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Jack (and Master) of All Trades

August 05, 2014, 07:00 AM

Financial analyst. Chief executive officer. Fraud examiner. Chief financial officer. Turnaround professional. Chief restructuring officer. Risk manager. Expert witness.

As corporate transformation specialists, we have to be nimble and know how to step into many roles. We’ve gained much of our expertise not from books and classroom instruction but from digging in the ditches of hard, cold, real-world experience. We’ve learned that we need to be jacks—and masters—of our trade.

We’ve also learned something else. Our work isn’t just about the number crunching. It often requires visits to the right side of our brains to draw on creative thought processes in order to find new ways around tough situations. And we can’t do this alone. We are most effective when we can work in partnership with our clients and other professionals who are open to challenging assumptions, exploring options, generating new ideas, and working together to come up with innovative solutions to existing problems.

We have a long track record of success in this regard, and one recent assignment in particular illustrates the point—a time when an asset-based lender brought us into a situation as part of a forbearance agreement that challenged all of us on many levels.

It involved a 100+/-year-old, fourth generation-owned scrap metal recycling business that had experienced seven consecutive months of cash losses. Having survived several cyclical downturns in the company’s history, the owners—four family members who didn’t agree on how the company should be run—were convinced that industry conditions would soon improve and positive cash flow would return. However, their banking partner was not so optimistic and gave us a call.

One of the biggest challenges we faced was working through issues with the company’s owners and arriving at consensus. None of them had any business management experience outside of running their own company. They openly disagreed on how the company should be managed and argued in the presence of employees. They often gave conflicting direction to employees, which contributed to ongoing morale problems.

On the business side, we learned early on that the company generated positive cash flow in both 2010 and 2011. However, the 2011 positive results were all generated during the first half of that year. Fourth quarter 2011 losses totally offset third quarter positive cash flow. By the end of the first quarter 2012, cash losses had escalated to more than $2 million, all financed by an increase in trade accounts payable.

As I mentioned, the company's lack of response to the cash crisis was due mostly to a false sense of security in having weathered many downturns in its history and in its belief that more volume would solve the problem. Overhead and staffing levels had been maintained, assuming that a reversal of unfavorable industry conditions was right around the corner.

The first thing we did after we got the call from the lender was to conduct an assessment of the situation. The company’s chairman was pleased enough with the results that he retained one of our ABTV professionals as Chief Restructuring Officer, who went to work right away. The cash-flow bleed was initially eliminated through an 18% reduction in head count (at the start of the assignment, the company had 243 full-time employees on the payroll), as well as across-the-board graduated pay cuts. Owner payroll for all four family members was reduced by 30%. (You can probably imagine how well this recommendation went down.)

Getting beyond cash flow break-even required the introduction of a gross margin management system that better matched market selling prices (the company’s revenue source) with the prices the company paid for scrap metal. The margin management process was as much an art as it was a science. Paying too little for scrap metal to be processed would reduce the supply and therefore the source of revenue. Paying too much was how the company generated large cash losses to begin with. The balance required new systems and daily team meetings to monitor cash requirements in light of constant market fluctuations. During this period, the company witnessed ongoing deterioration in market conditions, lower market selling prices and upward pressure on purchase prices.

Our early assessment showed the company would not be able to survive for the long term. We managed to convince the owners of the need to attract an industry leader capable of weathering downturns like those that were then being experienced. An eight-month sales process was undertaken, culminating with a successful sale of the company to an international steel company. The sale resulted in a premium price paid to the shareholders and retention of most of the jobs.

By applying some creative strategies to a challenging situation, this company avoided liquidation by managing expenses and margins and successfully negotiating a chain of forbearance renewals with the lender until the sale was complete.

All of us need to be masters of our trade. For any professional working with a company that is facing a challenging situation, being a master should include consideration of fresh solutions in order to achieve successful outcomes.

Sometimes it pays to create new boxes and then think outside of them.

Peter L. Tourtellot
Principal | Anderson Bauman Tourtellot Vos & Company
Peter Tourtellot is a founding principal of Anderson Bauman Tourtellot Vos & Company, a corporate revitalization company that works with companies in more than 40 industries throughout the United States. Founded in 1989, ABTV brings successful outcomes to companies in distress.

In his capacity as a turnaround professional, Tourtellot has served as interim CEO and president of companies in a wide variety of industry sectors, as well as a consultant to many others.

A leader in the development of the turnaround management profession, he is a past president and chairman of the Turnaround Management Association and a past president and chair of its Carolinas chapter. He has served as chairman of the association’s Certification Oversight Committee, a position that was created upon the merger of the Association of Certified Turnaround Professionals into the Turnaround Management Association in January 2008. He also serves as chair of the academic committee for the Carolinas Chapter of the TMA.

Tourtellot is a past president and chairman of the Association of Certified Turnaround Professionals and served as vice president of education and a member of their board of directors prior to the merger.

Tourtellot is a member of the advisory board for the Love School of Business at Elon University where he served as chairman from 2003 until 2010.
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