Managing in crisis--the worth of a chief restructuring officer.

• Author: Weber, Stephen M.

Because of the harsh economic downturn, many businesses are in dire economic straits. Declining demand for goods or services means less cash flow and deteriorating balance sheets. Vendors are tightening terms and perhaps even demanding up-front payment before. delivery. Loan covenants that were waived in prior periods are now being strictly enforced. Because of the overall decline in the quality of business credit, banks may be unable to extend additional credit to all borrowers who make the request. Business owners or managers (management) must fight so many new fires that their businesses suffer from lack of attention. In a time of crisis, this inattention might be the last straw that will tip the business into a downward financial spiral.

If any of your clients is slipping into this type of situation, now might be the time for you, as their advisor, to suggest that they consider hiring a consultant to step into the temporary role of chief restructuring officer (CRO) for his or her business. Several reasons exist for suggesting this step, not the least of which is to keep your client operating as a viable business. For example

* the hiring of the right CRO can instantly enhance a business's credibility in the eyes of lenders who may no longer trust management to provide leadership in a crisis situation. Often, the most important role of a CRO is to defuse the tension among all the stakeholders and work toward a reasonable solution for all parties.

* the CRO will remove much of the burden existing management has had to bear in dealing with creditors, so they can focus on customer service and operational excellence.

* the CRO has specialized knowledge and experience in leading companies back to positive cash flow and profitability while operating the companies under financial distress.

When a CRO is initially hired in a restructuring engagement, he or she will focus on a number of areas. The first--cash flow--is the lifeblood of the business. This must be maintained and protected until the business has been stabilized. Subsequent parts of this article address the other areas of work the CRO should address.

What Are the Overall Financial Strengths and Weaknesses of the Company?

In order to quickly get the business back on sound financial footing, it is essential to improve cash flow. In the short term, receivables must be controlled, and collections must be made from nonperforming customers before they are weeded out. Payables must be...