Serious mistakes made while businesses are still profitable may cause restructuring needs.
Profitability improvement, turnaround or even liquidation, need a viable concept with a coherent strategy and detailed measures addressing strategical, structural, operational and financial issues and solutions to be implemented as soon as possible with support of stakeholders.
Distress can be caused by failing to secure financing which can be maintained in the long-term. Excessive indebtedness can be a result of using unrealistic financial projections or delaying optimization of working capital and not necessary assets.
Companies which, for whatever reason, lose their profitability are often in the difficult situation of not being able to implement new projects and even slide into insolvency. Latest at that point, Investors goals will look very different than borrowers.
Financial constraints or evident insolvency risk require quick action. Liquidity and financing must be secured and managed, profitability improved and value conserved.
However, viable turnaround concepts are only viable with a coherent strategy and adequate measures addressing crisis situations and convincing stakeholders that it can be implemented successfully.
An external team complementing business, restructuring, legal and auditing skills and qualifications can efficiently add resources for an unbiased analysis of the situation and the implementation of urgent measures. It can also help finding convergent solutions acceptable to the parties even following unproductive negotiations.
How we can help
Among first measures, we can put in place a Turnaround Dashboard collecting most relevant information to separate value creation from destruction. Then a restructuring plan prioritizes first measures to optimize solvency with the help of a liquidity contingency plan until securing longer term financing.
Those who know and will lead the business in the future should be part in the definition and hence implement strategic and operating measures for profitability improvement. However, management is usually absorbed in fighting symptoms. In such a situation, it is often useful to involve external specialists to take urgent financial measures. They thus might better demonstrate to the investors the eligibility for financing of individual businesses and projects.
A third party may also be useful to mediate between the borrower and lender convergent solutions acceptable to both parties when negotiations are getting nowhere, or to arrange adequate alternative refinancing through different measures and instruments.
Debt moratorium or refinancing with debt cancellation can make sense also for creditors in the context of a restructuring and recapitalization. But a financial restructuring can hardly last without removal of the strategic, operational or personal causes of distress.