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7 Key Steps To Move Your Company From Surviving
Difficult, challenging – but essential.
by Kenneth H. Marks (March 15, 2010)
How does the board of directors or management team of a small or
mid-sized business think about reversing a declining or distressed
business? It is a common question given the turmoil in our financial
and business markets. There are many good companies that find
themselves with weak balance sheets, attempting to recover and
reposition for the new reality in the markets, and to take advantage
of emerging opportunities. Where to start and how to change the
momentum in your favor? It can be done!
In their book Corporate Recovery: Managing Companies in
Distress Stuart Slatter & David Lovett articulated the
foundational areas and steps that have proven valuable in turning
companies in the right direction. Couple these with solid cash
management practices and you will have a road map for real progress.
The core areas to address begin with gaining control of the cash and
end with "fixing" the balance sheet. Management that tries
to start at the end will likely find it very difficult without a
credible, well vetted plan that is believable. So let’s walk
through and discuss each of the areas (which can be viewed as
1. Crisis Stabilization. This is about addressing a
deteriorating situation and taking control of cash flow and
short-term financing. This begins with fully understanding all cash
sources and minimizing cash outflows until there is a recovery plan.
If possible, short-term bridge funding sources are identified and
pursued to fill the gaps.
2. Leadership. This step involves making sure you have the
right talent in the right seats on the bus – particularly at the
top. If existing leadership expects to stay in place, they may need
to re-prove themselves to their stakeholders to assure continued
3. Stakeholder Support. It is all about communication with
those involved in the business – internally and externally.
Sometimes it is not easy, but you must communicate the progress and
trials as they happen to keep stakeholders from being caught
off-guard or being surprised.
4. Strategic Focus. This step deals with asset reduction and
a focus on the core business. Part of rejuvenating a business is
making the tough decision of where to focus and what resources to
harness. It also means that you may have to sell off some non-core
assets to generate cash.
5. Organizational Change. This involves establishing new
terms and conditions for employment and making structural changes to
run with a smaller team. Once the strategic direction of the
business is set, the team needs to be shaped to implement the plan.
Laying-off teammates is never easy, but a positive way to view this
step is that it can re-energize the remaining team with confidence
in a clearer and focused plan.
6. Critical Process Improvement. This focuses on cost
reductions, quality improvements, and increasing revenues. The
business got in trouble for a reason. This step involves taking a
critical eye to the core business processes and identifying
opportunities to operate more efficiently while accelerating
revenues. In a production environment this would be an ideal time to
consider implementing lean manufacturing concepts; and for
administrative and service operations, similar lean enterprise
concepts may be of value.
7. Financial Restructuring. This step is what many of us
think about when we hear restructuring. It involves the work-out of
liabilities and making financial commitments to a level that the
renewed organization can meet. It may mean raising capital or
finding longer-term bridge sources of funding until the business can
return to predicable profitability and positive cash flow. This step
may also open the door for conversion of some liabilities to equity
and renegotiating the terms of existing debt.
Let’s circle back to cash management, given its importance in
the turnaround process. Here are the guiding concepts that have been
battle tested and proven to work. Some of these are tough- medicine
and not easy to implement, but all have the same critical objective
in mind: generate and preserve cash to assure the business has
adequate resources to make it through the recovery process. In
reality there are always exceptions, but they should be few.
1. No disbursing cash unless it directly relates to more
cash generation (i.e. revenues).
2. Implement a weekly cash flow management routine so the
team has visibility to cash in-flows and committed cash out-flows.
3. Prioritize cash payments to those that help move the
company forward and that are part of the solution; others will have
4. Focus on critical sources of supply that enable revenue
generation. Develop payment and financing plans to assure these
suppliers have priority.
5. Communicate the truth with creditors and be positive. At
first, share that you are creating a work-out plan so you can have a
realistic repayment schedule; and then periodically provide status
– good and bad news.
6. Only sell to customers that pay quickly and dependably.
7. Aggressive collections of accounts receivables.
8. New money (i.e. bridge loans, stock sales, etc.) goes to
resources that generate revenue and to pay for go-forward
activities, not to pay old debts.
9. Communicate the plan to all stakeholders and periodically
provide status on progress and issues.
Most suppliers and creditors realize that a company in bankruptcy
will have less to pay them, not more; but they won’t support your
recovery if you cannot convince them of a realistic go-forward plan.
Part of this means sharing the truth and setting expectations and
commitments that you can meet. In today’s economy many companies
are confronted with cash issues and strategic problems. Being
proactive will likely increase your chances of recovery and
positioning so that you can move from surviving to thriving.
(Note: Kenneth H. Marks is Managing Partner of High Rock
Partners, providing growth-transition leadership, advisory and
investment. He is the lead author of the Handbook of Financing
Growth published by John Wiley & Sons. For more information,
His email is khmarks@HighRockPartners.com.