Institutional Restructuring Advice

^{A shot from the movie The Walk, Robert Zemeckis}

Restructuring problem enterprises, as a rule, involves several different forms: changing the combination of own and borrowed funds, revising loans and on-lending. The global financial crisis and the spread of uncertainty in global financial markets have fundamentally changed the available options for crisis management in order to carry out successful enterprise restructuring.

Debt, equity and commercial paper companies in the face of financial turmoil are no longer declared as highly profitable or even as junk. Currently, many assets are labeled “toxic.”. Even obtaining the status of a debtor in possession (DIP, a company that, with the consent of the court and creditors, continues to dispose of its property after the start of bankruptcy proceedings) is not easy today. The current situation resulted in an increase in the number of companies emerging from bankruptcy through the sale or liquidation, and a sharp reduction in the procedures for financial and operational restructuring, even if it is possible to overcome the crisis.

Given all this, the logical question will be: is it possible to increase the company's profitability in such a hostile business climate? In my opinion, the answer to this question is unambiguously positive. Any company can regain its former success without attracting additional funds. Let's see what is needed for this.

Based on the learned experience of many companies, I dared to formulate seven points.

1. It is necessary to accept the fact that external financing is no longer available, with the exception of people who are risk-ready already invested in your business (some kind of holders of securities).

Even so, one should expect minimal investment that only supports the pants. In such a situation, management simply has to assume the responsibilities of commanders in hostile territory, with the consequent impossibility of obtaining reinforcements. Any issues must be resolved on their own. The sensible commander will focus on strengthening his position, saving food and ammunition, as well as tactical counterattacks, carried out in conditions of limited resources. In such combat conditions, survival has an undeniable priority.

2. Blocking existing financial resources is quite possible.

Banks or lenders may try to put pressure on you to repay the loan ahead of schedule. A professional should endure and try to tackle the issue of expanding the credit line before the end of the term on previous conditions, because banks are restructuring your debts with a higher interest rate and harsh contract terms. Do not forget that an increase in the interest rate of loans already issued is in the interests of banking institutions.

3. Plan in multiple time frames.

Forecasting cash flows for several weeks is very important, but a longer-term one should not be missed, since it helps to more accurately set priorities and formulate goals. This approach helps to achieve restructuring goals to ensure sufficient liquidity and accurate fulfillment of the deadlines for the implementation of goals.

At the same time, the crisis manager should keep abreast and monitor some short-term indicators. Monitoring weekly indicators allows you to evaluate current successes and predict the activities of the next week.

4. Do not neglect the inventory and try to put your inventories in order.

Be sure to monitor surplus and obsolete stocks, used materials and the amount of product produced, minimum supply, reserve stocks and other important data.

Eliminating surplus and obsolete stocks can seem like a daunting task. Sometimes it is more profitable to process products in a new production cycle than just sell them at bargain prices. It is also possible to use surpluses for advertising and sales promotion, for example, offering such products instead of discounts.

Minimum sourcing from suppliers and reserve stocks should also be reviewed regularly. It’s better to pay a slightly higher cost per unit of product than to get rid of excesses later.

5. Cost reduction is in any case, even if it is risky.

In a self-financed renaissance, this is normal, because it allows you to make a kind of bookmark for the future, otherwise, there may be no future at all. Paradoxical as it may seem, customers expecting price cuts require better service from suppliers.

The benchmark in this process can serve as reductions in the back office. It is difficult to find opportunities to reduce costs and it is most advisable to reduce those units that have fewer points of contact with the client. For example, it is much safer to partially reduce the financial department than customer support. Personnel located at a considerable distance from the client can always be hired back, especially in the conditions of fierce competition in the labor market, it is often possible to hire specialists who are better than reduced ones.

6. Use short-term informal communications.

Long meetings, discussions and discussions look good on television and more. Anti-crisis managers should take an example from sports trainers. Short timeouts in which the coach in very informal expressions and actions set the direction of the game, ensure that all players simultaneously receive the same message. Communications in the company at the time of overcoming crisis situations should be as fast, effective and, as far as possible, carried out face to face.

7. Take a sober look at product development.

Although cash is the lifeblood of a company, cache is not everything. Updating or improving products testifies to the intention to stay in business and give our customers the opportunity to remain customers. For successful self-healing, it is necessary to find ways to more effectively develop new products, ideally, the development of new products should cost free, or at the expense of the funds already spent on this article.

Companies selling a wide range of products in this case often lose to small, oriented teams that are able to come up with new products much faster and for ridiculous money. For large, clumsy enterprises, it is recommended to follow the Apple method and implement internal entrepreneurship of small groups with a high degree of autonomy.

In any case, you must understand that magic pills do not exist. Will these tips help? Do they always work? The experience of companies that have risen from the dead is not a sort of cookbook under any circumstances, not to mention the restructuring measures they have taken. The adoption of certain measures should always clearly lie in the system plan for optimizing the business.