Don't forget: to fix the top line.

Author:Heller, Richard A.
Position:RESTRUCTURING
 
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With the United States suffering historic economic turmoil, there are likely many companies struggling for ways to stay afloat. A revamp of the entire business--through restructuring--may be the way to save many firms.

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Most turnarounds follow a predictable pattern. Though a revived company and a healthier bottom line are the ultimate goals of any turn-around scenario, to reach those objectives, it's imperative to take a number of important steps along the way.

Certain key facets must be addressed at the beginning of the process to ensure smooth revitalization efforts and overall success at the end. It's also important to maintain the ability to adapt and handle unforeseen issues that could crop up during what appears to be a standard turnaround.

When the process strays from the traditional revitalization path, it's time to look at the company's top line--marketing, sales, products, etc.--to see if repairs are needed there first. All good turnaround efforts can rapidly derail if an unhealthy top line continues to decline.

And if that occurs, then it is only a matter of time before the company finds itself in crisis again.

Initial Steps

In any reorganization it's imperative to address the firm's lack of liquidity to provide the needed time to fix the business. Cut expenses. Slash over-head. And, if necessary, make personnel cuts.

Also taking steps to manage the company's working capital more carefully--by accelerating collections, further extending payables and reducing inventory, as well as identifying the company's fundamental business problems--are other key factors to achieve a healthy bottom line.

Once the fundamental challenges are identified and a solution implemented, longer term capital-structure issues should be addressed--whether through refinancing and/or renegotiating the existing debts, raising additional equity captial or selling off under-utilized or noncore assets.

But this is just the start of a successful turnaround effort.

Further Evaluation: The Top Line

Though the process described above works well to stop the cash bleed, bring the cost structuring into alignment with revenues, provide a manageable balance sheet and address prominent management weaknesses, there are times when one of the main causes of troubles is a declining top line. The above process may not adequately address top-line issues given the more immediate needs of improving liquidity and profitability.

Improving liquidity and...

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