difficult problems.

Industry Expertise

A background in your industry prepares an adviser to face the peculiar, industry-specific dilemmas that invariably arise. Previous work with companies of various sizes and in various markets furnishes the adviser with extensive–and beneficial–exposure to your industry. A proven ability to learn new markets overnight and employ existing operating resources effectively will result in quicker turnarounds. Examine the methods the adviser used with prior clients and determine whether similar programs would make a comfortable fit for your business. “Sanitized” copies of turnaround plans produced for other clients may even be requested.

Success Rate

A turnaround adviser’s success rate with previous clients is an important statistic. Much as a baseball team manager would hesitate to hire a pinch hitter who batted below .200, the executive team must exercise caution in selecting someone to captain the turnaround team. Most advisers who have been in business for more than five years can claim a one out of two (50 percent) or greater rate of success. To reduce risk, the team should look for an adviser who can claim–and substantiate–an 80 percent or better success rate. Once a successful adviser has been located, the team shout contact references and ask what made the effort a success.

Crisis Management

Effective turnaround advisers must possess certain qualities and characteristics that uniquely prepare them to deal with crises. The first such quality is “multilevel simultaneous thinking”–the ability to solve problems on several different levels at the same time. This is a skill gained over time through both education and experience. The ability to interact with numerous employees to resolve multiple dilemmas and relate to each in an appropriate manner is also essential.

Negotiating with Opponents

A turnaround adviser’s ability to search for all the important details, address issues with a penchant for opportunism, and follow through on commitments will also further the turnaround process. Note that “opponents” emerge in turnarounds virtually overnight; they tend to be former allies such as lenders and vendors. Being able to decipher an opponent’s true bottom line and make an offer that more than covers his or her threshold yet preserves the company’s position will save the company precious time during the turnaround. Indeed, many of these opponents in negotiations will return once again as allies when the business emerges from its decline. In completing a cycle of commitments to stakeholders, the turnaround adviser should ensure that every promise made can be carried out to the letter. Such consistency in following through on promises will enhance the builder’s credibility and image in the community.

Often employing little more than intuition, a crisis-oriented adviser can anticipate pitfalls and plan around them before trouble occurs. Being able to foresee a turn of events is a rare quality to begin with, but is especially valuable when coupled with the creativity that allows the adviser to adapt the flexible strategic plan to the changing demands of the situation. This ability to adapt to change is a necessary elastic band in the adviser’s armor, without which all other tactical weapons would be useless.

 

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.

Management Direction and the Turnaround

With the necessary financial and operational restructuring, plus the marketing re-positioning, it is easy to overlook a key factor that often proves to be critical to successful turnarounds: staff motivation. Reorganizing and involving not just the management team, but also the rank-and-file  are two essential tasks. The entire company must be pulling in the same direction to achieve optimal success. Involvement creates a “can-do” atmosphere that spreads to vendors, customers, and other stakeholders.

Involving Staff

It is imperative that appropriate changes be made to show that the executive team is committed to “doing whatever it takes.” Key employees should be encouraged to take an active role in the turnaround process, ensuring that they feel they are a vital part of the solution. Regularly scheduled management meetings are the new norm. In times of crisis, these meetings may need to occur daily; in profitable times biweekly should be adequate. Finding yourself and the team somewhere between crisis and optimization may be reason to vary the frequency of meetings, but they should never be more sporadic than once every two weeks.

Motivation

Do not be afraid to ask employees their opinions about what motivates them to perform. These opinions can be used to develop performance measurements and incentive plans. Scrutiny of company policy manuals and benefits offered can help identify ways to enhance engagement. Also, discovering the most frequently encountered problems can reveal how managers are applying–or failing to apply–useful solutions. Project descriptions, summaries of the company’s performance in adhering to budget and time constraints, and brainstorming time to recommend better methods are good synergy building activities.

Evaluation

Some companies like to administer tests of ability to prospective employees. Yet, once the prospects are hired, there is very little training and development. Close supervision should yield observations about areas for improvement. It is the responsibility of management to find ways to challenge employees to grow in their capabilities–both technical and soft skills–throughout their careers. Developing professional growth plans and holding folks accountable to execute them is good for all. Tying performance measurement to the plans shows employees that you are serious about continuous improvement and results-based management.

Teamwork

The team is also responsible for cultivating the management team concept in hiring employees, meeting goals and objectives, and conducting individual performance reviews. In addition, management’s performance should be reviewed to locate and remove any team members who are preventing goals and objectives from being met.

