Turnaround Lessons Learned for Going Concern Management Teams
04.01.2015 Turnaround professionals work with underperforming companies across different industries that find themselves in financial difficulty. Today’s guest blogger, Jim Wanserski, takes a look at some of the consistent themes he’s seen surface in his work with turnaround clients.
These are great reminders of what NOT to do, and what to keep focus on.
1. “Cash (really) is king.”
Cash flow is the life line of business—quite clear from my 15 or so turnaround projects, and from many of my consulting gigs and management experiences as well. However, you must think about cash flow in an expansive sense: from operations; sources and uses; financing/capital expenditure requirements; and corresponding cost of capital components.
Understanding cash flow means but one thing: you know your business. Time after time after time the obvious ebbs and flows surprise management teams. You must understand all elements: run-rates, seasonality, shortfalls and surpluses…to be on top of your game.
Correspondingly, if you do not manage working capital across the board, then you are not doing your job—and that’s just the short-term view.
2. “It’s always too early, until it’s too late.” (…from a Rogers & Hardin partner)
In just about every turnaround project I have been a part of, I should have arrived at least a year earlier. Many times, management teams were the last to admit the need for professional, external assistance as the suggestion came from an external advisor. All too often the funding source issued the dictate, “Here’s a list of three turnaround firms; one of them better be working on-site within 45 days, or we’re pulling our loans. Understand?”
The primary point here is that if you do not understand your business, and you do not operate proactively, unfocused activity causes unmanaged issues to further deteriorate, and ultimately…you lose control. Ever hear the term, “…deer in headlights”?
At a minimum, three at-hand specialists exist with direct knowledge on how you’re doing: employees, customers, vendors. Do you know them?
3. Business processes must be directed to (at least) industry-standard, or you are headed to ineffectiveness.
Your competition may be your best barometer. Are you keeping pace? Are you the growth company, the low cost provider, a niche specialist…do you even know? Remember (and I don’t know who’s responsible for this thought), “there are three kinds of companies; those that make things happen, those that watch what happens, and those that wonder what happened.”
Where are you and your management team?
4. Systems effectiveness directly impacts business processes.
A private equity firm owner came to me with this request: “Can you do a due diligence review that will also tell me what it will cost for me to get to industrial-strength systems for this prospect company we’re looking at?”
If your business processes cannot be robustly monitored and managed by adequate systems, you cannot know how you are doing. Decision-making cannot be made without actionable management information, and if lacking, decisions get stalled, or not made at all.
5. You cannot cut your way to prosperity; nor can you ignore growth demands.
Plan, test, execute, react…and do it again. Data-driven nimbleness is a major advantage.
6. Do not ignore the fundamentals, or better said, “trust but verify.”
And don’t ignore the culture too! Some rhetorical questions: in a manufacturing concern…How are EPA/OSHA, etc. issues dealt with on an ongoing basis? In a professional services firm, are we efficiently effective? Is current management clearly engaged? Have the applicable metrics been identified and acted upon? How many “broken windows” are visible, and are not being dealt with proactively? Does management like what they’re doing, how about the staff on the floor, the janitor? Does business excitement even exist?
If not, you’ve got major issues—at many levels!
7. And finally…a new one…is “mindfulness” evident?
Here’s a definition for this somewhat faddish term, and I cannot recall the source: “mindfulness is the ability to see what is happening in the moment, so you can immediately respond to business situations.” To be mindful, you must: know your business, have your eye on the fundamentals, be proactive and knowledgeable of the right metrics, work from actionable management information, and nimbly execute within an overall (strategic) approach.
The LACK of these things pushed client companies into turnaround situations. Interrupt decay by proactively attending to fundamentals; shape both culture and people, and seize opportunities!
Skip the workout environment…go do something about it now!
Jim Wanserski is the Founder and CEO of Wanserski and Associates. During his 30 year career he has served in C-Suite roles for several companies and has assisted in dozens of turnarounds, start-ups, and start-overs.