MELISSA A. CRAIG - PRACTICAL TURNAROUND THINKING

You don’t have to be a private equity analyst or a manager for a firm in decline to use the 13-week cash forecast.  Lenders and other creditors expect 21st century management teams not only to be aware of the firm’s cash requirements over the ensuing quarter, but also to be able to credibly explain any variances.  It's cruel but true:  management teams who fail to use this important tool are not in the ball game.  The firm is already in a state of decline because management is not vigilant and pro-active.

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Even though the Total U.S. Bankruptcy filings have increased at a rate of 11% over the past 9 months, the 3 month rate is significantly improved at 6.2%.  Within the Total filings rate, Consumers' filings are up 6.7% while Business Bankruptcy filings are down by 8% fo the period July 1 through September 30, 2010.

Why is the current Chapter 11 such a bad fit for small businesses?  Why do so few  small business bankruptcies lead to a Plan of Reorganization?  What are some of the proposals being considered to fix the mismatch between the Chapter 11 code and the needs of debtors and creditors in small business bankruptcies? Ms. Juliet Moringiello, ABI Resident Scholar, and Professor Melissa Jacoby of UNC School of Law recently discussed these important and interesting issues.

This post is Part II.  Part I is the previous blog post.

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Why is the current Chapter 11 such a bad fit for small businesses?  Why do so few small business bankruptcies lead to a Plan of Reorganization?  What are some of the proposals being considered to fix the mismatch between the Chapter 11 code and the needs of debtors and creditors in small business bankruptcies?  Ms. Juliet Moringiello, ABI Resident Scholar, and Professor Melissa Jacoby of UNC School of Law recently discussed these important and interesting issues.

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The data from the annual Deloitte / NVCA Global Survey of Venture Capital Firms show that U.S. VC fund managers, by 61% to 39%, do not expect to deploy their capital outside of the country. They intend to invest it in the U.S. But the data also show that a majority of Limited Partners (56%) who invest in U.S. VC funds don’t want the fund managers to invest in the U.S. These two data points indicate a potential mismatch of expectations.
 

Every year, Deloitte LLP and the National Venture Capital Association (NVCA) conduct a global survey of venture capital firms.  Respondents came from these countries:  United Stated, United Kingdom, Canada, Germany, France, China, India, Brazil and Israel.  The largest concentration of respondents have $100 - $499 million under management.  Mr. Openshaw and Mr. Jensen of Deloitte, and Mr. Heesen of NVCA presented the very interesting findings from over 500 responses in today's webinar, archived at www.deloitte.com. 

U.S. Treasury, IMF and European financial officials now admit that if they had acted at the first signs of trouble, the cost of fixing the problem would have been $30 - $35 billion instead of $140 billion.  Practical Turnaround Thinkers -- 21st century management teams who use the tools of turnaround management every day -- could have predicted that.  What do we know that the world's finance ministers don't?

The 2005 Bankruptcy Act was written to rein in overspending consumers, but the most current data (12/31/07) show that, rather than buying luxuries, 14% of Chapter 13 filers drained their resources trying to finance their businesses.  Professor Robert Lawless of Univ. of Illinois School of Law spoke to the American Bankruptcy Institute about his latest research.  We recommend that, rather than pushing lenders to weaken credit standards, business owners need to learn how to put the tools of turnaround management to work every day.

 

Gordian Group’s Peter S. Kaufman and Henry Owsley sat down with the American Bankruptcy Institute (www.abiworld.org) for a podcast on the role of PE in distressed  companies during this economic cycle.  On both the buy-side and the sell-side, there are opportunities, but they will require tough decision-making, creative thinking and, above all, patience.

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To improve their companies’ performance, managers focus on activities that increase net income. This study finds that marginal reductions in working capital are as effective at improving performance as are significant increases to net operating profit.  Given the current economic climate, reducing working capital may be management's most reliable option for increasing firm value in 2010.  It also sends important signals to stakeholders about management's focus on efficiency.  

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