Dr. Earl R. Smith II

I am sometimes asked by investors to ‘parachute’ into a company and give them a quick assessment of conditions and possibilities. Most of the time, the company has been under-performing.

Most M&A transactions fail to close for reasons that do not relate to the structure, timing or fairness of the deal. In fact, the emotional state of the principal seller is a far more potent factor than any thing that the lawyers or accountant might focus on.

Sometimes management teams lose focus on the fact that the principal goal of business involves producing increasing revenues. Sometimes they get caught in the trap of incessantly talking about increasing revenue.

I described the initial triage steps that I took after analyzing the data provided by the assessments had. At the same time that we were working with the CEO and senior team, we began to develop a plan for the first stage of the turnaround effort. Here is the list of challenges that we had identified:

I recently completed a turnaround engagement with a mid-market company. The effort was successful and the story of the turnaround was typical of many.

In business, as the old saying goes, in business cash is king. This is particularly true for companies in distressed situations. A cash flow statement is a snapshot of a company’s situation and a ‘reality check’ measure of its ability to meet its obligations to creditors and investors.

In a prior article, I described how management of the balance sheet is important in efforts to turn a company around. In this one, I would like to mention a few issues that affect the income statement and describe managing them will advance any turnaround efforts.

A good turnaround plan attacks problems on several fronts at once. It also recognizes that some issues need to be resolved prior to moving on to others. One of the first places that any turnaround effort should focus is on the company’s balance sheet. Many companies, which find themselves in difficulty, have evolved balance sheets that are ‘upside down’. By that, I mean a growth in liabilities and a reduction in assets.

No company plans to fail or to find its way into difficult situations – but it happens all the time. Over the years, I have worked with a range of companies that were facing the need to turn things around. The paths that they traveled to reach such a desperate condition were varied but the best ways out had a lot in common.