Spotlight On… Rapid Performance Turnarounds
“Lack of cash due to systemic business issues; margin erosion, stress due to lack of financial control, overtrading, lack of or inappropriate types of funding, and a lack of focus on business development when things get tough.” Tom Pickering of icebreaker executive explains the potential issues that cause businesses to seek turnaround and restructuring advice. Here, Tom explores how to rescue a failing business.
Tom Pickering started his career as an engineer at Lucas Automotive and led some of the largest change programs. He has started and sold businesses and led corporate companies that have won awards. In 2006 Tom formed icebreaker executive to deliver change far more effectively through a unique team based model for the very best professionals. Since then he has acted in whatever mandate is required to resolve issues. Tom is a Fellow and Assessor of Fellows for the Institute of Engineering and Technology, with a passion for enabling people and businesses to excel, as long as there is a successful outcome, despite the current challenges that they may face.
Q What more can you tell us about Icebreaker Executive?
It is a business that was founded upon a team based approach to performance turnaround, and making change directors far more productive by applying a bespoke change and executive coaching methodology that Icebreaker developed in 2007. Subsequently, icebreaker has deployed this successfully on over 25 different change programs to achieve outstanding results. The outcome in major change scenarios is to not just transform a business, but to reach results much faster, transform capability and leave an enduring standalone legacy, that will be effective for years after.
Q What are some of the main causes that drive companies to seek turnaround and restructuring services?
Lack of cash due to systemic business issues; margin erosion, stress due to lack of financial control, overtrading, lack of or inappropriate type of funding, lack of focus on business development when things get tough.
Often executives have a blindness to face nor recognise the scenario nor be able to effectively execute strategy and stem the haemorrhaging cash.
The trigger is often a difficult meeting with an investor, bank or other stakeholder precipitated by a lack of confidence in the existing plan or consistent inability to deliver on time, or breach of covenants.
Q What trends have you witnessed in your turnaround work recently? Why do you think these trends have formed?
Since 2012, the causes of failure have included: VCs overloading businesses with debt as an alternative to selling a business; banks not pushing for change faster, turnaround solutions that are ineffective; director disputes; business and financial processes that don’t work; focussing on financials not the business; and taking on asset based lending without understanding the associated costs. Banks are rarely responsible for a businesses difficulties, business owners are usually naive in terms of the banks role and a banks inability to rightly avoid risk.
The trends that are leading to business failings are a lack of organisation, knowledge of how to sell value and justify margin, trapped in price competition, inability to motivate. An over familiarity with the business often blinds owners to skill gaps and hinders their ability to respond to challenges and adjust the business model to suit.
Q How does one rescue a failing business?
Half day: Establish the time available – defined by the cash, burning platforms, legal scenario, directors conduct, people capability. Contain the situation – triage like A&E service. Is there a viable underlying business, and or what needs to be proven to establish whether there is a viable business?
If there is a viable plan break the news manage and align stakeholder expectations. Create an effective team that must deliver and fully commit to doing what they say. Provide the support structure, create the right organisation, get additional funding organised as required to support the plan, or ratify the plan with creditors. Take insolvency advice to confirm the legitimacy of the approach.
In some instances the business will need to be cut back to a defendable core, which might mean restructuring the business, and or if the business is viable moving forwards but not with the current debt a prepack or CVA may be a course of action worth exploring. The key is to keep ALL the options open, and investigate them fully without trading to the detriment of creditors, and measuring and communicating with creditors frequently and accurately. The directors’ responsibilities change to the focus on duty to the business creditors, which often conflicts with their own interests. The directors and staff need much advice and action
Icebreaker deploy our professional development program in these situations to ensure that we evaluate the situation, engage and deliver change much faster, provide the right structure flexibly to suit the scenario, and deliver to meet the stakeholders expectations. Specific sector, functional, financial, scenario experience is drawn in from our vast experience of doing these projects many times, and our focus and specific skills in creating cash.
Q Is there anything else you would like to add?
The ability to reach the right decisions in half a day by recognising the scenario, recognise whether the business has a sustainable margin, recognise what good looks like, understand what you are being told (beyond the face value of the words), and the ability to permanently change behaviours. The financial results and successful legacy follow if you get the strategy and deployment right.
The Prompt to engage:
The directors thought they could cope until they had a meeting with the bank in late May, it was clear the bank would no longer tolerate further losses.
1st half day evaluation and engagement:
A Midlands electronics business turnover dropped from 17m in 2011 – £7m in 2013. The business haemorrhaged cash for most of Q1 and Q2 2013., and revenue was 40% below breakeven. The management team has failed to manage the sales pipeline and or achieve monthly sales targets. Product pricing was inconsistent and key customers were being let down. The business balance sheet was £1.5m negative as funding was still geared to the 20m revenue level and working capital. The business failed to retain attract or recruit effective staff and the two founder directors micromanaged the business intensely and undermined the staffs efforts. Historically the business had failed to achieve any forecasts, cash and financial governance and systems were not in place and teamwork ineffective. Tom adopted the role as chairman to get to grips with the governance and deliver the change top down as the two directors were so central to correcting the deep rooted management problem in the business.
Headcount was cut to reduce the breakeven to just less than £7m. A realistic sales forecast was created, and profit and pricing per customer established.
Tom created a myopic focus on achieving a minimum of 600k monthly revenue and put the supporting management and team structure to return the business back to profit by delivering more output from less head-count, and making direct savings across the board.
1st 2 weeks outcome:
Two weeks after engaging in June 2013 the business achieved £640k revenue and returned a 10% profit (including restructuring costs). Tom engaged with the directors and completed an IBR to establish the financials and governance gaps. A sales director was appointed, and means of managing existing and new customers put in place. A turnaround plan was created to recover revenue back to profit which included putting in place the right organisation, educating the directors as to their roles, and how to interact with the team and new structure. An initial view of customer strategy was taken with pricing and profitability per customer targets and new business.
The recovery plan to improve the banks position by £1m cash by the end of 2013. The staff were fully engaged in achieving this and had the resources to do so.
Completely focussed on immediately correcting the governance and correcting the cash position by developing a highly motivated, high performance accountable team capable of achieving the plan. Strong motivational, capability assessment and delegation skills and lead at the top and cascade the change throughout the organisation to develop the capability for the long term.
Spotlight On… Contact
Tom Pickering BA (Hons) FIET
Tel: +44 (0) 207 1935518 Mob: +44 (0) 772 0597869