The effects of a corporate turnaround
New term for a turnaround specialist
Þ Emergency specialists for companies suffering from liquidity and profitability woes, a dilemma related to a virus commonly known as “Moneygitis”;
Þ Work exclusively in a private clinic.
Prerequisites for working in this field
Þ Accountant (sorry …)
Þ Trustee (sorry once again …)
Psychologist who specializes in bank harassment and financial partner lack of understanding.
Key characteristics of patients
Þ Downplay the symptoms they display;
Þ Consider that they have already had the same symptoms in the past and have gotten over them without assistance;
Þ Are often forced by their financial entourage to consult a specialist;
Þ Challenge the specialist’s diagnosis, which they consider to be too pessimistic or an opinion issued by someone who’s looking for a regular, paying patient!
Þ Do not follow the recommended treatment.
Probable effects if the virus is left untreated
Þ Decline in financial health;
Þ Paralysis requiring a massive dose of the Bankruptcy and Insolvency Act;
Þ Occasionally, even death!
1. How to protect yourself against the virus
Turn the business objectives into the monthly financial forecasts over a period of at least one year.
Successful companies thoroughly prepare their financial forecasts by involving those responsible for achieving objectives.
Þ Prepare complete financial forecasts
o Balance sheet (used to measure your financial flexibility);
o Results (profitability);
o Changes in cash flow “Cash is King’’.
Compare your monthly forecasts with the actual results and describe the causes of the variances.
Þ Design a management scorecard;
o Consisting of a dozen key elements, maximum, that will be compared weekly with the previous years or with the annual objectives;
o A management scorecard organizes the daily management and is used to assess the company’s performance without waiting for the financial statements to be produced and can sometimes be used to identify errors in its financial statements.
Þ Implement sound financial reporting and management systems
o Increased growth without proper systems is like driving a Formula 1 racing car without any instruments;
Þ Ensure the stability of management and employees
o The “Moneygitis” virus is usually active when there is a combination of increased growth, poor financial reporting and management systems and a high employee turnover rate;
Þ Use rigorous management methods
o The management committee’s objective is to set up the team concept and ensure that objectives and information are conveyed in an orderly manner;
o The Board of Directors must be composed of members who are seasoned professionals and who demonstrate critical-thinking skills. Avoid placing your friends on the Board, as it represents a privileged environment for testing out your business orientations.
2. Early symptoms of the virus
Þ Never enough time to do things properly;
Þ Business objectives repeatedly missed;
Þ Profitability made possible due to non-recurring revenues (example: tax credits);
Þ Management turnover;
Þ Financial information issued late;
Þ Increased growth, but a declining profitability in terms of percentage of sales;
Þ Growth below market standards;
Þ Investments financed in large part by increased debt;
Þ Aggressive development cost capitalization;
Þ Problems related to quality;
Þ Trouble respecting deadlines;
Þ Lack of awareness regarding your company’s direction.
3. Characteristics of a company afflicted by the virus
Þ Non-profitability;
Þ Frequently exceeding the credit limit and having cheques bounce;
Þ Regular calls from suppliers;
Þ Difficulty obtaining goods and services;
Þ Late payment of government claims (deductions at source, GST, QST);
Þ Departure of key employees;
Þ Concerns expressed by the bank, which demands that you consult an emergency specialist!
4. Most common errors committed in this context
Þ Improvising the role of emergency specialist or putting your trust in someone who claims to be one;
Þ Greasing the squeakiest wheel;
Þ Thinking that your financial partners will inject new funds to protect their initial investments;
Þ Wanting to change banks;
Þ Hiding your problems by manipulating your financial statements or other reports issued to your financial partners;
Þ Believing that no internal employee is aware of the problems;
Þ Failing to consult with your collaborators.
To summarize, the objective is to protect your image rather than to confront the main causes of your problems.
5. Healing process
Þ Deal with haemorrhaging liquidity, which sometimes requires the use of the Bankruptcy and Insolvency Act, whose primary objective is to rehabilitate the patient;
Þ Diagnostic that is used to determine
o the scope of the virus;
o the source of the problems;
o the healing method.
For these first two steps, we recommend using the services of an emergency specialist.
Þ Crisis committee
o Creation of a crisis committee composed of key executives and, usually, during the first few weeks, the emergency specialist;
o Its members take part in conducting the diagnosis, identify solutions and implement the recommendations;
o This committee’s secondary objective is to identify those employees who are performers, in other words, those who are non-performers;
Þ Notify
o You have to regularly notify your financial partners, employees and sometimes creditors and clients about the situation and the progress made. This prevents the spread of rumours about your imminent death spreading.
Þ Realistic plan and schedules
o Although the average healing process usually takes six months, it could take as long as one year! Therefore, avoid seeking out miracle cures and manage a swift return to sound financial health.
Þ Be open to alternative medecine
o Several decades ago, when a patient was suffering from a virus, the antibiotic of choice was new loans. However, a range of natural products are currently available from the venture capital industry that are based not only on sharing success, but risk as well!
6. Conclusion
For the past decade, the development of the profession, the expansion of financing sources in addition to a better understanding of the virus by banks and advances in available medicine have resulted in a major improvement in patient survival rates, so much so, that many undertakers are now contemplating career transitions as emergency specialists!
