Business Turnaround

What is a financially distressed company? It is a condition in which a company cannot meet, or has difficulty paying off, its financial obligations to its creditors.

The best time to restructure a business is when it is doing well or before it reaches a state of insolvency. When companies wait too long to initiate a turnaround, they may no longer have the competitive advantages needed to guarantee a successful recovery. So it is important not to ignore the early signs of financial distress that anticipate the need for a business surgery.

How we do it

We believe that a successful turnaround is one in which a previously distressed company is now able to meet its debt obligations and make investments in growth-related projects. With great sense of urgency and the help of successfully proven business processes and methodologies, we manage our client’s day-to-day operations, usually in the capacity of CRO (Chief Restructuring Officer) or CEO (Chief Executive Officer). In instances in which our clients are excessively leveraged, we may resort to Brazil’s business recovery protection code: Law 11.101 of 2005 – Judicial and Extrajudicial Recovery and Bankruptcy Law.

The process is composed of 4 stages: (1) Diagnosis, (2) Surgery, (3) Recovery, and (4) Therapy. Stages 1 and 2 are reset phases and they should not last longer than 7 months. They require the leadership of someone who can act quickly and decisively, often on the basis of incomplete info. With the surgery behind, stage 3 aims at transforming the company, where radical operational improvements are made. The turnaround is completed in stage 4 with the arrival of a new CEO. The new leader must continue to promote profitable growth while developing and implementing a new vision for the company.

Stage 1: Diagnosis (up to a month)

The first month into the project is intense. Surviving is the goal. The patient is dying and it must be urgently stabilized, so it is critical that we diagnose the problem as fast as possible. This is something that we do in a rigidly structured manner.  

While we are getting to know the team, we must at the same time understand the numbers at a level the company is not accustomed to. Often the company does not have the level of financial transparency required to support difficult decisions. The lack of financial controls is enormous, the accounting is not right and we can not determine where the margins are. We must build all that very quickly, sometimes from scratch. Time is not on our side so sense of urgency and fast decision making with limited information are paramount attributes to this stage.

In a very short time, we identify very important decisions that will be made in the next few months, such as who to fire, who to hire, what markets, products and customers to abandon, what product innovations to stop, which ones to start or increase investing, what processes to remove, change or implement, etc. There is no room for corporate politics. The plan is designed to one purpose only: stop the company’s bleeding and cut back the organization to a defendable core, to what the company does best and earn more. Although tenacity in the face of adversity is an important attribute when designing a surgery plan, the team has to remain analytical in every choice they make.

Often Corporate managers have up to 3 months to do a diagnosis. This is not the case with financially distressed companies; the analysis must be completed in less than a month.

If we believe the company has the fundamentals for a successful recovery, we accept the turnaround mission and build, along with the client’s leadership team, a detailed recovery strategy that encompasses all areas of the business. As we design the plan, we get neither emotionally nor politically involved; value creation is at the heart of every solution we propose.

This phase demands an analytical management style.

Stage 2: Surgery (up to six months)

At TRIARII we are respectful, but do not hesitate to make the changes required to stabilize the patient. We leave behind everything that prevents the mission from being completed as fast, accurately and less costly as possible.

The management skills displayed by turnaround managers are different from those managers who work for high-growth or success companies. In this stage of the process, the nice guy does not fit in; instead, the company needs a manager who can make tough decisions everyday. We follow the diagnosis rigorously; we stick to what the company does best and stop everything else that contributes to the company’s bleeding. At the end of the surgery, the company will be generating the operating cash required to meet its newly renegotiated obligations. We will also have implemented a set of rigorous operating mechanisms to help the leaders track down performance and inefficiencies, identify opportunities and risks, in a way the company has never seen before. Although the pressure on the team is enormous, they quickly get accustomed to the new rhythm.

This work demands a transactional management style.

Stage 3: Recovery (up to a year)

This is a transformational phase, a process that demands a motivational management style.

Someone who is more people oriented will be a better fit. While we continue to manage liquidity and debt very rigorously, our main objective here is building a strong sales pipeline and growing profitable revenues across all product lines and distribution channels. To achieve this goal, we redesign, in the most effective manner, our go-to-market strategy. We also look at the R&D pipeline very closely and invest in those projects that have the potential to bring incremental value to the company shortly. To support the upcoming grow, we build very effective supply chain, finance, legal, and HR teams. Strong leadership is critical. Most importantly, we start looking for a new CEO, who will be responsible for taking the organization to the next level.

At the end of this stage, a culture of (1) operating discipline, (2) customer excellence, and (2) owner-activist mindset will have been spread throughout the entire organization.

Stage 4: Therapy (up to three months)

We finalize the turnaround by hiring a new CEO.

At the time the new leader arrives, she or he will find a renewed company with a strong corporate immune system, a platform that will enable the new CEO to develop a new vision and build the required strategy to achieve it.