Restructuring A Company – Some Basic Options
January 19, 2011
Restructuring A Company
by Al Davis
Restructuring a company is usually only considered when all “business as usual” options have been tried and have failed.
It is generally only then that operational executives and owners believe that the business cannot continue in its present form and start exploring viable alternatives.
All of the options shown below are typically considered as part of the process of exploring the various options available to restructure a company’s finances and business operations.
Those who own and manage the firm then pick the best available alternative and often hire experienced executives, like Revitalization Partners, to manage the process of implementing the restructuring a company method they select.
Executives who have never had to manage restructuring a company before are most often not familiar with the myriad of business restructuring options available to them and are also typically not familiar with the actual process of implementing such restructuring methods.
Restructuring A Company
Our Primary Objective
Restructuring a company is intended to enhance the overall value of the business and thus make the firm or surviving assets more financially attractive to creditors, investors and the primary capital markets. This restructuring “process” is thus intended to streamline the company in order to enhance operational efficiency and profitability or make the assets as financially attractive as possible to facilitate a sale.
Our Primary Function
We can help with restructuring a company in the following ways:
- Corporate Realignment: restructuring a company through this process we analyze the entire business and develop a plan that would reorganize the firm’s operating units into the most profitable and efficient business structure. This can include the transfer of businesses units or company assets from one group to another or the sale of identified business units. It often results in the release of capital that has been previously locked in the balance sheets of these business units.
- Liquidation: : Many times, the liquidation option is rejected by management because it is initially seen as a public acknowledgment of business failure. The fact is that some businesses have reached the end of their life cycle or the market has changed so dramatically that continuing the business in its present form is unrealistic. In such cases, a liquidation makes the most sense so restructuring a company is not a viable option.
- Managed Exits: We can assist by providing interim management to wind down the business with the goal of restructuring a company by maximizing the overall return to investors, owners and creditors while minimizing associated risks to customers and employees.
- De-mergers: Should you need to structure a de-merger, we can make arrangements such that the emerging entities will result in a financial structure that is tax efficient and creates an effective path for separation of the business units involved.
- Debt For Equity Swaps: Restructuring a company through a debt-for-equity swap involve one or more of your creditors agreeing to cancel some or all of your debt in exchange for equity in your business. This i a valuable option when you want to reduce the businesses debt load but don’t have the cash available to pay down debt or need to better use that cash for business expansion. Our experienced business restructuring team can assist with planning and implementing the most effective debt-for-equity swap option.
- Assignment For The Benefit Of Creditors: This is an alternative to Chapter 7 (or a liquidating Chapter 11 bankruptcy) that is growing in popularity and becoming an viable reorganization tool in Washington and other states. Essentially, restructuring a company through ABC is a method that enables a business to end its obligations to its creditors and also avoid the time, costs and and stigma that often occurs in a bankruptcy proceeding.
These are a few of the many techniques for restructuring a company we have used to help client firms return to profitability of professionally wind down operations. We are ready to help you.
Restructuring a company is what we do so please CONTACT US and we would be happy to confidentially discuss your situation.
Restructuring A Company
Turnaround Consulting – Six Critical Steps From An Owner’s Perspective
February 7, 2010
Turnaround Consulting
Turnaround Consulting – Step 1 - Recognize the Problem for What it Really Is – A MAJOR CRISIS
The undeniable temptation of the business owner seems to be conveniently blaming one major event for the company’s problems: Perhaps it’s just another low point in the regular cycle. Perhaps it’s just one bad management decision on extending credit or investing heavily in a new product that failed. Perhaps it’s just a couple of new orders that cost you more money than anticipated.
But your business advisors (lawyers, accountants, etc.) have got to help you accept the fact that your business is, in fact, in a Life Threatening Major Crisis, and the sooner you accept and acknowledge that you are in a crisis, the sooner you can take appropriate steps to deal with it. through Turnaround Consulting.
Turnaround Consulting – Step 2 – Recognize the Need for Outside Help.
