TURNAROUNDS
When the Going Gets Tough…

Many of us remember the expression John Mitchell popularized years ago: “When the going gets tough, the tough get going.” This adage is still appropriate for business owners and managers today who are managing tight cash flows in an economy under stress. The expression is even more appropriate for a business owner or chief executive who is faced with a “financial wake-up call.”

The Financial Wake-Up Call Chronic cash flow problems may go unrecognized because they become reduced in importance by day-to-day firefighting; they may also be masked by negotiating extended payment terms with banks and other creditors. When a business owner or executive decides to pay net payrolls only, without reserving employment taxes, there is a false sense of cash availability –for a while. Managers with good negotiating skills can survive for months, or even years, by making informal credit arrangements while net operating losses continue and equity and cash flow gradually deteriorate. …The Tough Get Going

Often one of the most formidable jobs of the turnaround consultant is convincing the business owner or CEO to take action before all credit is exhausted and before a liquidity crisis occurs. Unfortunately, many executives wait until they are faced with a liquidity crisis before they deal with the underlying issues, and make the commitment to resolve them. However, there may be options available even when problems have advanced to a critical stage.

Effective Behaviors in a Turn-around Environment Some owners and executives have a higher likelihood of preserving at least a portion of their equity, and are more effective at protecting other assets outside the business. Here are some of the traits and behaviors which lead to effective results in turnaround environment:

Willingness to Do The Grunt Work The turnaround process requires a total commitment to documentation and detail. Those individuals who can make this commitment, discipline themselves (and their staffs) to provide the needed documents and generate the necessary financial information, tip the scales decidedly in their favor.

Willingness to Commit Resources Effective turnarounds require a commitment of executive time and professional resources. The business owner or chief executive must be able to address problems squarely, and commit the resources necessary to restructure debt and resolve the underlying causes of low net cash flow. It is better to begin the process before a liquidity crisis.

Recognition That Turnarounds Are A Specialty Often a company has had trusted professionals such as attorneys and accountants who have helped during the course of business. These professionals may have solid skills in normal operating environments, but may have little experience with severe debt matters. Those executives who recognize that business turnarounds require specialty legal and business counsel generally have more positive results.

Executives facing a turnaround situation need to carefully and objectively assess the skills of their trusted professionals. If these professionals do not have direct experience with the internal policies of taxation agencies, compromises with banks and creditors, purchasing assets through an assignment for the benefit of creditors, and negotiating certificates of discharge, then they are not in a position to explore the best solutions to address a given debt-related situation.