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Throughout the past several decades, our economy has had numerous up and down cycles. Most have been directly attributable to certain events, such as the oil embargo of the 70s, the real estate and S&L bust in the 80s, and the tech bubble of the late 90s. However, the current downturn is broader, more pervasive, and appears to have struck large multinational companies and entrepreneurs in almost every segment of the economy. Credit and capital, the life blood of business, have all but dried up, creating a difficult challenge for everyone. Given their robust critical mass, larger revenues and asset bases, big businesses generally have an easier time working through shortages of credit and capital. It’s the mid-size and smaller companies that seem to carry the brunt and, consequently, struggle to survive during these periods of shortages. While this poses difficult challenges, well run companies can survive and even prosper if they follow some basic yet proven recipes. A paradigm shift is required — business cannot be conducted as it has in the past and that means policies, procedures, practices and attitudes have to change. For example, there are issues of continuing credit and the relationship with your lender. We should remember that throughout the past few years the financial community was very aggressive in its desire to “rent” money. Financings, whether asset-based or cash flow-oriented, generally had generous terms or covenants (or both) and institutions competed for loans, often using price and terms as enticing factors. The worm has now turned 180 degrees and these attitudes no longer exist. That said, banks and other lenders still want to loan money but now require, among other things, better information, improved capital structures and baseline levels of performance. Therefore, in order to obtain, maintain and retain their lines of credit, borrowers have to understand this new environment and focus more on their core business, strategy, capital structure, operating policies and procedures. Since cash is king, one of the critical management tools and often, a requirement of the lender is the rolling 13 week cash flow plan. A well prepared and thought-out forecast provides the company and lender with a valuable tool. The forecast should be based upon realistically achievable assumptions (no hockey sticks please) and if necessary, show periods where liquidity may be on the short side or even negative. There is no benefit to hiding reality and potentially creating an unnecessary surprise. The best way to earn the support of the lender is to use this tool as a means to negotiate (1) loan limits, (2) provisions for short-term advances, if and when needed, and (3) general performance covenants. Lenders understand that circumstances change and are sometimes beyond management’s control and that we are in an era of acute uncertainty. This, however, is no excuse for improper planning and should be a catalyst for ongoing review of all areas. A well run company must understand which customers, products and/or services are profitable or not. This means challenging old assumptions. While it is hard to put pressure on individuals who have been long-term customers or suppliers, it is imperative that all of these relationships be reviewed, modified, where appropriate, or even terminated. For example, consider the company that always pays its bills on time or early, to either earn a discount or engender good will. With today’s cash flow constraints, those terms can no longer be met. An appropriate course of action would be to use the available time frames before making payment (i.e., no need to pay early) or negotiate with the vendor for new terms and conditions that can be achieved. Credibility is critical; therefore, never agree to term modifications that you know cannot be met. We believe, you have one turn in the barrel. Consider the possibility of working out a consignment arrangement with your vendor which could enhance availability because payment is based upon consumption and not receipt. We have found this to be a helpful method that may work for both parties. On the other hand, there is the customer that has extended its payment to you which, in turn, could have material negative effects on cash flow as well as asset-based loan borrowing bases. It is important that management maintain a watchful eye on its customers and collections and be careful not to provide goods/services in excess of credit limits (some of which may be adjusted downward) as well as to communicate with customers to ensure that expected payments will be received on time. A call to the customer several days prior to the normal receipt date may be a helpful reminder of what you are expecting. It is surprising how many companies drift away from sound policies and procedures, including cash flow management and vendor and customer relationship management, and then have to face the unintended consequences. We live in a world of rapid change. The ability to survive and prosper is based upon organizational attitudes that are realistic, nimble, and flexible and today’s environment requires openness between a company and all of its constituencies. |
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Huron Serves as Financial Advisors to Media Company, Taking it through Bankruptcy and a Sale Huron was tasked with immediately addressing liquidity by managing cash flow, oversight of certain cost cutting initiatives, and the maintenance, monitoring, and review of the cash flow forecast; preparing and advising the company prior to and during Chapter 11 proceedings; improving communications between management, the Board of Directors, and other internal and external parties; ushering the company through the bankruptcy process and assisting it with court filings; assisting management in identifying cost cutting initiatives; providing on-going daily support for normal course operations affected by the bankruptcy proceeding; and advising and providing due diligence support and transaction advisory services. Also, as the vendor response team, we actively negotiated with the company’s vendors to arrive at consensual solutions, avoiding business disruptions and improving vendor management efficiencies at the company. |
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News – In the Press Sun-Times union takes Tyree deal Sun-Times Media Group Sale of Assets Approved by Bankruptcy Court Judge Sun-Times Sale Hits Snag TMA Webinar: Suppliers Need Shock Absorbers as Auto Industry Reorganizes Sun-Times Media Group Enters into ‘Stalking Horse’ Purchase Agreement with STMG Holdings, LLC Autocam Completes Recapitalization; Positions the Companies for Growth Fighting the Good Fight |
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Huron Consulting Group helps clients in diverse industries improve performance, comply with complex regulations, resolve disputes, recover from distress, leverage technology, and stimulate growth. The Company teams with its clients to deliver sustainable and measurable results. Huron provides services to a wide variety of both financially sound and distressed organizations, including leading academic institutions, healthcare organizations, Fortune 500 companies, medium-sized businesses, and the law firms that represent these various organizations. Learn more at www.huronconsultinggroup.com. Huron’s restructuring and turnaround professionals assist financially distressed companies, creditor constituencies, and other stakeholders in connection with out-of-court restructurings and bankruptcy proceedings. We work closely with management to create, analyze, and implement strategies that secure the future of the distressed company and identify underlying operational issues, not just financial problems, to maximize the organization’s value to shareholders, creditors, and employees. Our professionals have operational, financial, functional, industry, and cross-border expertise. Learn more about Huron’s Restructuring & Turnaround team. |
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