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- PIMCO’s Bill Gross: On the "Course" to a New Normal, September 2009 Investment Outlook
- Session: Automating Payables to Optimize Working Capital
- Session: Re-inventing your AP process.
- Session: Kyriba demonstrates their ASP-based cash management operation.
- Session: Cash Flow Forecasting: Overcoming Challenges
The name of this blog is Practical Turnaround Thinking and it’s written for 21st century management teams who want to use the tools of the turnaround manager to stay ahead of the curve.
In recent blog posts, I have presented the Early Warning Signs (EWS) as the first step performed by turnaround managers when they start an engagement. When the turnaround manager determines that certain data clusters indicate decline, the next step is to determine where the organization falls on the corporate renewal timeline.
Is this company underperforming or is it distressed? Will this engagement be a turnaround or is this crisis management?
This decision is critical because as few as 20% of all distressed companies recover (Platt, 2004). Before making the decision to consume the firm’s remaining resources on a failed turnaround effort, consider Dr. Platt’s viability test. The entity must be able to answer “yes” to all three questions:
- Is there at least one core business currently generating positive cash flow or able to generate EBIT after cutting unnecessary expenses?
- Is there available bridge financing sufficient to get the business to the point of operational break-even?
- Does the business have the operational resources to successfully undertake a turnaround? That is, is there a management team that has expertise in all critical areas, including the ability put the tools of turnaround management to work, and the ability to generate current financial data?
When the answer to any of these questions is “no”, management needs professional advice, ideally a turnaround specialist, who can work with them to immediately 1) conserve capital, 2) evaluate the total value of the claims owed compared to the company’s value as a going concern, and 3) work with creditors.
As painful as this phase can be, doing nothing is even worse. There are still some options at this point, – such as asset sale, merging or seeking protection in a voluntary chapter 11 bankruptcy filing.
No matter how burned out management is from constant fire-fighting, these options must be pursued.
