Crisis Management
A crisis is usually the culmination of a lengthy period, perhaps years, of underperformance. But it can also be an event that precipitates a crisis, e.g. a product recall, or unexpected regulatory action.There must be thousands of triggers to a crisis – but whatever the cause, when you are in a crisis, you know it. Common characteristics include: chaotic environment, the accounting department is besieged with creditor phone calls, the Controller won’t answer the phone and even enters the office building via the back stairs, lawsuits start raining in like confetti (and you don’t have the cash to pay your law firm!), and the best employees start leaving – with the charge often led by key salespeople.
In that environment, it is almost impossible for top management even to think. The problems are so oppressive that the exec team is filled with despair, and work slows down when, in fact, the opposite is needed – the pace has to pick up tremendously as decisive action is taken – or the Company will not survive.
A fresh, outside, unemotional team is needed at a time of crisis. Frankly, it is a lot easier for us to do the things that need to be done – for many reasons, including not having emotional ties to “sacred cows,” but particularly because our credibility with creditors, customers, employees, and investors is intact. Also, not knowing all those reasons why something can’t be done leaves us unencumbered in determining (usually quite quickly) how it can be done! From our prior experiences in successfully navigating the rapids of crisis situations, we can speedily develop a clear plan of attack that works. The plan has to include:
- Detailed weekly (even daily) cash flow forecasts
- Preservation of collateral
- Expense reduction and reorganization (the key here is not to damage revenue by an amount greater than the reduction – we call it surgery with a scalpel, not an axe)
- Cash collection acceleration
- Liability restructuring and extension of debt and accounts payable
- Achievable, credible projected income statements and balance sheets
- Candid communication with all stakeholders, starting with lenders, but also with employees who are usually in the dark
Armed with all this, and more, we make a presentation to lenders to achieve a moratorium on foreclosure. In other words, we show the lenders how the Company will survive, and then request the additional time needed to develop a one-year plan that takes the Company out of crisis mode and onto a profitable growth path.