The Role of Consultants in a Corporate Turnaround

The Key Role of Consultants in Corporate Turnarounds

Companies facing financial distress or bankruptcy often bring in outside consultants to help guide difficult restructuring and turnaround processes. These experienced advisors can provide invaluable expertise and objectivity during turbulent times.

Why Companies Hire Turnaround Consultants

There are several key reasons struggling companies retain turnaround specialists:

• Fresh Perspective – Company insiders can be too close to problems or wedded to the status quo. Independent consultants offer an impartial big picture view of the situation and options.
• Specialized Expertise – Consultants frequently have deep experience across multiple corporate turnarounds and bankruptcies. They know what works and common pitfalls to avoid.
• Additional Bandwidth – Company executives are often overwhelmed dealing with day-to-day crises during cash crunches. Consultants can take responsibility for major initiatives like refinancing, renegotiating with creditors, or managing asset sales.

When is a Consultant Needed?

Turnaround advisors are typically brought in when a company experiences issues like:

• Repeated failure to meet budgets or forecasts
• Mounting past due payments to vendors/suppliers
• Violations of bank lending covenants
• Loss of key customers or contracts
• Difficulty obtaining credit from vendors or lenders

Engaging a consultant quickly when financial problems emerge can maximize a company’s options. The earlier major issues are addressed, the higher the likelihood of an effective turnaround.

Key Activities Handled by Turnaround Consultants

Consultants tapped to lead corporate turnarounds handle a diverse range of crucial activities:

Financial Advisory

• Cash Flow Analysis & Management – Daily cash positioning and 13-week cash flow forecasts
• Profitability Assessment – Evaluating product/business unit profitability to inform turnaround plan
• Cost Reduction – Identifying expenses that can be eliminated without long term damage
• Credit Management – Renegotiating terms with vendors/suppliers
• Debt Restructuring – Working with lenders to amend/extend credit agreements

Operational Improvements

• Organizational Redesign – Delayering management, consolidating roles
• Process Optimization – Lean manufacturing, improving procurement practices
• Footprint Evaluation – Analyzing facilities/headcount to reduce costs
• Product/Service Rationalization – Focusing on profitable offerings

Strategic Repositioning

• Target Market Refinement – Redefining target customer segments
• New Product Development – R&D investments in promising growth areas
• Mergers & Acquisitions – Evaluating potential deals to strengthen position
• Divestitures/Liquidations – Selling underperforming assets/business units

Stakeholder Communication

• Lender Negotiations – Amending credit agreements, securing new financing
• Equity Holder Updates – Frequent progress reports to instill confidence
• Customer Assurance – Reinforcing long term viability and service commitments

What Makes a Successful Turnaround Consultant?

The most effective turnaround advisors possess a unique combination of financial, operational, and interpersonal competencies:Financial Acumen – Expertise in cash flow analysis, profitability metrics, debt restructuring and other areas critical to stabilizing a distressed company’s finances.Operational Insights – Deep understanding of lean techniques, manufacturing processes, supply chain dynamics and other key drivers of business performance.Change Management Skills – Ability to win support for major renewal initiatives and drive adoption of difficult but necessary changes.Stakeholder Influence – Credibility with senior management, boards of directors, investors, lenders, vendors, customers and other key constituencies who can impact turnaround success.Decisiveness – Willingness to make major calls quickly with imperfect information and adjust course as new data emerges.Persistence – Tenacity to overcome inevitable setbacks and resistance to transformative initiatives essential for corporate renewal.The best turnaround advisors artfully blend these capabilities to lead companies through extremely turbulent periods and emerge financially sound. While consultants can provide invaluable assistance, management must still spearhead executing the turnaround plan.

Key Milestones in a Turnaround Led by Consultants

While each situation has unique dynamics, corporate turnarounds facilitated by consultants often share common high-level phases:1. Initial Assessment – Intensive first 30 days analyzing finances, operations, organizational dynamics to identify both crises requiring immediate action and opportunities to pursue.2. Emergency Response – Acting swiftly in the first 60-90 days to stabilize cash burn, ease liquidity constraints through credit renegotiations, and build confidence with stakeholders of progress.3. Strategic Renewal – After short term fires are addressed, longer term repositioning initiatives commence – eliminating money losing operations, entering higher growth markets, consolidating functions.4. Return to Profitability – With major changes enacted and finances stabilized, the focus shifts to restoring consistent profitability and laying the foundation for future prosperity.5. Transition Planning – Once profit metrics consistently hit targets, the consultant transitions more responsibility back to management for self-sustained success.The timeline varies substantially based on factors like industry dynamics, corporate structure, and reason precipitating distress. But in general, consultants drive urgent change and hand back leadership to enabled management.

Pitfalls When Hiring Turnaround Consultants

While turnaround advisors can be enormously impactful, companies should be aware of potential downsides:Lack of Familiarity – Consultants parachuted into chaotic situations struggle getting up to speed on organizational nuances, complex processes and personnel dynamics.Insufficient Access – Restricted access to data, personnel or facilities slows assessment and turnaround planning.Poor Cultural Fit – Abrasive external experts rub employees the wrong way provoking resentment or resistance.Narrow Perspectives – Restructuring advisors with pure financial backgrounds miss important operational perspectives.Unrealistic Expectations – Management maintains false hope consultants can magically restore financial health without major changes.Dependency Risks – Company executives get too reliant on consultants vs. building their own capabilities to sustain success.The key to mitigating these pitfalls starts with clearly defining the mandate, expectations and working relationship with turnaround consultants upfront. Management should also prepare employees for incoming external experts by explaining their role and expected contribution.

Conclusion

During periods of financial distress, turnaround consultants can serve as invaluable partners to company leadership. They bring an impartial perspective, specialized expertise, additional bandwidth and extensive experience helping organizations emerge from crises more competitively positioned. While retaining a consultant alone will never guarantee a successful turnaround, they do significantly improve the odds and provide a framework for corporate renewal.

Resources

Articles

Signs You Need a Turnaround ConsultantHow Turnaround Consultants Operate

Videos

When to Hire a Turnaround ConsultantManaging a Company Turnaround