Paul Denton - Triage Before Turnaround – Part 4 of 4 - Cash & Assets
Posted by Andre Mazerolle on Tue, Jun 21, 2011 @ 02:30 PM
By Paul Denton, CA (NZ) CIRP
When a business is in distress, it is imperative that a leader stabilize and get control of the situation to afford time to implement a turnaround plan. In effect, perform triage on the ailing company – prioritizing actions to gain control and stability.
In this last installment of a four-part article, we discussed suggestions to stabilize the overall situation of a distressed business. Namely, in order to preserve and maximize the resources needed to survive in the short term and be able to implement a successful turnaround, it is imperative to establish controls over all cash and assets.
We’ve discussed three triage actions to prepare for a turnaround:
- Ensuring that sufficient cash is available to fund short-term needs and to fund the restructuring process.
- Ensuring management buy-in and to establish a core team that is committed to the success of the project.
- Ensuring that assets are safeguarded and preserved to maximize resources available for turnaround.
As we mentioned earlier, every situation is different and there isn’t a magic bullet. We recommended, begin by establishing a cash-conservation program, because in our belief, cash is king. Cash is the lifeblood of a company, and if it ceases, so does the business.
In the final part of our series, we will look to understand the key operating and financial issues as necessary step to rally short term support from stakeholders.
Understand Key Operating and Financial Issues – Rally Short Term Support
- Revisit high level financial diagnostic including leverage of “quick hit” opportunities (See Part 1)
- Complete assessment of liabilities and commitments
- Review status of priority claims and Director and Officer liabilities;
- Review secured creditor positions and current exposure including any loan covenant breaches and risks of realization;
- Assess status of legal, regulatory and other formal reporting requirements, including any deficiencies, breaches or pending litigation;
- Consult with the company’s legal counsel to assess ongoing reporting obligations, legal, regulatory and other issues or threats;
- Identify and assess any impediments to restructuring and turnaround options; and,
- Evaluate company’s legal counsel, ensure appropriate restructuring background in skill set, and assess need for independent counsel.
- Determine support required from stakeholders and negotiate agreements to re-establish expectations and ground rules to move forward, such as:
- Management/employees – retention plan
- Secured creditors – temporary over-advance, waivers, forbearance agreements
- Creditors – deferrals, COD, extended terms, volume rebates
- Landlords – deferrals, abatements, waivers
- Shareholders – dilution, equity infusion
- Involve legal counsel in drafting agreements
- Establish short-term communications plan for key stakeholders
- Arrange short-term financing (leveraging free assets, or from postponements, etc.)
Organizations that are in distress are usually juggling many issues at once. Timely intervention can be key in righting the ship, stabilizing it and getting control in advance of a turnaround situation. Triage is abrupt and jarring – often it’s quite messy too. A change in mindset from denial to leadership can turn things around. It’s never too late to be a leader and do the right thing. If that means calling in an restructuring advisor to manage the triage, then do it. If it means, that you’ve got the ship stabilized but the company requires outside help, investigate turnaround specialists such as interim CEOs. Whatever you do, don’t wait for the walls to close in – gain control and begin on the road to recovery.
Paul Denton, CA (NZ), CIRP is a Vice President with Farber Financial Group. His practice focuses on corporate reorganization and insolvency. Paul can be reached in Toronto at 416-496-3773 or pdenton@farberfinancial.com.