TURNAROUND STRATEGIES FOR BUSINESS IN DISTRESS – GGF AFRICA INSIGHT
Here’s what to do when your Business presents with these typical symptoms of distress!
What to do when your Business presents with symptoms of distress!
1. Do not panic, focus on timely action.
2. Engage a corporate rescue practitioner.
3. Define expectations and deliverables.
4. Evaluate the rescue approach.
5. Learn from the restructuring methods and interventions.
6. Practice patient consistency in implementation.
TURNAROUND INTERVENTIONS FOR BUSINESSES IN DISTRESS – GGF AFRICA INSIGHTS
• Do not panic, focus on timely action – GGF Africa’s corporate finance and strategy experts deliver business turnaround interventions to businesses in distress. Our analysts expect a global rise in business distress due to the market disruptions related to Covid-19 including extended lockdowns, demand shifts, cash flow constraints, and rapid technology substitution. Typical symptoms of business distress include:
• Declining sales with a growing book of bad debtors.
• Revenue streams declining, resulting in cash flow constraints.
• Creditors and lenders obligations outstanding.
• Productivity and staff morale declining.
If you find your business in this precarious position, try not to stress (easier said), focus instead on taking timely action.
1. Engage a Corporate Rescue Practitioner (or a Business Rescue Practitioner), to provide management consultancy services, or to take charge of and run the business under Corporate Rescue in terms of the Act.
• How to select a Practitioner and confirm their capacity – It is our conviction that business rescue practitioners and judicial managers must be appointed primarily on the basis of their experience in business rescue, their proven business acumen, corporate finance and business management skills, with demonstrable capacity to deliver comprehensive business turnaround. GGF Africa’s capacity and pedigree can be measured by our analytical skills, business review experience, and track record, all supported by trade references and institutional accreditation.
• Independent Business Reviews are an essential tool for business restructuring, and your turnaround specialist should have capacity to deploy an IBR tool kit with such key interventions as:
- Independent review of the quality of financial projections and the feasibility of your firm’s business plan;
- Analysis of actual operating cash flows in comparison to their potential variance from projections;
- Evaluation of organizations operating in unfamiliar industries or markets;
- Structuring of credit terms and conditions that provide a solid risk hedge for banks or financiers; and
- Evaluation of the compliance of borrowers with the covenants agreed with the bank.
- What Accreditation is necessary for the Practitioner – The Practitioner should be a member of the Insolvency Restructuring Association (“IRAZ”) to provide corporate restructuring and turnarounds; and Liquidations; while accreditation by the Council of Estate Administrators and Insolvency Practitioners (CEAIP) is a requirement for both insolvency restructuring and general administration of Deceased Estates (including Estate Planning; Wills, Trusts & Custodial Services).
2. Define expectations and deliverables – The following is a summary of the deliverables expected of the practitioner.
• Strategic Planning & Implementation Control;
• Mobilisation of appropriately structured Debt and Equity Capital;
• Establishment of Internal Control Systems;
• Management of Human Resources & Performance Management; and
• Business Development and Brand-Building (Marketing).
3. Evaluate the Rescue Approach – The turnaround specialist must work with management to answer questions that management has probably never asked itself, including:
• What is the purpose of this business?
• Should it be saved, and if so, why?
• Can the whole business or a core part of it still be saved, and at what cost?
• What sources of cash flow can be harnessed to support its recovery?
• What is the capacity of the leadership (board and management) to drive the change?
4. Learn from the restructuring methods and interventions – The GGF Africa tool kit for corporate rescue and restructuring includes the following minimum steps that principals should expect from their turnaround expert.
• Strategy & Business Plan – refocus the purpose and confirm the vision/ direction and culture of the entity under rescue.
• Financing of the business – a combination of debt, quasi-equity and/or equity constitute a central part of the balance sheet restructuring. Establish financial feasibility and build illustrative financial models.
• Liquidity management – an effective financing plan will stabilize the company’s cash position.
• Cost Management & Streamlining – cost-cutting and renegotiating existing financing arrangements to terms the company can live with during the turnaround.
• Knowledge of the Law of Insolvency – some working knowledge of insolvency and corporate law can be useful, although an independent legal opinion should be considered a must, in order to ensure that the Practitioner’s proposed solutions are compliant.
5. Practice patient consistency in implementation – Finally, DO NOT expect miracles. As all practitioners should, GGF Africa takes the pragmatic approach to corporate restructuring – no magic involved. Typically, a comprehensive and sustainable business turnaround intervention can take months, if not years of hard work to complete. And after the turnaround specialist is long gone, the primary drivers for sustainable change are the owners, board and management. A delicate balance of interests must be maintained among and between employees, financiers, investors, suppliers and creditors, throughout the turnaround process.