Nobody likes a crisis, but they do happen, especially when a business is in distress. The pressure on management is severe and seems to come from all directions. It is all too easy to provide inaccurate information, make promises that can’t be kept and not be able to prioritise which problems need to be addressed first. This is the time to seek help from a Turnaround Manager to assist in restructuring both operations and finances.
Turnaround Management and the use of a Chief Restructuring Officer (CRO) are US terms that have become increasingly used in the UK and Europe to assist companies in financial difficulty achieve a consensual solution to restructuring rather than fall into insolvency, where much value is lost and shareholder value destroyed. The role is to lead the development and implementation of a turnaround plan and normally reports to the CEO or the board. It benefits the company by adding dedicated turnaround and restructuring experience and skills at board level and leaves the other executive directors with more time to continue to run the day-to-day operations of the business. Importantly, it adds credibility to discussions with stakeholders and aids the resolution of difficult negotiations.
In turnaround situations the management of cash is critical to success. Cash flow is the life blood of the business and is always under severe pressure. We take an active role in ensuring cash is managed properly, that the correct priorities are met and that accurate cash flow forecasts are prepared so that problems can be anticipated and managed rather than being reacted to. We have a strong track record of finding ways to improve cash flow in these situations and have often devised imaginative solutions to keep the business afloat as the turnaround plan is developed and implemented. We are also adept at finding additional sources of short-term finance where required.
In turnaround situations it is common to find many different stakeholders with differing interests. Trying to reconcile the differing demands of lenders, shareholders, suppliers, employees, landlords, pension trustees and customers can seem an impossible task. In the background there are also the issues surrounding directors’ liabilities, which are often misunderstood. We can bring clarity to such situations. We know how different stakeholders view such situations and can talk to them constructively. Often, the fact that an experienced turnaround firm has been appointed gives credibility to the messages being communicated and is of significant help in managing expectations and achieving a consensual solution to the problems that can be agreed by all stakeholders. We can also help the directors get appropriate legal advice and assist in ensuring it is implemented in a practical way.
We have years of experience in undertaking such roles and our senior professionals are comfortable operating in a flexible manner depending on the exact circumstances of the client’s situation. We aim to add additional specialist skills to the management team who have, in all probability, never faced such a situation before. In the same way you would use a tax expert or a lawyer for a tax or a legal problem, it makes perfect sense to use a turnaround specialist to assist the company in a time of financial distress when the expertise doesn’t exist in-house.
Our work is nearly always with businesses is some form of transition. Business plans and financial models are an important part of almost every transition, from turnarounds to acquisitions or disposals. A well-constructed plan and financial model provides invaluable insight into how things are expected to transpire and the effects of changing underlying assumptions.
Our professionals have had a long career in business, rather than advisory work, and have prepared or read many business plans. We understand that a business plan must communicate certain essential messages to a target audience and should answer questions rather than leave the reader with more. Financial models should be based on key assumptions related to the specific business circumstances that can be easily changed to gauge the effect on profitability and cash flow. These are fundamentals that we are very used to dealing with.
As experienced business people we can quickly grasp the issues and help our clients to prepare robust plans and models that are often used long after we have completed our engagement.
In a turnaround, adequate cash flow to see the business through the development and implementation of the turnaround plan is essential. With creditors often unwilling to extend further credit, an innovative approach to financing is required. That can take many different forms depending on the circumstances, and we have found ways to help many clients over the years with short-term arrangements for anything from invoice discounting to barter arrangements.
As part of a turnaround there is often a need for a fresh look at the financing needs of the business going forward as it comes out of the turnaround. These may be quite different to what was in place before, both in terms of the needs of the business and also what is available in a rapidly changing market. The rise of alternative capital providers in recent years has led to a greater range of offerings other than just traditional bank lending and it is important to match the needs of the business with the best type of financing. As part of any turnaround plan we will look at those needs and assist in ensuring the business is properly financed to support its business plan after our involvement has finished.
There can be occasions where a rapid disposal of all or part of the business is a better option than the alternatives. Whilst this is not particularly common, it can happen, and value can be preserved by acting fast rather than allowing the options for the business to become further constrained.
In such circumstances, we can act quickly to gather the necessary forecasts and other detailed information to quickly prepare an information memorandum. Working with regulated corporate financiers, tax experts, lawyers and others we can drive the process for a very rapid disposal and the preservation of significant value in the right circumstances. In keeping with our ‘best-of-breed’ philosophy we have an extensive network of experts in various fields, including tax, pensions and commercial due diligence, who we can bring in to work seamlessly with ourselves and others to make this a quick and effective process.
Notes, insights and reflections from Matthew, one of our directors and turnaround experts, as he works with companies during Lockdown.