Bill Zang has over 30 years of leadership experience serving in senior financial and operating roles for public and private companies—in electronics manufacturing, consumer products, government services, construction, retail, and e-commerce. He shared insights about his favorite kind of work: restructuring and turnarounds.
What value does a consultant bring to a turnaround or restructuring?
The most rewarding aspect of working with distressed companies is there is high value added to the organization during the engagement. The right outsider can provide a critical fresh approach. I focus on three things:
- Finding solutions
- Getting teams to work together
- Driving productivity
Together, I help teams mine their data to facilitate better decision-making.
What skills are required to add value to restructuring?
One of the first things you need is good data, which means understanding technology and reporting systems. With better visibility through data, you can find and fix inefficiencies to improve performance.
For example, I’ve helped several businesses—including two Fortune 500 companies—improve their financial reporting systems in order to better understand their cost structures.
One was International Power Machines, a publicly traded company.
The majority of the shares of the company had been acquired by a private equity group—and they were losing millions of dollars. I joined the company immediately after the acquisition and worked with them in updating their accounting systems, focused on cost accounting so the company could better understand their costs.
This analysis indicated that our prices were uncompetitive, so we redefined our pricing strategy. Our revenue subsequently increased, and we were able to recognize our first quarterly profit for many years in the first nine months. We also worked to right-size the organization and reduced management layers. Upon acquisition, the stock price was $0.18 per share, and when the company was sold eight years later, the investors received $5.25 per share.
Other important skills for turnarounds and restructuring include:
- Restructuring debt
- Planning and executing M&A activity
- Developing and executing sound long-term business strategies
This is exactly the kind of work I did while transforming the finance function for an Alaskan Native Corporation with revenue in excess of $600 million.
What are the top signals you should evaluate a turnaround?
Consider a turnaround when you see any sign of operational deterioration:
- The company begins to see deterioration of its banking compliance covenants.
- Declining cash balances or increases in borrowings due to reductions in revenue or gross margins.
- Disputes begin to arise between directors and management.
- Year-end audits take longer than anticipated or when the company faces a qualified opinion.
- Management turnover exceeds the norms.
- Accounts receivable or inventory balances begin to increase at rates inconsistent with revenue growth.
- Delays in financial reporting from the norms.
- Budget versus actual variances become unfavorable.
Once these signs are visible, the company should act as quickly as possible—at least six to nine months in advance of any anticipated event, such as being in default of bank covenants.
This is very evident with a client I am currently working with. The company waited too long to engage a qualified turnaround consultant. Their financial systems were in disarray, and the bank lost confidence in the company’s ability to produce financial statements. We were successful in negotiating a forbearance agreement—but only after the financial systems were fixed and the bank had confidence that they were receiving accurate accounting information.
What are the first steps for businesses showing warning signs?
The first step is to review the current financial systems to ensure they are providing timely and accurate information for sound decision-making. This business needs to understand:
- The profitability of various revenue streams
- The efficiency of departments within the organization
- Accurate receivable and payable aging
Once that is in place, it is important to prepare an operating forecast with clearly stated assumptions.
Concurrently, the business needs to develop a weekly cash flow forecast reviewed by the management team. Point persons should then be assigned to aggressively manage sources and uses of cash such as AR, AP, and inventory. At the end of each month, variances should be closely analyzed and discussed.
What projects have you worked on for private equity groups?
Plenty—let’s start with the current client I mentioned.
The company was acquired from an individual by a private equity group just before the pandemic hit. The company did not have good financial systems in place nor a strong financial staff. After the acquisition, the PE group began to see a deterioration in operations as many “gremlins” were hiding in the bushes.
The company tried to right the ship by hiring a new controller (did not live up to expectations), and brought in a public accounting firm to assist (did not produce desired results).
I came in to complete a two-week assessment of their systems, tasked with putting a monthly closing process and procedures in place. Within two weeks, we redefined processes and completed the first reasonable close. Within 30 days, we were getting more consistent numbers and cleaning up their balance sheets.
Next, we upgraded the forecasting model to provide anticipated results for the following 12 months. This process allowed the company to execute a forbearance agreement with the bank as the turnaround process continues.
At the end of the day, what this company needed was accurate information to understand cost drivers and revenue drivers in their business. Now, they can make fact-based financial decisions moving forward.
What’s the most important thing to remember when facing a turnaround?
Once you’re up against financial covenants or ratios, this is the time to take action—no matter what business or industry you’re in. It takes 90 to 180 days to begin seeing the impact of a turnaround plan. Don’t wait until the last minute. I recommend getting someone in early to do an assessment of your finances and operations for an unbiased view of your prospects.
Interested in learning more about restructuring? Have a look at a few of our case studies:
- Food processing company stabilizes operations, raises cash, and increases sales
- Distressed medical clinic avoids bankruptcy and achieves record-breaking growth by correcting operational deficiencies
- Re-build of major league sports franchise from bankruptcy into championship contender