Business Owners are now facing the most difficult economic conditions in decades. These include a major war in Europe, an international Banking Crisis, rising interest rates and inflation, and the creation of asset bubbles.
A broad or even Global recession is now expected.
In this environment many businesses will need to formally address the process of metamorphosis. Ideally this will utilize a Chief Restructuring Officer or CRO.
This position is not always understood, and the role does not have as much history as the more traditional positions such as CFO, CEO or President.
This leaves much room for understanding. The CRO may be thought of as simply a position that works through Bankruptcy, rationalizes a workforce, repositioning marketing or dispose of or refinance assets.
It may include all of these and much more.
There also does not seem to be any common understanding about the environment in which the CRO operates. It may be used to indicate an organization facing relatively simple changes, or to convey a much more drastic situation.
I have found that denial is a creature of infinite resource. By the time that signs of corporate denial are even evident, problems are usually pervasive, with breadth, depth, and scope.
This is the true environment of the CRO, it is where a company’s position is well into the Red Zone of trouble.
This is where it is likely that the organization is experiencing losses in its operations. This will be reflected in almost all financial indicators. It will also be reflected in the scarcity of nearly all resources. These include: cash, management talent, reliable data, and most importantly-time.
In this environment, custodial management cannot possibly cope. Running day-to-day operations is a challenge, and managing a crisis with existing staff is nearly impossible. Current management may also lack perspective, be bound by habit and be reluctant to take bold action.
Due to a breakdown in management and systems there will be a paucity of data. What data that exists will be likely wrong in some respects. Flawed, incorrect or insufficient data is present in nearly all distressed organizations.
Unfortunately, the situation is exacerbated by the unwillingness of employees to come forward and be the harbinger of bad news.
In this milieu the CRO faces an environment that is rich in threat, scarce in all resources, ambiguous, and exigent.
The CRO must first ask himself if the possibility of success really does exist. Success is possible if:
- There are products or services sufficient or nearly sufficient to sustain profitability.
- There is sufficient capital to execute a plan.
- Management is competent in a turnaround milieu.
Given time constraints, the CRO cannot afford to be too linear. Evaluating viability, forming a plan, and executing it do not need to be in sequence. Given time constraints there must be overlap and concurrence.
A good first step is to examine cash needs and potential resources for cash. Projected forward by several months. This must be done with a clear eye concerning all aspects of revenues and expenses, and a healthy skepticism concerning all data.
These short-term projections will set the stage for the longer term. Their preparation will yield a whole host of benefits. This will include valuable information concerning such things as gross margins, sales, key products, underlying asset value and management performance. This information will permit a fundamental viability assessment and if appropriate, the foundation of a recovery plan.
Should a turnaround attempt be made leadership is the sine qua non of success. The experienced CRO is accustomed to the turnaround environment. The CRO will provide additional management resources and expertise in the execution of a turnaround plan.