CRISIS AND TURNAROUND MANAGEMENT

As a Crisis Manager, we are capable of taking charge of a business in the midst of a crisis and immediately implementing solutions to serious business problems. Our experience is derived from over 30 years in the electronics, steel, fabrication, oil and gas, petrochemical service and distribution industries. We focus on the core business and the key value drivers of the business to prevent erosion of critical assets and maintain the confidence of the various stakeholders. We are typically engaged in a situation where there is severe negative cash flow, considerable uncertainty, and lack of clarity and unity as to the appropriate direction for the business. By using our general management background coupled with our crisis oriented leadership experience, we provide the necessary focus and direction of the company’s critical resources to regain control of the business. The challenges facing the Board and management team of a troubled company are numerous and often foreign to their business experience. However, prompt and experienced action generally provides the most benefit and prevents erosion of critical assets and confidence of the various stakeholders. As you are aware, indecision paralyzes progress.

Wayne Fuquay is a long-time member of the Turnaround Management Association (TMA) where he has served on both the national and local Board of Directors. He is a Certified Turnaround Professional (CTP), a designation held by an elite group of approximately 370 professionals nationwide. The certification arm of the TMA, the Association of Certified Turnaround Professionals (ACTP), worked with Northeastern University to establish a certification process in 1995.
 
Turnaround Engagements
 
The Process
Weather done under the protection of a Chapter 11 filing or in a consensual out-of-court environment, a company must successfully rethink its priorities toward customer fulfillment and the way that work is executed. It must adopt a new model (i.e., the turnaround plan) where the company is organized around a process, where value-added partnering with key customers and vendors is achieved, and where employee compensation is based on measurable individual and company performance criteria.

 
Many people misunderstand what a turnaround plan is. A turnaround plan is a summary of the key issues that must be addressed (viability issues) and the fundamental changes that must occur to achieve viability. Methods to achieve these changes are basic management techniques learned from experience in dealing with financially distressed businesses, which are not communicated via textbooks or a written step-by-step guide. Existing competent management must fully understand the goal and contribute its expertise and efforts to create the change.

 
The execution of the turnaround plan (the process) includes stakeholder management, the reorganization of the company around core profitable business segments (through the use of cross-functional project teams), the installation of core management processes, and the re-capitalization of the balance sheet through operational cash flows and restructured debt.
 
Stakeholder Management
Wayne Fuquay & Associates (WFA) professionals are experienced in managing and bringing to consensus all the stakeholders involved in a turnaround engagement.
 
Reorganization Around Core Profitable Business Segments

Trends in successful reorganizations, whether under the concepts of total quality management or process reengineering, have continuously moved toward flatter organizations centered on core products and customers. In a Wayne Fuquay & Associates engagement, senior level company executives create and implement the agreed upon turnaround plan elements through the use of cross-functional project teams. These project teams focus on the company’s organization structure, employee utilization, core customer/product identification and fulfillment processes, the cash conversation cycle and continued stakeholder management.

 
Installation of Core Management Processes
In companies experiencing financial distress, focused execution on cash management, production scheduling and sales & marketing processes are critical to a company’s survival. Facilitated by WFA, the following three processes are implemented as a part of the turnaround plan.

 
Cash Management Process
This process culminates in a weekly meeting attended by all department heads and is focused on accounting for actual cash results for the week and on forecasting those items that impact cash in the next twelve weeks. Specifically these items are reviewed, estimated future billings, margins, accounts receivable collections, bank and vendor requirements, purchase orders, manpower and equipment requirements.

 

Production Scheduling Process

Weekly meetings are attended by employees from production (managers and floor workers), purchasing, sales and accounting. The purpose is to leave the meeting with a clear understanding of the production schedule for the next week (with no changes to production permitted during the week), prioritization for the backlog to meet customer satisfaction, purchasing requirements, manpower scheduling by department. The information generated by these meetings becomes necessary input to the weekly cash meetings. Quality and service problems are addressed as a priority because a troubled company can not afford to ship its problems to customers who withhold payment-awaiting resolution to these problems.

 

Sales Management Process

While working with the existing sales force, we focus sales personnel on the top 20% of the customers who generate 80% of the gross margin dollars. Weekly sales meetings are conducted with each salesperson to review sales for the past week and forecast for the next twelve weeks by customer. Quality and service levels are discussed and specific action items are assigned to sales management, production, shipping, quality assurance, accounting, and senior management for immediate resolution.
 
By implementing these processes, weak areas in the company are identified and become the focus of management to address immediately. If the problems are not resolved, the people or priorities will be changed accordingly.
 
Re-capitalization of the Balance Sheet through Operational Cash Flows and Restructured Debt.
Once the company is stabilized (consistently generating better than breakeven performance), a restructuring of the right side of the Balance Sheet must be undertaken by the addressing the following:
  • Composition agreements with vendors
  • A process of converting unsecured vendor debt may be settled for discounted amounts or converted to long term subordinated no or low interest notes.
 
Refinancing existing debt with new lenders
Due to lender fatigue and lack of confidence in management, new lending sources will be approached by developing loan solicitation packages based on the restructured operating business, balance sheet, and cash flow projections. In some instances, high yield debt may be the only new debt source available to the company.
 
Equity sourcing
Using the restructured company’s balance sheet, P & L forecast and cash flows, new forms of equity may attractive (i.e., subordinated convertible debentures or preferred stock).
 
The Necessary Environment
When a company is experiencing a cash crisis, adversarial creditor relationships and dysfunctional management processes, yet still possesses profitable core businesses, party-in-interest support and resources for reorganization investments, a turnaround of the business will usually maximize recovery to all of the stakeholders. However, management must have realistic expectations of the turnaround. A financially distressed company has deteriorated over the course of several years and will not be returned to profitability overnight. Typical turnarounds require several months to stabilize and return to profitability.
 
Advantages
A successful turnaround creates value for all stakeholders and retains employment for many employees and management. Further, the going-concern value is retained and enhanced to the shareholder’s benefit.