Gaining control of the cash and fixing the balance sheet are the first and last things that a distressed company needs to address in order to recover, reposition and ultimately prosper in an uncertain economy.
Kenneth H. Marks, a certified merger-and-acquisition adviser and author of the new book Handbook of Financing Growth, offers seven steps that can help any company go from surviving to thriving.
The first step is crisis stabilization, which requires management to take control of cash flow and short-term financing. All cash sources must be identified and cash outflows should be curtailed until a recovery plan is in place.
Leadership should also be re-evaluated to determine whether the right people are overseeing the recovery plan and overall direction of the company. Marks says if current leaders expects to maintain their positions, they should be ready to prove they can still be of value to the stakeholders – and worthy of their support.
Stakeholders should also be kept in the loop, Marks says, whether it’s good news or bad. Nothing is worse than having a stakeholder unaware of how bad a company they have invested in is struggling.
Strategic focus and organizational change are the fourth and fifth steps in shifting a company from surviving to thriving. Reducing assets and focusing on the core business could also lead to the tough decision of selling off some noncore assets to generate cash.
And once the strategic direction is set, the team needs to be shaped to implement the plan.
“Organizational change involves establishing new terms and conditions for employment and making structural changes to run with a smaller team,” explains the industry expert. “ 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.”
The final two steps – critical-process improvement and financial restructuring – go hand in hand. Process improvement asks company leaders to take a “critical eye” to the core business processes and identify ways to operate more efficiently. After all, says Marks, the business got in trouble for a reason.
Working out liabilities and taking financial commitments to a level that the renewed organization can meet is instrumental to the financial restructuring. 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, says Marks, but it may also open the door for conversion of some liabilities to equity and renegotiating the terms of existing debt.
Marks created the seven steps based on his professional career providing consulting and leadership services to emerging growth and middle-market companies. He also referred to “Corporate Recovery: Managing Companies in Distress” by Stuart Slatter and David Lovett, who articulated the foundational areas and steps that have proven valuable in turning companies in the right direction.
The investment expert says generating and preserving cash is the only way to ensure that the business has adequate resources to make it through the recovery process. Some tough but necessary tips to keep in mind when tackling cash management issues are: don’t disburse cash unless it directly relates to generating revenue; communicate the truth with creditors and be positive; only sell to customers that pay quickly and dependably; be aggressive when collecting accounts receivables; and use new money only to move the company forward, not to pay off old debts.
“In today’s economy, many companies are confronted with cash issues and strategic problems,” Marks says.
“Being proactive will likely increase your chances of recovery and positioning so that you can move from surviving to thriving.”
Kenneth H. Marks is managing partner of High Rock Partners, where he provides growth-transition leadership and investment advice. He can be reached at khmarks@HighRockPartners.com.