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  • Juanita Schwartzkopf

What Terms Should You Know When Working with a Turnaround Management Professional?

Each industry or economic sector develops its own jargon. What is second nature to members of the industry becomes a confusing mixture of words and acronyms that can be intimidating to outsiders. This is especially important for businesses to consider then they are working with turnaround management professionals. The business that is considering using a turnaround management professional is already experiencing stress – the use of words and phrases should not increase the stress level.

Here is a listing of key terms used by turnaround professionals that will help you work more effectively with your chosen professional.

1. Turnaround Management: The process of rescuing a failing or under-performing company, by taking measures to improve its financial and operating performance. Please refer to our article “How to Transform Your Business Using a Turnaround Management Professional” to understand the strategies and practices turnaround professionals use.

2. Turnaround Plan: A detailed plan of action aimed at rescuing a struggling company. This plan would include measurable timelines and implementation strategies to improve the company’s performance. Many times lenders will talk about Plan A, Plan B and Plan C. Plan A is typically a restructuring of debt with the existing lender while a turnaround plan is implemented. Plan B is usually the refinancing of the incumbent lender. Plan C may involve a sale of all or part of the business. And there are hybrids that combine parts of each of the Plans.

3. Restructuring: Restructuring could refer to improving a company's operations, restructuring its debt, or changing the ownership structure to improve its overall performance. The restructuring could involve all three – operations improvement, debt restructuring and ownership structure changes.

4. Cost Cutting: Measures taken to reduce expenses, such as reducing staff, renegotiating contracts, or streamlining operations. Clearly identifying and then tracking budget to actual for cost cutting measures is a key component of cost cutting plans.

5. Debt Restructuring: This is the process of renegotiating the terms of a company's debt obligations. This could mean changes to principal or interest payments, or changes to financial covenants or asset-based lending line of credit structures.

6. Liquidation: The process of selling a company's assets to pay its debts and wind down operations. The liquidation process does not mean there will be an immediate shut down of all operations and a fire sale of assets. The turnaround professional the company would work together to develop an orderly plan to maximize the recovery for all stakeholders.

7. Stakeholder Management: The process of balancing the interests and concerns of different groups, such as secured creditors, unsecured creditors, shareholders, employees, and customers, in a turnaround plan scenario.

8. Turnaround Professional: An individual or firm that specializes in managing the turnaround process for companies. Please refer to our article “How to Lead a Successful Turnaround Management Initiative” for ideas on how to manage and lead the turnaround management project.

9. Interim Management: Temporary management that could be brought in to take a leadership role in a company during a crisis and implement the turnaround plan. This person is often referred to as a Chief Restructuring Officer (“CRO”). In some situations the CRO becomes the primary decision maker, and in other situations the CRO is an active member of the management team. Interim management could also be temporary replacement management for open positions, such as Chief Financial Officer, Controller, or Chief Executive Officer.

10. Acronyms Include:

a. FA = Financial Advisor. The turnaround management group that is working with a company to develop the turnaround plan is often referred to as a financial advisor or as an FA.

b. ABL = Asset Based Lending. This is a type of working capital lending which is primarily based on the value of the accounts receivable and inventory of a company.

c. BBC = Borrowing Base Certificate. This is the reporting mechanism ABL lenders use to track the collateral pledged to the lender.

d. KPI = Key Performance Indicator.

11. Working Capital is comprised of Cash, Accounts Receivable, Inventory and Accounts Payable. Roll forwards are often a requirement. A roll forward is:

a. Beginning Balance of the working capital component (accounts receivable balance for example)

b. Plus: Additions to the component (new sales)

c. Less: Reductions to the component (payments)

d. Plus/Minus Other Adjustments (credit memos or other adjustments)

e. Ending Balance of the working capital component (accounts receivable balance at the end of the period – usually one week or one month).

Some catch-phrases used when discussing a turnaround plan include:

1. Crisis Management: Crisis management is often a synonym for turnaround management. The term may also refer to the plan to deal with a specific crisis such as a cyber-attack, a natural disaster, or la egal challenge, with the plan’s goal being to minimize the crisis event’s impact on the company and its stakeholders.

2. Business Process Reengineering: The process of rethinking and redesigning business processes to make them more efficient, effective, and aligned with the company's goals. This would involve analysis of KPIs already in existence or immediate implementation of new KPIs to guide decision making and to track results.

3. Workforce Redeployment: The process of reassigning employees to different roles, departments, or locations to improve the efficiency of operations and the utilization of resources. This may also refer to redeployment outside the company – layoffs or terminations.

4. Capital Restructuring: The process of reorganizing a company's capital structure to improve its financial stability and support its growth. This could include selling a part of the business, bringing in subordinated debt, or having current ownership invest additional dollars.

5. Market Repositioning: The process of changing a company's focus or strategy to better meet the needs and expectations of its customers and the market. With all the changes over the past three years many businesses are confronting this need to evaluate their market and reposition themselves to serve customers.

6. Operational Turnaround: The process of improving the efficiency and effectiveness of a company's operations, including reducing costs, improving quality, and increasing productivity. This also includes evaluation of management, evaluation of the KPIs, evaluating deferred maintenance, and evaluating the use of overtime and temporary workers.

7. Supply Chain Optimization: The process of improving the efficiency of a company's supply chain by reducing waste, increasing speed, and improving quality. This is a topic often heard in the news and requires detailed analysis rather than a surface discussion. Near shoring, moving production to the US, and shipping issues all are considered. Just in time inventory has transitioned to just in case inventory management. Working capital is impacted by this transition and the supply chain staff needs to work with the financial team to ensure the company is positioned to deal with cash impacts of supply chain optimization.

8. Corporate Renewal: The process of revitalizing a company by addressing its financial, operational, and strategic challenges, and returning it to a path of growth and profitability.

9. Financial Turnaround: The process of improving a company's financial performance, including reducing debt, increasing profitability, and improving cash flow.

10. Organizational Transformation: The process of changing a company's culture, structure, and systems to create a more agile, innovative, and competitive organization.

This list should help a company discuss a turnaround management plan or the engagement of a possible turnaround management firm with company stakeholders as well as the candidates for the turnaround professional role. If you are engaged in a discussion with your lender or with a turnaround management firm and you do not understand a term, ASK!! There are no stupid questions when you are talking about the survival of a business.

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