and source data to determine if the
company’s recent operating margin
erosion can, in theory, be reversed.
The source data can include vendor invoices and, if the company uses a standard cost system, a review of the internal process for maintaining the system. This initial assessment also should involve a review of the company’s overhead to establish that he operating margins are sufficient to sustain the company’s operations in their
current form or to determine whether
there is a level at which operations
can be sustained. The CEO must be
confronted with a fresh, objective, and
realistic assessment of the business to
determine whether it is theoretically
possible to remain in operation.
Thomas M. Kim, CTP, is the founder and managing
director of r2 advisors llc, a Denver-based financial
advisory and turnaround consulting firm. His
advisory practice revolves around businesses
that are facing financial or operational distress.
In addition to being a Certified Turnaround
Professional, Kim holds MBA and law degrees.
The author acknowledges Randy Lewis
for his contribution to this article, and for
his insights throughout the years.
In many respects, the experienced
turnaround advisor occupies a unique
position. Typically analytical and
inquisitive, the turnaround advisor is able
to provide unbiased conclusions about
the business justified with objective data.
Experienced turnaround advisors are
skilled and tactful in communicating
their findings in a persuasive manner.
do not possess these skills. However,
the expertise needed to lead a divisional
turnaround is different than that required
when a division does not have the
financial resources of a larger corporate
parent. These situations tend to be
income statement-focused efforts.
Turnaround managers are required to
make income statement changes while
also tending to the balance sheet.
At the end of the day, the lack of
adequate financial resources is the
catalyst that turns a difficult situation
into a distressed one. Large corporate
managers contemplating a move into
the turnaround world should audit
their skill sets to determine whether
they should augment their repertoire
by learning more about the stresses
induced by a real sense of urgency.
Sometimes, for the sake of precision,
the analysis must be segmented by
product, customer, division, location, or
other differentiators. It is important to
determine the true source of distress. It
is tragic when a distressed situation is
worsened by a sloppy turnaround effort.
If a company’s main product cannot
be produced at a profitable operating
margin, attempting to produce and sell
more of them will not solve the problem.
Likewise, if a particular customer,
division, or location is unprofitable
and a drag on cash flow, the solution
must involve correcting that problem
or the future will remain imperiled. J
This is not to say that managers
experienced with divisional turnarounds
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