Best Practices for Turning Around Distressed Companies: Success Stories
In this new series, Intralinks has partnered with Yoav M. Cohen, managing partner and CEO of NYC Advisors, LLC, to learn more about how to best execute turnarounds. In this installment, he shares examples of companies that have had successful turnarounds.
7 May 2020
In the first installment, I discussed the importance of creating a written business plan, or a roadmap, on how to control costs, and how to deal with your employees. In the second installment, I discussed how to deal with customers, vendors, bankers and the tax authorities.
Following the steps I outlined in the first two installments of this series has helped several companies conduct successful turnarounds. In this post, I will share a few success stories of companies where I implemented this process. I offer these examples to show how successful a clear, repeatable process can be.
A USD 50M public telecommunications company had a successful turnaround from a USD 4.5M loss to a USD 2M and USD 2.8M profit in the following two years by:
1. Reviewing their existing product line and eliminating unprofitable product line that caused most of the USD 4.5 million loss;
2. Reducing the cost of goods sold (COGS) by USD 2.5M over 18 months through negotiations with offshore and domestic suppliers;
3. Restructuring their accounting department and accelerating monthly closing from 17 days to five days;
4. Implementing a new software system, improving efficiency and creating insightful management reports (such as daily dashboard, and weekly, monthly, and quarterly key performance indicators); and by
5. Acquiring three companies, broadening product offerings, and increasing revenues and net profits. These achievements were a result of a roadmap that was developed by the company’s management — incorporating the steps discussed in my post about action plans. Specifically, the company concentrated on meeting with its key customers and suppliers. This allowed them to control cash and cut unnecessary costs. Working with suppliers, they redesigned all major products while reducing the manufacturing cost, a key component to the overall success of the turnaround. The company also restructured its Board of Directors, who brought in new senior management, and enjoyed the full cooperation of all employees. Throughout the entire process, the company’s banks were all involved which helped the bankers get comfortable enough with the results of the turnaround that they offered the company an acquisition line of credit, enabling it to acquire three companies and continue on the path to success.
A publicly held, global pharmaceutical company successfully turned around from a first-quarter loss of USD 235K to a year-end pre-tax profit of USD 790K, and next year first quarter pre-tax profit of USD 1.1M by:
• Re-engineering all internal controls and establishing infrastructure for new financial reporting;
• Implementing new financial and ERP systems in Israel and Canada;
• Working with its CPA firm to establish tax planning programs for the future while reducing taxes by USD 700K;
• Working with bankers to re-structure their line of credit, and by;
• Replacing key personnel with new professionals Here, again, the roadmap I discussed in a previous post was helpful because it enabled the executive team to focus on the issues at hand. Reaching out to external parties — in this case, the CPA’s — was particularly helpful because they were able to help with formulating and implementing a new global tax strategy, enhancing internal controls, and choosing a new software system.
There is rarely an insurmountable situation. Being able to recognize that a problem exists, then decisively dealing with it is a key to success. More importantly, it is okay to ask for help. If your skills are not suitable for this task, then call in an expert who can help you lead the turnaround or help sell your company at the best price possible given its distressed situation.