turnaround-and-restructuring

Practical turnaround and restructuring strategies

Avoid becoming another boiled frog.

We’ve all heard the myth that if you put a frog in a pot of boiling water it will instantly leap out. But, if you put it in a pot filled with pleasantly tepid water and gradually heat it, the frog will remain in the water until it boils to death.

So it is with a business that suddenly discovers that it is in distress and is looking for turnaround and restructuring strategies. The distress did not materialise out of the blue. It is usually a gradual process of people trying to justify and accommodate old thinking, and not being able to see what is right in front of their eyes.

Here are some steps to consider if you find yourself in a situation like this.

1. Take a deep breath and ask for help

The type of thinking that got you into this situation is not the type of thinking that is going to get you out of it. You need to take a deep breath, find a trusted advisor, and talk through all of the “common truths” that you believe to be true about your business and your situation.

People sometimes think that they need legal advice at this point. Not true. Legal advice comes later, once you have figured out the way forward. You first need to identify the cancer that is eating your business, get the radiation treatment, and then you can fight the rest of the way to survive.

At this stage of the battle, there are two types of advisors that you need:

  1. Someone that understands financial restructuring in the context of South African law.
  2. Someone that can help you through the emotional turmoil you are experiencing.

This first step is usually the most difficult, because the way things are done, the people involved, the company and premises set up, the cost structure, the suppliers, the customers are all very familiar. To acknowledge that there is something wrong with this picture is hard.

However, if you want to start the journey on the way to recovery, this is where you need to start. You need to ask the hard questions so that you can understand what got you into this situation. Once you have this understanding, it is time to look at the future and what that might look like.

2. Take a critical look at where you want to go

The next step is to determine if there are objective reasons why the business should still survive. You need to ask questions like:

  • Is there still a demand for the service or product you are providing?
  • How are your competitors doing?
  • Are there services or products that are not direct competitors that people are replacing your product/service with?
  • Can you adjust and do the same?
  • Will the reputation of the business survive a difficult time?

Once you feel comfortable that there is objectively a future for your business, it is time to look at the changes required to help the business survive.

3. Take a fresh look at your current setup

The big question you need to answer at this stage is “WHY“. Look at every aspect of the business and justify its existence, going forward. If you cannot justify its existence, it needs to go.

Here are some of the questions you need to ask:

  • Why are we in business? What is the purpose of this business? Profit? Jobs? To maintain the current infrastructure?
  • Why do we need all of the people that are working here? Which ones can we do without?
  • Why do we need the current premises? Can we find smaller premises? Can people work from home?
  • Why do we need all of the assets we currently have? Vehicles? Plant? Machinery? Tools? Equipment?
  • Why are our current processes the best way to work? Are there better, more automated, software-driven processes? Outsourcing?
  • Why are the current suppliers the best choice?
  • Why are the current clients the best market we can target? Are there others we are missing?
  • Why are our products/services the best we can do? Are there better/alternative options?

As you work through these questions, a new reality will start to emerge. You will realize that there is indeed a new dawn possible for you and for the business. Keep pushing forward, and start talking to stakeholders, sharing your plan and building their confidence in it.

4. Build confidence with stakeholders

This step is where you may need to start talking to lawyers. Depending on the strategy decided upon in step 3 above, some stakeholders may start legal proceedings against the business at this point.

Your objective here is to show all affected parties that your proposed plan is feasible. You need to get their buy-in and convince them that it is the best possible option for the business to survive, and the best possible option for them to get something out of the restructuring.

There is no easy way around this. It was Churchill who famously said: “If you are going through hell, keep going.

5. Build traction for quick wins and focus on cash

Once you have the buy in from affected parties to execute the business rescue plan, it is time to implement it. Here it would benefit you to keep the 80/20 principle in mind. In short, is states that 80% of your results will come from 20% of the actions you take. Make sure that you focus on the 20% actions that will bring you the quickest results in the shortest possible time.

Cash flow is usually constrained at this point. Watch it constantly, and ensure that you have provisioned enough cash for all critical business functions. This is the only way you will get through the slump.

OBJECTION:
I don’t have the cash to appoint advisors as proposed in step 1.

This is a common issue. People running distressed businesses do not like to spend money on external advisors. We understand that. However, under certain conditions, we at G&A Compass would do our work on risk to help a distressed business get through the slump.

We would invest our time and energy to help pull the business through and only be compensated when the business is on the mend and able to afford the payments. This way, our success is tied to the success of the business. Please complete the form below if you would like to have an exploratory discussion in this regard.

Summary

Getting a business through a slump is hard, and it starts with acknowledging that the thinking that got you there is faulty. Once you can acknowledge this, and find someone to light the way through the morass, chances are that you will start seeing a light at the end of the tunnel, sooner rather than later.

Don’t become a boiled frog. Speak to someone. Today.

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