Hiring people who complement one another is the first step in forming a cohesive management team. Effective hiring is accomplished through a careful planning and implementation process that parallels the general turnaround effort. Write down job requirements before the hiring process begins. Solicit qualified candidates; throw out applications/resumes that are out of scope. Referrals from suppliers and customers tend to be the best sources of candidates. Objective measurement of qualifications against standards you have developed will shorten the list to be interviewed. Personal references and one-on-one assessments with the prospect’s proposed work team will verify compatibility.

Employee participation in the decision-making process is needed–more so during a turnaround. While key employees should be encouraged to contribute actively during meetings, they may not be asked to vote on issues affecting them directly. Meetings should also be an opportunity to thank employees for a job well done. Rewarding a manager for adherence to budget and schedule without also recognizing her team detracts from the team concept.

Reorganizing Staff

Reassigning personnel and restructuring responsibilities demands management team decision-making. Decisions about incentive and performance programs require outside assistance in so far as tax and legal consequences are concerned, but the ideas and proposals should come from management team meetings.

Management should not exclude themselves from the reassignment process! It may be that the president, for instance, is most valuable to the company in a different capacity or focus area. Like all staff members, she should be prepared (especially during a turnaround) to work in a role where strengths can be put to maximum use!

 

Turnaround Analysis Information Sources

Information for planning and analysis during a turnaround needs to be derived from both the internal and external environments. The internal environment addresses the management of the marketing, finance, and operations functions of the company. Business management controls these functions. This is primary information that should be at the fingertips of the executive team.

Sources of Internal Information

Internal information is gathered from employees, vendors, creditors, and the customers. This information generates a picture of the business, which can be compared to recognized performance standards. Marketing information requires research into demographics, psychographics, and analytics. Financial information comes from the accounting system and is augmented by other types of management information and reporting. Operations information is derived from supervisors, vendors, and subcontractors and compared against benchmarks. Benchmarking indicates relative performance; actual performance against internal standards is also necessary.

External Information

The external environment consists of economic, competitive, technological, cultural/social, legal/political, and geographic influences. Management cannot control this external environment is secondary by nature. It is essential, however, that the management team analyze this information and plan in light of predicted changes.

Strengths, Weaknesses and Opportunities

Determining a company’s strengths, weaknesses and opportunities is essential to successful implementation of the turnaround plan. Though some can freely discuss their personal and business strengths, most lack the objectivity to understand their weaknesses–and determine how to minimize those weaknesses and maximize strengths.

Many entrepreneurs have stumbled upon an opportunity and made some money. However, those who desire long term success use management information systems in the process of reorganizing their companies. Moreover, the best executive teams create a setting that enables goals and objectives to become a reality. Plans are modified through flexible strategic planning. 

Strengths

Business strengths are those innate qualities that produce a competitive advantage and hold value for the end users of the product. In the case of home building, for instance, the “bells and whistles” that attract prospective buyers may be as simple as quality landscaping or as complex as multi-member molding. Some clothing designers offer an edgy look or unique fabrics; others go for utility like pockets. The object is to determine a specialty or basis for market niche, brand identification, and reputation. It is often helpful to solicit the advice of experts to identify market wants and how to fulfill them.

Weaknesses

Despite the ingrained resistance to admitting shortcomings, those with declining businesses must be willing to discuss their personal and business weaknesses freely. The team can only restructure the business by implementing solutions to problems caused by these weaknesses. For example, outside salesmen and the marketing team are in an ideal position to obtain data about the market and the position of the company’s products in that market.

Meaningful information can be learned from these professionals if the team is patient enough to listen and hear a bit of criticism. By taking the input to heart and allowing the feedback to challenge established business practices, the team members profit from it. The purpose of this exercise is not to dampen enthusiasm for the product but rather to point out areas that need improvement. 

Opportunities

Understanding the local market is essential. Opportunities, particularly those for market penetration, should begin to arise out of a deep knowledge of the market. Buyer profiles by demographic and psychographic patterns can be prepared to assess the features and qualities buyers want. Such profiles can be developed with professional assistance at a minimal cost using secondary data. 

As trends in preferences for various geographic and cultural markets emerge, executive teams can predict how they can service customers by price range, features, and channel. Promoting products that meet identified needs is half the solution; the other half is to transition to offering more of what is in demand and eliminating what is not.