When To Utilize Turnaround Management for Your Business
The COVID-19 pandemic still leaves a lingering shadow over businesses of all kinds. Some are open, others aren’t, and some have even closed up shop. How can they manage and resume operation – especially if they owe their lenders? Can they rebound? Gerber Finance checked in with Jacen Dinoff, Principal, Founder and Chief Executive Officer of KCP Advisory Group for his insights on these questions and other topics, which you can hear all about in the fourth episode of our podcast (“Turnaround Management: How the Best Utilize Your Bullpen [enter link to podcast here]”). We recapped our conversation below.
Meet Jacen Dinoff
Turnaround management vs. crisis management
Turnaround management analyzes the risky situation a business may be in and identifies a plan for restructuring. This is beneficial to all stakeholders – lenders, owners, and creditors – as it ensures that the business can either make a complete turnaround or at least show signs of earning a profit. In the event a business cannot come back, turnaround management can assist in either its selling or shutdown. In crisis management, which has unfortunately been happening a lot due to the pandemic, the initial course of action is to identify the issues and assess a plan for stabilization before assessing a plan for restructure.
Turnaround management in action
Jacen states that companies reeling from the pandemic need tactical planning in order to survive by finding creative ways to stay in business. One case in point was a client who was in the food distribution field…
The problem? The principal lines of business for this particular client were connected with restaurants, cruise lines, and Disney; what Jacen called “the trifecta of problems” in the pandemic, as there were limited traditional customers for these food products. A lender for this client even told Jacen that its business would be difficult to support. So, this situation would fall under the category of “crisis management,” wouldn’t it?
Jacen had a different idea. He believed this client could survive. Eventually, he received support from another member of the lending company who advocated for this client. The “crisis management” classification was on its way to becoming a case of “turnaround management.”
The solution? This client’s business was reinvented through its website, complemented by small consumer buyer programs, into an almost exclusively consumer interface with active marketing and promotion at a higher margin. This food distribution business became a consumer shipment business. As a result, this client not only survived. They thrived.
Getting creative in order to stay in business
The immediate goal is to get back to business, in one way or another. What can businesses do? As with the situation involving the food distributor, being creative is the key to surviving. Apparel businesses, for example, might place most of their energies and resources into manufacturing face masks, of which there is an ongoing demand. Businesses that own warehouse space can consider renting them out as triage centers to nearby hospitals and medical facilities. Whatever creative solutions a business arrives at, however, they must be in sync and organized, with effective leadership at the helm.
Lesson on what makes a leader
The most difficult situations “get to the finish line” thanks to strong leaders. Not bosses or managers, but leaders. As intimidating as this may be, keep in mind that great leaders do not know all the answers. (Nobody does.) What makes a leader stand out, however, is presenting the confidence of how to get to the answers of a difficult situation. If a leader can manage the stress levels that have been accentuated by the pandemic, and step out of his or her comfort zone and know when to proceed or look to others for guidance, help, and feedback, they have a good chance of guiding their business to a successful turnaround and planning for the immediate future.
The relationship between businesses and their lenders
Businesses should think of their lenders as financial partners. They must be more proactive than ever in keeping the lines of communication open and active with their lender, as we discussed in the second episode of our podcast (“Pivoting in a Pandemic: How to Reposition Your Business”). Let them know if you are making adjustments to cut back, or find out if different payment plans are available. Costs may be reduced, for example, but borrowing is still necessary.
The value of asset-based lending for struggling businesses
In the current climate of the COVID-19 pandemic, questions and confusion as to what approach businesses should take in order to survive abound. The advantage of asset-based lending [enter link to the “Everything you need to know about ABL” blog here once live], as Jacen points out, is that it offers a general understanding of how the process works formulaically. Knowing the value of receivables and inventory gives clients a better understanding of their situation, and helps them plan ahead with a lender.
In short, asset-based lending provides a great formula that even the layman can understand. They have an idea of available working capital and how they can operate – despite peaks and valleys in the profitability cycle.
There is no crystal ball to look into the future, so there are no guarantees, especially now. In closing, the most important thing Jacen stresses is that business owners should consult with knowledgeable and qualified people and advisors who know finance.
Ready to discover how Gerber Finance’s asset-based lending solutions can help you navigate your business to success in these uncertain times? Let’s have a conversation!