The problems you have dictate the type of Turnaround Consulting help you should seek. If you are in a true crisis or near one, you are likely faced with dwindling cash, little time to act, and decreasing options still available to you. It is critical to seek help through Turnaround Consulting professionals who have been there and done that.
Most owners have never even heard of turnaround consulting, let alone witnessed a Turnaround Consulting specialist in action; therefore, the concept of real economic value they can provide seems vague and abstract.
The cost of Turnaround Consulting or team is usually a huge shock to the entrepreneur.
Having one or more full-time Turnaround Consulting professionals on the expense ledger, charging several hundred dollars an hour for several months, can be very expensive. Although, frankly speaking, what does it matter? Your alternative is almost certainly losing your company, your investment, your career and your status.
Turnaround Consulting -Step 3 – Selecting the Right Firm.
Most entrepreneurs operating a business in crisis are afraid of failure. This fear often paralyzes the decision-making process of the company; however, the open-minded owner looking to escape the crisis and save the company must act quickly and forcefully. The best way to do this is to bring in an objective turnaround consulting firm.
Many owners make the FATAL decision of thinking they can fix the company themselves (usually with the existing management team).
It’s generally fatal because if they had the skills and experience necessary to fix the company, wouldn’t they have already done it? When choosing the Turnaround Consulting Professional …. chemistry, personality and style of the day-to-day project management are most important.
In essence, you have to believe that you can really trust your Turnaround Consulting Professional and that other stakeholders will, as well. Although the Turnaround Consulting Professional must “fit in” with you and your company’s culture, it is also critical that the Turnaround Consulting Professional is a hands-on, goal-driven type. Unfortunately, my company had a less-than-satisfactory false start with a report-writing, accounting-type consulting firm. Fortunately, we found the right person and firm on the next go-round.
Turnaround Consulting -Step 4 – Announcing the Decision.
Our Turnaround Consulting Professional emphasized the immediate necessity of communicating with our various groups of stakeholders. Although this direct style of communicating the crisis was a little scary at first, it worked well. I was told that owners are always worried about directly telling stakeholders about the seriousness of the problem, but I was assured that the vendors and the employees especially were already well aware that the company was in serious trouble. The first day the real turnaround consultants started with us, I was asked to convene three meetings.
First, we met with the senior management team, second with all managers and supervisors, and finally with all employees. The agenda was essentially the same at all three meetings:
Turnaround Consulting
I explained that fundamentally we had a good company, but that events of recent years had put the company into serious financial difficulty; therefore, I had decided to hire a Turnaround Consulting Professional who had a strong track record in turnarounds, and that I had full confidence that our Turnaround Consulting Professionals would identify what we needed to change and lead us through the difficult issues of change.
Then, the project manager explained that over the next few weeks the company would be re-focused on generating more cash, reducing costs and establishing good management controls on decisions, processes and results.
The meetings helped create a sense of urgency with the employees and start the process of empowering the consultant. We initially contacted all vendors by letter announcing the selection of the turnaround consultant, using a positive spin.
We immediately had our purchasing manager call all major vendors to discuss the announcement and to offer a face-to-face meeting with our consultant. And yes, I completely turned over the checkbook to the consultant so that all emotion and politics were removed from the expenditure process. The lender went to the consultant directly and frequently.
At first, I was somewhat uncomfortable with this, especially since the lender had recommended the consultant. However, as time wore on and I trusted the consultant more, my concerns vanished.
The consultant significantly improved the timeliness and accuracy of both financial and operational information, and this communication with the lender went a long way toward improving our relationship. We did not directly communicate the consultant?s engagement with our customers, as we sold fairly expensive capital equipment.
However, we did arm our sales force and senior managers on how best to handle the inevitable customer curiosity and concern. In general, we followed the recommended approach: be factual, don?t downplay the seriousness of the problems, but focus on the viability of the business and our commitment to making the necessary changes to fix it.
