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Success Steps to a Turnaround
 

Success Steps to a Turnaround

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    Success Steps to a Turnaround Success Steps to a Turnaround Presentation Transcript

    • Success Steps to a Turnaround Ron Reuter Managing Director RJ Reuter Business Consulting 1 June 15 2010 © 2010 RJ Reuter LLC
    • Introducing Ron Reuter RJ Reuter Business Consulting & Turnaround Solutions is premier consulting and turnaround management firm specialized in maximizing value and improving operational efficiencies and financial performance Ron Reuter Managing Director 2 June 15 2010 © 2010 RJ Reuter LLC
    • Introduction to Turnaround Management • Professional expertise focused on assisting businesses in distress or financially underperforming and in a “zone of insolvency”: Turnaround professionals are focused on assessing and developing plans to restructure businesses Recommendations result in either turnaround proposals, positioning a company to sell, or shutting down a business • Businesses often need and benefit from external perspective during periods of economic downturn to identify a clear plan to success • Turnarounds often complex, exacerbated by multiple crises, and extreme financial obstacles 3 June 15 2010 © 2010 RJ Reuter LLC
    • Introduction to Turnaround Management • “We turned it around” What does that mean - variances from one to another • “We didn’t (want to) see it coming” or maybe we did? • Looking for trouble Warning signs uncovered 4 June 15 2010 © 2010 RJ Reuter LLC
    • Introduction to Turnaround Management 2010 Start 30 Days 60 Days 90 Days Yr 1 Yr 2 Crisis Management-Turnaround Timeline determined by below steps 1. Situation Analysis Direction options 2. Emergency Action-Stabilized Prioritized to preserve 3. Restructuring plan implementation rehabilitation Action plan toward recovery Exit: Turnaround complete Sale / Growth / Liquidation Strategy maximize value 5 June 15 2010 © 2010 RJ Reuter LLC
    • Today’s Agenda: Success Steps to a Turnaround • Three keys to a successful engagement: 1. Set Realistic Expectations 2. Consultant acceptance into organization 3. Organization buy in to the change process • Three key stages to a successful turnaround: 1. Situation Analysis 2. Emergency Steps for Stability 3. Restructuring Plan 6 June 15 2010 © 2010 RJ Reuter LLC
    • Successful Engagement: Setting Expectations 1. Establishing Relationship Allow business to share story Identify biggest issues Be mindful of own professional capacity and ability to manage the engagement Emotion is often an added issue 2. Focus on immediate goals Prioritize urgent items (stabilize) 3. Overcome control/financial mindset misconception Are we saving the business? And client’s true commitment? 7 June 15 2010 © 2010 RJ Reuter LLC
    • Family/Small Business Nuances • Control is often an issue • Trust harder to gain Viewed as an outsider • Staffing Employees become “family” and decisions related to employees often clouded Senior family members “hiding” issues with cash infusion Often hire too many family members or hire family not with the skill set needed Difficult to make organizational changes when affect family members positions 8 June 15 2010 © 2010 RJ Reuter LLC
    • Successful Engagement: Organization Acceptance 1. Identify self as business/crisis expert 2. Referral and track record is important 3. Outline clear roles of consultant and company 9 June 15 2010 © 2010 RJ Reuter LLC
    • Successful Engagement: Buy-In Process • Consultant clearly • Credibility outlines plan and partners Information that is honest with business on reality of and true situation Consultant doesn’t always get a 2nd bite at apple in • Consultant brings a level these situations of reliability to the Room for error typically financial preparation and short to none road map to success • Clearly outline timeline, • Consultant creates responsibilities of parties, awareness of communication plan consequences if business (vendors, employees, does not take necessary etc.) actions 10 June 15 2010 © 2010 RJ Reuter LLC
    • Successful Turnaround: Situation Analysis • Preliminary action plan • Assess their own stage of usually concerns cash distress flow and financial challenges • Financial assessment of Preservation, business’ historical trends assuming borrowing is Reliability often a question not available, is the highest priority • Due diligence process of • Preliminary basis to prioritizing communicate and • Is there a core business stabilize preparation to outside of distress worth stop the bleeding (emergency steps) pursuing or modified plan 11 June 15 2010 © 2010 RJ Reuter LLC
    • EXHIBIT: Cash Flow Projection NewCo 12 June 15 2010 © 2010 RJ Reuter LLC
    • EXHIBIT: A/R & A/P Projection NewCo 13 June 15 2010 © 2010 RJ Reuter LLC
