Achieving a successful turnaround often requires both specialist help and new cash. As turnaround management consulting has become more of a profession there are an increasing number of sources of help and advice for businesses in difficulty. This article introduces the main types of professionals involved in business turnaround and in particular how they can help in raising turnaround equity.
Businesses in distress often require help from people with situational skills which is to say someone familiar with this type of crisis and with the specialist expertise and knowledge needed. But the professions involved in business turnaround have differing roles and agendas, so it helps to have an understanding of who does what in the world of ‘CROs’, ‘IPs’, ‘IMs’ and other professionals; to know who works simply as an advisor, and who takes executive resonsibility; to remember who is on your side of the table and who is representing your bank’s interests.
Inside the business – the turnaround executive and interim managers
A turnaround professional or executive, sometimes also known as a company doctor, is someone who provides you with hands on support and supplements your existing management team by taking on the role of Chief Restructuring Officer (‘CRO’).
The job of a CRO is to provide an experienced eye and to help you assess the depth of the crisis, consider your options and make an informed judgement as to whether the business is salvageable.
CROs then take responsibility for preparing and driving through the implementation of a turnaround plan which may involve some elements of refinancing. They are therefore initially very much crisis managers where they have to act urgently and sometimes ruthlessly to do what is necessary and CROs are therefore people who can deal professionally with the challenges and difficulties this involves.
They also contribute an expert knowledge of the relevant commercial and insolvency issues so as to help manage these risks and bring their experience of managing stakeholders in these types of situations. Their ability to talk to the bank and insolvency advisors in their own language can help keep channels of communication open and help to achieve and maintain support from funders through the turnaround.
CROs are therefore not professional advisors like the insolvency practitioner or the lawyer who, however close the relationship, will remain outside the business. The CRO sits on your side of the table at meetings and actively works on behalf of and in your business, often taking on the formal position and responsibilities as a director to take charge and drive through change for the time needed to make the plan happen.
A CRO should ideally be formally accredited through the Institute for Turnaround as a turnaround professional, and may also be a member of the Turnaround Management Association.
The ‘turnaround world’ is relatively small and you can expect appropriately accredited turnaround professionals to have good contacts with the world of turnaround investors. At the same time, businesses that demonstrate they are taking active steps to deal with their problems by hiring an appropriate CRO will be in the best position to negotiate with such funders.
Where a CRO identifies a particular weakness within the management team, such as a need for a temporary finance or production director, they may seek to bring in a functional specialist on a temporary basis, known as an interim manager (or ‘IM’). Using IMs provides a flexibility in resourcing which can be important since businesses can need different types of help at different stages. This is then easily addressed by using different IMs at different points.
But it is important to remember the distinction between the roles of CRO and IM. The CRO’s job is to act as ring master, overseeing the whole turnaround process and bringing in resources as needed. The IM’s job is to provide an expert service on a particular task for as long as is needed which might involve an interim financial controller tightening up cash management in the early days, followed by an operations specialist to sort out manufacturing problems, and then a marketing manager to drive sales growth.
Outside the business – the professional advisors
A business in crisis may need outside advisors as well as CROs and IMs on the inside.
A cash crisis implies there are likely to be solvency issues and so the directors will normally need to take formal insolvency advice from either an insolvency practitioner (an ‘IP’) or a specialist solicitor as to whether they are safe to continue trading the business.
The IP can also advise on whether it is appropriate to use any of the Insolvency Act’s procedures that are designed to help in business rescues such as a Company Voluntary Arrangement (or ‘CVA’). Much like a CRO an IP will also be able to help the directors in assessing their current position and in speaking to the bank (as well as providing support for a turnaround and introducing or working with a turnaround professional).
However it is worth remembering that insolvency practices are set up to do insolvency work so they have an interest in finding insolvency work to process. You may also be in the situation where the IP you are dealing with has been introduced by your bank to undertake an Independent Business Review (an ‘IBR’). While the cost of this will come out of your bank account it is vital to remember that in this circumstance the IP is not there to advise you but is representing the bank’s interests and you may therefore need to seek your own independent insolvency advice.
Where you, or the CRO on your behalf, are looking to raise additional finance either to give more headroom in a crisis or to support the business’s regrowth, this funding will often come from specialist asset finance companies. While you can go to them direct, it is usually best to use a specialist broker who knows the market and where to place this type of business.
You will almost always require legal advice and you should look to deal with an insolvency specialist. They will then act as your lead advisor within their firm and call on the relevant experts within it to advise on specialist areas which may arise such as debt collection, employment and redundancy issues, leases, contractual disputes, right through to corporate finance specialists to deal with introducing new equity or arranging abusiness sale.
Of course the information contained in an article like this can never be a full statement of the legal position as the relevant laws are complex and liable to change. This article can only therefore be a general guide as to the issues involved and you should always seek appropriate professional advice on your own particular circumstances before taking any action.
About the Author:
Mark Blayney is a UK Institute for Turnaround accredited business rescue expert specialising in owner managed businesses. For more information about Mark Blayney and his company Turnaroundhelp Ltd. see: www.turnaroundhelp.co.uk