Turnaround Consulting -Step 5 – Getting to Work
The turnaround consultant must be granted, and be able to, assume full authority to implement changes. That doesn’t mean the consultant has no accountability to the owner.
An experienced consultant will build a relationship with the owner by checking in daily and explaining the rationale for any major decision prior to its announcement and implementation. The owner must be willing to allow the consultant a fairly free rein to get the job done, and be willing to let go of sacred cows and even long-term employees, if necessary.
A good consultant will under-stand and appreciate the natural emotion involved in such difficult issues and be helpful but firm in working through such issues. It seems that the diagnostic phase of the engagement was done independently by our consultants. However, the operational and financial turnaround planning, and its subsequent implementation, were collaborative efforts between the owner, its managers and the consultants.
Milestones and goals were set collaboratively. Our consultants maintained high visibility throughout the engagement. They walked the plant floor and office daily talking with employees, getting input and sharing stories illustrating progress. They set up and managed cross-functional work teams to address specific issues. We set up regular meetings with employees. They had meetings with vendors or were accessible by phone all the time. I made it a point to introduce all visitors to the consultants, even customers.
Turnaround Consulting -Step 6 – Concluding the Project
Although no owner wants to hear this, a good consultant will tell the owner upfront that sometimes businesses are not viable and a quick sale or liquidation is the only realistic option. A good owner needs assurance that the consultant will help the owner and the company through whatever the outcome, and that the consultant will protect the owner’s integrity during any wind-down process.
Luckily, my business was viable. Assuming milestones are generally met and the company’s financial results and prospects are now in black ink, it’s time to return the company to regular management. In fact, good turnaround managers get anxious to leave at this point, as the crisis is the battle they like. However, it’s critical that the owner, and perhaps more importantly the turnaround manager, believes you have a capable management team in place.
Epilogue: The turnaround of my company was dramatic.
In 6 months under the leadership of our Turnaround Consulting Professional, we went from losses of nearly $2 million annually on $20 million of sales, a $2 million loan with a $750,000 over-advance and a lender who wanted out now and a host of operating maladies to a company making nearly $1 million annually, a new $2.5 million loan with nearly $500,000 of availability, and a much smoother operation.
On a personal note, I no longer had to worry about the business and the real possibility of having my personal guarantee called and potentially losing our home. Approximately a year later, my business was successfully sold for a very nice value. Although the turnaround consulting cost the company over $300,000, it was worth every cent. You really do get what you pay for.
Author: Dick Pulver has owned or managed a dozen privately held businesses. This article reflects his experience at Pulver Systems, Inc., a 50-year-old custom-equipment manufacturer for the large-volume bakery industry.
Article courtesy of: http://www.businessknowledgesource.com … Turnaround Consulting Professional.
Selecting A Turnaround Professional
December 7, 2009
Note: The following article has been updated from an article published in the May, 2006 editions of the Orlando, Tampa Bay and South Florida Business Journals.
Even the most successfully managed businesses can sometimes find themselves in a situation when they get into trouble and need to bring in an Interim CEO.
Often, realistic and savvy business people underestimate the difficult challenges of successfully managing a troubled business.
In most instances, changes in both the internal and external business environments that bring a company to a crisis situation do not happen overnight. Typically, many subtle warnings occur well before the business crisis occurs.
Initially, pricing leverage shifts heavily to the customer, margins are squeezed, a key customer duel sources its needs with a competitor, internal business processes begin to falter, underlying assumptions on optimistic financial budgets are unrealistic or sales personnel lower pricing to meet the competition. Generally, as sales decrease or pricing decreases the situation worsens. An Interim CEO has experience dealing and fixing all of these problems and more.
The stories are all different, but always remarkably similar.
Cash must be managed closely. Management hopes begin to hinge on increased volume, a strengthened economy or a competitor’s failure. The independent auditors “qualify” their opinion on the company’s financial statements, citing “going concern” considerations. When you reach this situation, a fix is needed immediately and this is what an Interim CEO does best.