    • Situation Analysis: Collection and Payments • Accounts Receivable: • Accounts Payable: Focus on aging Focus on aging by represent highest Vendor priority percent of collections • Non priority vendors • Comparing AR to AP • Preserve the aging/historical trends business operations • How long business in during the situation? assessment period • Dependency on that does not breed specific further risk to the sales/customers creditor 14 June 15 2010 © 2010 RJ Reuter LLC
    • Situation Analysis: Collection and Payments 15 June 15 2010 © 2010 RJ Reuter LLC
    • Situation Analysis: Collection and Payments • Prioritize to build settlement plan • Restructuring plan focused 16 June 15 2010 © 2010 RJ Reuter LLC
    • Successful Turnaround: Emergency Steps • Preserving the operation of business is #1 priority • Cash Flow is 1st item to analyze • Determine the nature of the turnaround to properly identify resource needs Example: capital, cooperation, commitment, competency • Immediate issues Ask: what is your immediate problem? Answer: Cash (ie. can’t get goods in door, can’t meet payroll) 17 June 15 2010 © 2010 RJ Reuter LLC
    • Successful Turnaround: Restructuring Plan • Unique to each businesses specific situation Situation Analysis and Emergency Steps inform long term plan • Cost alignment strategy (vs. cost cutting strategy) • Identify which customers are key to maintaining for the viability of the business • Solid plan for new financing/investment 18 June 15 2010 © 2010 RJ Reuter LLC
    • EXHIBIT: Operating Cost Reduction Results Payroll: Reduction of idle production personnel, owner compensation Healthcare insurance plan change w/employee contribution adjusted Various operating expenses re- budgeted Breakeven sales reduced by $99,575 (or from $258,460 to $158,884 per month) at its margin after direct material costs 19 June 15 2010 © 2010 RJ Reuter LLC
    • EXHIBIT: EBITDA Restructuring Results Month Sales Assumed $210,000 $195,000 $175,000 20 June 15 2010 © 2010 RJ Reuter LLC
    • 8 Tips to Lease Negotiations 1. Plan early before lease becomes a legal problem • Early discussions benefit both landlord and tenant • Allows tenant to weigh their options and properly present to landlord 2. Determine where the problem originated • Arising from initial lease or renewal • Evaluate in tandem with business’ current cash flow and projections during the lease term 3. Know the current market • Consult with a local commercial realtor 21 June 15 2010 © 2010 RJ Reuter LLC
    • 8 Tips to Lease Negotiations 4. Create different business models to down/right size the space • Smaller space may results in additional savings on insurance, utilities, and possibly staffing 5. Locate a sub-leasing tenants to create growth • Analyze other businesses with similar target markets that could benefit from combined space 6. Be respectful but stay in control of the negotiations • Position negotiations from past contributions with the spirit of working together new business plan 22 June 15 2010 © 2010 RJ Reuter LLC
    • 8 Tips to Lease Negotiations 7. Restructure terms to a positive cash flow period • As part of Landlord proposal, Tenant may need 1 or 2 month deferral to get plan in motion and improve cash flow 8. Winning factors in plan presentation • Compare how plan of rent reduction are below the costs a Landlord would incur with: Vacancy (that could last 6 months or longer) Fit-out costs of a new tenant Advertising and broker costs Legal costs of a new lease Uncertain risk of new tenant 23 June 15 2010 © 2010 RJ Reuter LLC
    • Lease Negotiations • Preparation is key • Compare current market Example: 3Yr Lease comparison 24 June 15 2010 © 2010 RJ Reuter LLC
    • Case Study Examples • Manufacturing: Family Owned Dynamic: Over borrowed and additional investments that didn’t materialize Driver: Lender - Pay or liquidate • Retail: Store Dynamic: Industry decline sales down 50% Driver: Landlord - Pay or get out • Service business: Radio Communication Dynamic: Over paid and borrowed Driver: Foreclosure but don’t pay us - just want it back 25 June 15 2010 © 2010 RJ Reuter LLC
    • Around the room knowledge • From each share 3 take-aways as a group 26 June 15 2010 © 2010 RJ Reuter LLC
    • Thank You 27 June 15 2010 © 2010 RJ Reuter LLC
    • RJ Reuter Business Consulting RJ REUTER Business Consulting is a RJ REUTER offers unparalleled professional premier consulting and turnaround guidance to resolve highly complex business challenges backed by a proven track record of management firm specialized in assisting success: distressed or underperforming companies to maximize value and improve •Expert turnaround business plan development operational and financial performance. •Strategic lender negotiations & relationship Ron Reuter, Principal and Managing Director management 60 Broad Street / Milford, CT 06460 •Distressed company budgeting Call Ron Reuter: 203-877-8824 ext 1 ronreuter@rjreuter.com •Financial projections, liquidity assessments www.rjreuter.com •Cash flow stabilization and recovery plan •Term loan restructuring & lease negotiation •Debt restructuring and refinancing •Position of business to sell or grow 28 June 15 2010 © 2010 RJ Reuter LLC