Dr. Earl R. Smith II

Any turnaround effort happens within a crisis context. Each company that I work with has its unique problems but there are groups of challenges that lie at the center of almost all of them. When the condition of the company is truly critical, the plan is often simple and usually drastic. Triage stops the bleeding and enables the organization to survive. The situation provides lots of pain and apprehension for lots of people. Emotions run high. Employees are laid off, and entire departments may be eliminated. Benefits and other forms of compensation are curtailed or even eliminated. However, triage is only prelude – it is designed to put off the demise long enough to allow a cure to be developed and applied. I lead the team to sized up the situation objectively and develop an Action Plan.

The first focus on any agenda has to be the cash resources of the company. Cash is the lifeblood of any business. My first objective is to establish a positive operating cash flow as quickly as possible. Without a positive cash flow the demise is only delayed.

Beyond generating sufficient cash to cover the expenses – at the reduced, post-triage levels – it is critical to find enough cash to develop and implement the action plan. A sufficient amount of cash to implement the turnaround strategy must be found. Sometimes critical decisions are required. Unprofitable divisions or business units need to be sold in order to raise and conserve raise cash. Frequently, I will apply some quick corrective surgery before placing these businesses units on the market. If sale is not arranged within a relatively short time, there may be no option but to liquidate them.

The action plan typically includes other financial, marketing, and operational actions to restructure outstanding debt obligations, improve working capital management, reduce operating costs, improve budgeting practices, correct product line and customer mix pricing, prune product lines, and accelerate high-potential products.

Any turnaround action plan directly challenges the status. One of the critical factors in the plan implementation is the identification of those who are going to be supportive of the plan. Others who actively oppose it need to be quickly removed. Those who change because of the turnaround plan should be rewarded while those who do not are sanctioned. In a typical turnaround, the new company emerges from the operating table as a smaller organization that no longer is losing cash.

The implementation of the action plan is a prelude to the actual restructuring of the company.