Strategy, Finance & Organization - Mergers & Acquisitions
How to manage a turnaround and seize long-term opportunities
In downturns, cash-flow and access to capital are critical to avoid a state of insolvency and to maintain a buffer for future investments.
Overview
The challenges arising from the COVID-19 pandemic are affecting companies in all industries. Stagnating revenues, furloughs, and organizational uncertainties have paved the way for a challenging future. A new baseline is forcing businesses to swiftly review both their current strategic focus and operational structure to adapt to an unstable economy and a changing market environment.
Our experience is that management teams who fail to recognize and address a crisis early will typically overreact in their response (e.g. cut more costs than necessary or focus on the wrong areas), ultimately causing a longer and costlier recovery.
Failure to understand the business impact from a crisis, as well as having an uncoordinated plan, are a few common mistakes that companies make before initiating a transformation program. One of the key success factors to prevent unsuccessful efforts is to develop a detailed turnaround plan that covers all improvement areas incl. Revenue, COGS, SG&A, R&D, CAPEX, etc. The plan should be both fact-based and data-driven, typically taking between 30-60 days to formulate. A solid plan should start to yield bottom-line results within 60 days of implementation.
Applied Value has led clients through several successful turnarounds. This Value Paper demonstrates a selection of key concepts for managing a transformation program. Our approach is both offensive and defensive; it aims to help companies overcome strategic, operational, and financial challenges during both the current downturn and future downturns.
Protecting liquidity should be the company’s top priority during a cash flow crisis. Having enough cash-flow and access to capital are critical to avoid a state of insolvency. Of equal importance is maintaining a buffer for future investments in order to avoid losing ground to competitors.
Companies should solve shortages and ensure cash flow improvements by addressing levers related to Revenue, COGS, SG&A, R&D, Inventory, Receivables, Payables, CAPEX investments, and company financing. All should be addressed in a mutually exclusive and collectively exhaustive (MECE) manner.