Business turnaround, revitalization

Turnarounds to revitalize a business under financial stress have been among our most impactful and fulfilling experiences.

One example was a client company with $4 million in revenue and 38 employees that we served as CFO for five years. Previous to the inception of our work, they experienced an unplanned delay in the profitability of a recent acquisition.

As a result, losses were incurred in three of the prior four years, tangible net worth was negative and debt service was well beyond what cash flow could satisfy. Key suppliers unable to be paid suspended shipments or required up-front cash.

While the company had a long, very close banking relationship in place, the bank was unwilling to restructure its credit in a meaningful way. Likewise, the company’s outside accounting firm relationship was long and supportive. However, the intense demands of executing a turnaround were outside its core functions.

Upon our engagement, we immediately implemented a weekly, 13-week cash flow plan to ration payments to the most critical uses. With this in place, time allowed for a full analysis and workable long-term plan to be developed. It was built around a conservative forecast of the level of cash that operations would generate. Equally important, it contained the critical element vital to the acceptance and success of any turnaround plan, equitable, shared sacrifice among all stakeholders, vendors, secured creditors, owner-management and employees.

The workability of the plan was played-out and tested using our interactive F3D model to view levels of sales and expenses, financial position and cash flow, under a variety of assumptions, over a three-year period. Extreme seasonality in the company’s revenues made cash flow planning very demanding.

Leading implementation of the plan, formal, deferred payment arrangements were negotiated with the company’s ten largest suppliers. All existing bank debt was paid out with term and line of credit financing from a new relationship with Five Star Bank. The new financing contained a debt repayment structure that worked. Subordinated credit was obtained from a public financing source, NYBDC. Private, mortgage refinancing was obtained. Owner-management contributed a cash infusion and commitment to a period of reduced pay. Though expensive “cash advance” financing needed to be utilized, temporarily, to make seasonal cash flow work, it was quickly repaid.

With debt prudently restructured and adequate new capital, owner-management now had the runway and resources to execute its operational plans. In the coming months and years, it delivered on the needed sales results. We worked with management to diligently budget and control monthly costs. Our graphical weekly control report tightly monitored that performance was on track. Cash flow met the forecast and the plan worked. All stakeholders were financially rewarded for their short-term sacrifice and were delighted to have contributed to the revitalization of the business.