As a crisis deepens, liquidity often becomes a day-to-day consideration. Payments to vendors are stretched. Financial covenants under existing financing facilities are breached. The industry rumor mill questions the company’s continued viability. Lenders and customers grow anxious about the company’s future. Employee morale begins to falter. Key employees leave for greener pastures.
In today’s business climate, the Interim CEO that can focus on rapidly creating “internal liquidity” can have a significant impact on the ultimate outcome of the crisis.
Like a deer caught in the headlights of an oncoming car, most incumbent management teams suffer some degree of decision-making paralysis. They have never been down this road. In extreme cases, senior management retreats into a “bunker” and refuses to face reality. Ultimately, the company, its shareholders, employees and creditors all suffer. Selecting an experienced Interim CEO is typically the first step in the turnaround.
Action to save a troubled company must be prompt and decisive. The window of opportunity is often limited and the task at hand is generally difficult. All situations are unique and generally require difficult decisions. The management skills that are often required to deal effectively with a crisis situation are usually different than what is required when the company is profitable and thriving … and this is what an Interim CEO brings to the situation. He or she has not friendships to worry about hurting, no company "history" to protect … the Interim CEO is there to solve a crisis and is only accountable to the success of the implemented solutions.
It is difficult for senior management to accept that different skills and outside help are necessary in a crisis situation. Even sophisticated businessmen decide not to hire an Interim CEO where they are necessary.
They often conclude that there is no money to pay an Interim CEO. In many of these situations, the reality is they cannot afford NOT to hire an Interim CEO The sooner the company accepts the reality of the crisis and seeks help from a turnaround professional, the more likely effective help can be provided.
Much like oncologists, the Interim CEO often gets a client visits after it is too late. In those situations, the troubled business becomes a broken business and it is ultimately liquidated – all stakeholders are harmed.
Quality Interim CEOs bring specialized crisis management experience and an objective, unemotional assessment of the reality of the situation, outlook and potential solutions, if any. In many situations, an experienced Interim CEO is able to alter the status quo and renew employee and stakeholder expectations with fresh, disciplined processes to address the ills of a financially distressed business.
Once the decision to hire a turnaround professional is made, business people usually view industry experience as the most important factor. While specific industry experience may in limited circumstances be helpful, this qualification should generally rank low on the list of decision making criteria.
Generally, the Company's officers, directors, managers and employees possess all the needed industry experience. A turnaround professional manager without preconceived notions about the industry often adds more value by addressing and considering all viable alternatives, not just those which have been employed in one particular industry.
In this fashion, the Interim CEO brings something unique to the situation – - a fresh perspective.
Turnaround efforts are often directed at fixing underlying functional operational problems such as production inefficiencies, organizational structure, sales policies, product cost, etc. In other situations, the immediate concern is maintaining the operational and financial integrity of the business intact through tight cash management and cash forecasting, negotiations with vendors, lenders, unions and other stakeholders, or instituting emergency cost reduction/ cash saving measures. With other companies many of these issues must be addressed simultaneously.
There are major differences between the activities and expected outcome of fixing the operational aspects of the business and fixing the overall capital structure. They both generally involve different skill sets.
Not all Interim CEOs who consult and advise with troubled companies possess all the skills and experience to deal effectively with all of the necessary issues.
While some turnaround and restructuring professionals are adept at both fixing underlying operational problems and managing a severe crisis, other consultants skills, experience are only suited for specific operational issues (e.g., supply chain management, logistics, production efficiency, etc.)
In many instances, it is advisable to hire an Interim CEO from a turnaround firm with which has different individuals addressing different areas, thereby maximizing the strengths of all of the professionals.
When a business’s survival is on the line, it is extremely important to select an Interim CEO that can alter the outcome. Find a turnaround professional that has actually “been there and done that,” i.e., actually turned around troubled businesses and/or restructured their capital structures.
Conduct an extensive interview process to assess both qualifications and personal comfort with the individuals.
Once the decision is made, provide the specialist with full support to get the job done. Do not let egos block the path to a recovery. The stakes are too high.
