Turnaround Management - Operational Restructuring
After quick but incisive analysis, the real work starts – and it begins by reducing the cash burn, shoring up critical business activities, improving the flow of critical data, and in-depth communications with each constituency.
Reduce the burn
If necessary, cash must be generated internally through improvements in working capital management, expense cuts, or asset sales. Generating cash by improving working capital management requires company-wide efforts to reduce inventory, improve collections, and stretch vendor payments. It requires new management processes, new behavior by key employees, and new data tracking. Everyone involved must be trained and monitored.
If expense cuts are required, it may mean reducing staff levels, a somber task that must be properly calibrated along a variety of dimensions. A business can be crippled by reducing too many employees or eliminating critical functions or individuals. Just as importantly, the trauma of staffing cuts must be minimized through a fair and clearly articulated process.
Finally, cash burn can sometimes be reduced by selling non-strategic assets or sale/leaseback arrangements of real property.
Start or improve data flow
Financially distressed companies’ “instrument panels” may not include key metrics that would enable them to maneuver effectively, so management may be flying blind.
When managing a turnaround, one of Cantor Advisor’s first tasks is to ensure that there is a daily dashboard that provides an early warning system to senior management, a dashboard that identifies potential problem areas, a dashboard that includes key performance measures such as sales, liquidity, profitability, quality, and other critical business drivers.
Distressed companies have to make hard choices about how they allocate their time and energy, which markets and products best utilize their strengths while less impacted by their weaknesses, where the greatest opportunity for profit resides. These choices require a trenchant understanding of their markets, competitive environments, and company attributes. Cantor Advisors has a history of developing practical and profitable turnaround and go-forward strategies that have been successfully implemented by its clients.
Communicate, communicate, communicate
Distressed companies are plagued by rumors, both within the companies and within their financial and operating communities. Rumors often focus around the next anticipated round of staff cuts and the companies’ demise. Cantor Advisors ensures that its clients formulate clear messages regarding their strategies, and that these messages are consistently delivered to employees, customers, vendors, investors, and bankers.
Improve day-to-day general management
Cross organizational communication and teamwork
During a company crisis, anxiety can cripple a company’s ability to complete simple tasks, especially those that require input from multiple business units. For example, receivable collections frequently suffer because this function requires input from diverse areas such as customer service, logistics, sales, and finance, and these teams may stop rowing together when their managers are focused on financial issues.
Cantor Advisors ensures that strategies, goals and incentives are clear and that managers and employees are refocused on their goals, that the organization and staffing is properly structured to carry out the company’s business functions, and that the various parts of a company are communicating with each other regarding their shared functions and goals. Issues that require a decision or input from senior management are addressed quickly.
Shore up critical business functions
Day-to-day management of each of the key business areas such as sales, IT, customer service, operations, logistics, sourcing, and financial operations must be reinvigorated.
In many distressed companies, some of these functions may receive less attention and oversight as management focuses on liquidity issues – resulting in unmanaged problems. It is critical to identify problem areas and provide the attention and resources to improve them.
Shore up the team
When a company is distressed, competitors will attempt to acquire its better employees, so time and energy must be committed to maintaining the team. Cantor Advisors has found that most employees of middle market companies would prefer not to leave, and the turnover can be minimized through steady leadership, clear direction, and proper incentives. Once the restructuring is underway, the desire for economic redemption and the energy of the turnaround keeps almost all employees from seeking employment elsewhere.