The October 2015 CFO Leadership Council event in New York City featured a panel discussion titled “Back from the Brink: How CFOs Contribute to a Turnaround.
The panel was moderated by Ken Dutcher, EVP and CFO of HealthSTAR Communications. The panelists included James Gansman, Managing Director of Sherwood Partners; Amit Mui, EVP & CFO of Wisdom Tree Investments; and Allen Shaw, Independent Board Member for VIVUS, Inc.. The panelists were able to comment on turnarounds they experienced at both private and public companies.
Here’s a brief summary of the key points made by the panelists.
The CFO’s Role in Turnarounds?
The CFO needs to sound the alarms, be objective, and help companies navigate difficult times. The CFO also needs to analyze whether the challenge is a micro issue or a macro issue such as the Telecom “bubble” bursting in the late 90s. In a macro industry collapse such as this, there are many uncontrollable factors.
Another panelist discussed his experience during another macro issue: the Financial Crisis of 2008. He commented on the need to be realistic with forecasts and expectation-setting with stakeholders during a turnaround. Focus on retaining key employees at the same time you are cutting costs.
How to Build Bridges with Operating Staff?
Make sure the CEO is fully engaged and is not disconnected from day-to-day operations. The CFO needs to ensure that there’s alignment between the board and the executive team before reaching out to engage the operating management and staff.
External alignment with investors and customers is also important during a turnaround. Honesty and transparency are key, and sales staff need to be out in front of clients during a market downturn or crisis.
How to Manage Through Fiduciary Obligations?
A big issue for mid-market companies is tax filings and payments (FICA, Sales Tax etc.) Taxes should be paid immediately; delaying payment can become a dangerous spiral. Awareness and management of international division obligations is also key. CFOs need to have credibility with stakeholders in order to provide realistic expectations and guidance. Highlight the steps that are being taken to address the situation.
Financial stability is key to retaining clients. Maintain a positive image with clients during a turnaround and ensure the wrong messages don’t get out. Keep sales staff focused on clients and selling, not standing around the water cooler discussing rumors.
Who Should Be “In The Know” During a Turnaround?
The panelists had mixed views on this topic. One said that transparency is necessary to ensure that all employees are steering in the right direction. This allows people to channel their energy into the right tasks instead of churning the rumor mill. Some companies utilize retention bonuses to keep key staff, even re-pricing stock options that are underwater. Have the strategy finalized before it’s presented to the employees. It’s critical to be consistent in strategy and message during a turnaround.
Another panelist commented that their executive team wanted line managers to stay focused on clients and launching new products and services during a turnaround, so they limited communications to senior and middle management. The operating committee was released from internal obligations so they could put more focus on clients. Out of 300 employees, less than 10 people were really involved in the turnaround. They had weekly calls with owners to update on progress and monthly calls with bankers.
What’s the Impact of a Turnaround on Day-To-Day Tasks?
The executive management team should be fully engaged in all turnaround issues, especially cash flow management and employee retention. The executive team needs to be aligned, making sure everyone understands key decisions and actions. Cash flow management is critical during a turnaround. Key decision makers, especially the marketing department, need to be aligned on how cash will be spent.
Managing Cash Flow
Liquidity is key during a turnaround; keeping the lights on is essential. A number of panelists recommended using a 13–week rolling cash forecast to run the business during a turnaround. The CFO should take responsibility for cash flow management and forecasting. Most panelists suggested leveraging weekly forecasts and monthly meetings with investors through the turnaround.
It is also necessary to keep vendors at bay, maintain communications, and set expectations. Reset payment terms or provide equity opportunities if needed.
Lessons Learned and Final guidance for other CFOs
- Maintain integrity and objectivity. Stay intellectually honest and authentic.
- The CFO is not alone; build a support team and a lifeline to provide help.
- Transparency is key. Communicate with all stakeholders to get help and support. Maintain integrity; don’t over-promise.
- Leadership is also key. The CFO needs to step up and be the leader in steering the ship and guiding the team in the right direction.
- Courage is essential. As the situation and facts unfold, act on them. Bring them to the CEO and lenders to drive decisions.
Providing the critical information required to manage a turnaround, such as a 13-week rolling cash forecast, can be challenging when using spreadsheets. Many organizations who have outgrown spreadsheets, are turning to cloud-based EPM solutions in order to improve accuracy and control over their planning, forecasting, and financial reporting. To learn more about how Planful’ Cloud EPM Suite can help your organization navigate a turnaround, check out this white paper titled “Predictability Through Planning Agility”.
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