success steps to a turnaround

June 15 2010© 2010 RJ Reuter LLC

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Success Steps to a TurnaroundRon Reuter

Managing DirectorRJ Reuter Business Consulting


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Introducing Ron Reuter

RJ Reuter Business Consulting & Turnaround Solutions is premier consulting and turnaround management firm specialized in maximizing value and improving operational efficiencies and financial performance

Ron Reuter

Managing Director


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Introduction to Turnaround Management

• Professional expertise focused on assisting businesses in distress or financially underperforming and in a “zone of insolvency”:

Turnaround professionals are focused on assessing and developingplans to restructure businesses Recommendations result in either turnaround proposals, positioning a company to sell, or shutting down a business

• Businesses often need and benefit from external perspective during periods of economic downturn to identify a clear plan to success

• Turnarounds often complex, exacerbated by multiple crises, and extreme financial obstacles


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• “We turned it around”What does that mean - variances from one to another

• “We didn’t (want to) see it coming”or maybe we did?

• Looking for troubleWarning signs uncovered


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Prioritized to preserve

Action plan toward recovery

Strategy maximize value

Timeline determined by below steps

Yr 22010

Crisis Management-Turnaround

1. Situation Analysis

2. Emergency Action-Stabilized

3. Restructuring planimplementation rehabilitation

Exit: Turnaround completeSale / Growth / Liquidation

Yr 190 Days60 Days30 DaysStart


Direction options


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Today’s Agenda: Success Steps to a Turnaround

• Three keys to a successful engagement:1. Set Realistic Expectations 2. Consultant acceptance into organization 3. Organization buy in to the change process

• Three key stages to a successful turnaround: 1. Situation Analysis2. Emergency Steps for Stability3. Restructuring Plan


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1. Establishing RelationshipAllow business to share storyIdentify biggest issues Be mindful of own professional capacity and ability to manage the engagement Emotion is often an added issue

2. Focus on immediate goals Prioritize urgent items (stabilize)

3. Overcome control/financial mindset misconceptionAre we saving the business? And client’s true commitment?

Successful Engagement: Setting Expectations


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Family/Small Business Nuances

• Control is often an issue

• Trust harder to gainViewed as an outsider

• Staffing Employees become “family” and decisions related to employees often cloudedSenior family members “hiding” issues with cash infusionOften hire too many family members or hire family not with the skill set neededDifficult to make organizational changes when affect family members positions


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Successful Engagement: Organization Acceptance

1. Identify self as business/crisis expert 2. Referral and track record is important 3. Outline clear roles of consultant and company


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Successful Engagement: Buy-In Process

• Consultant clearly outlines plan and partners with business on reality of situation

• Consultant brings a level of reliability to the financial preparation and road map to success

• Consultant creates awareness of consequences if business does not take necessary actions

• Credibility Information that is honest and trueConsultant doesn’t always get a 2nd bite at apple in these situationsRoom for error typically short to none

• Clearly outline timeline, responsibilities of parties, communication plan (vendors, employees, etc.)


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Successful Turnaround: Situation Analysis

• Preliminary action plan usually concerns cash flow and financial challenges

Preservation, assuming borrowing is not available, is the highest priority

• Preliminary basis to communicate and stabilize preparation to stop the bleeding (emergency steps)

• Assess their own stage of distress

• Financial assessment of business’ historical trends

Reliability often a question

• Due diligence process of prioritizing

• Is there a core business outside of distress worth pursuing or modified plan


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EXHIBIT: Cash Flow Projection NewCo


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EXHIBIT: A/R & A/P Projection NewCo


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Situation Analysis: Collection and Payments

• Accounts Receivable: Focus on aging represent highest percent of collections

• Comparing AR to AP aging/historical trends

• How long business in situation?

• Dependency on specific sales/customers

• Accounts Payable: Focus on aging by Vendor priority

• Non priority vendors• Preserve the

business operations during the assessment period that does not breed further risk to the creditor


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• Prioritize to build settlement plan• Restructuring plan focused


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Successful Turnaround: Emergency Steps

• Preserving the operation of business is #1 priority

• Cash Flow is 1st item to analyze

• Determine the nature of the turnaround to properly identify resource needs

Example: capital, cooperation, commitment, competency

• Immediate issues Ask: what is your immediate problem? Answer: Cash (ie. can’t get goods in door, can’t meet payroll)


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Successful Turnaround: Restructuring Plan

• Unique to each businesses specific situationSituation Analysis and Emergency Steps inform long term plan

• Cost alignment strategy (vs. cost cutting strategy)

• Identify which customers are key to maintaining for the viability of the business

• Solid plan for new financing/investment


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EXHIBIT: Operating Cost Reduction Results

Payroll: Reduction of idle production personnel, owner compensation

Healthcare insurance plan change w/employee contribution adjusted

Various operating expenses re- budgeted

Breakeven sales reduced by $99,575 (or from $258,460 to $158,884 per month) at its margin after direct material costs


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EXHIBIT: EBITDA Restructuring Results

Month Sales Assumed

$210,000

$195,000

$175,000


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8 Tips to Lease Negotiations

1. Plan early before lease becomes a legal problem • Early discussions benefit both landlord and tenant• Allows tenant to weigh their options and properly

present to landlord 2. Determine where the problem originated

• Arising from initial lease or renewal• Evaluate in tandem with business’ current cash flow

and projections during the lease term 3. Know the current market

• Consult with a local commercial realtor


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4. Create different business models to down/right size the space• Smaller space may results in additional savings on

insurance, utilities, and possibly staffing5. Locate a sub-leasing tenants to create growth

• Analyze other businesses with similar target markets that could benefit from combined space

6. Be respectful but stay in control of the negotiations• Position negotiations from past contributions with the

spirit of working together new business plan


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7. Restructure terms to a positive cash flow period• As part of Landlord proposal, Tenant may need 1 or

2 month deferral to get plan in motion and improve cash flow

8. Winning factors in plan presentation• Compare how plan of rent reduction are below the

costs a Landlord would incur with:Vacancy (that could last 6 months or longer)Fit-out costs of a new tenantAdvertising and broker costsLegal costs of a new leaseUncertain risk of new tenant


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Lease Negotiations

• Preparation is key• Compare current market

Example: 3Yr Lease comparison


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Case Study Examples• Manufacturing: Family Owned

Dynamic: Over borrowed and additional investments that didn’t materializeDriver: Lender - Pay or liquidate

• Retail: StoreDynamic: Industry decline sales down 50%Driver: Landlord - Pay or get out

• Service business: Radio CommunicationDynamic: Over paid and borrowedDriver: Foreclosure but don’t pay us - just want it back


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Around the room knowledge

• From each share 3 take-aways as a group


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Thank You


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RJ Reuter Business Consulting

RJ REUTER Business Consulting is a premier consulting and turnaround management firm specialized in assisting distressed or underperforming companies to maximize value and improve operational and financial performance.

Ron Reuter, Principal and Managing Director60 Broad Street / Milford, CT 06460Call Ron Reuter: 203-877-8824 ext [email protected]

RJ REUTER offers unparalleled professional guidance to resolve highly complex business challenges backed by a proven track record of success:

•Expert turnaround business plan development

•Strategic lender negotiations & relationship management

•Distressed company budgeting

•Financial projections, liquidity assessments

•Cash flow stabilization and recovery plan

•Term loan restructuring & lease negotiation

•Debt restructuring and refinancing

•Position of business to sell or grow

mailto:[email protected]

http://www.rjreuter.com/

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