Finance Monthly, published this interview with John M. Collard, a turnaround manager and outside director. In this interview we talk with John about all things turnarounds.

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Article-of-Interest:

Turnarounds Explained. An Interview With John M. Collard, Strategic Management Partners, Inc.

We speak with John on all things turnarounds.

Q    What is the most important step to turnaround success?

Obtain leadership guidance early. Turnarounds and the Zone of Insolvency are fraught with risk. Businesses fail because of mismanagement – sometimes it is denial, sometimes negligence, but it always results in loss. There is a different set of skills required.

I recommend hiring outside independent directors and advisors to help shape the process. You need these guys … to increase cash flow, provide valuable guidance, contacts, and credibility. Install a board with transition and turnaround experience in value-building situations.

Companies committed to going through significant business change (turnaround, transition, generational ownership transfer, entering new markets), anticipating a major liquidity event, need guidance.

Outside directors often increase cash flow and business growth. According to a Forbes/Lodestone Global survey; 97% of companies reporting increased revenues and EBITDA, since adding a board with outside directors. They bring a new set of skills and ideas to produce benefits, while you maintain control. They provide an external source of accountability, and add credibility. When it comes time for a liquidity seeking event, outside directors send the message that you are an organization with leadership, guidance, stability.

Benefits of Outside Directors

Create a culture and structure that will withstand third party accountability to add value to the business. Start thinking as a rebuilt and growing company and prepare for a potential future life as a public company or increased scrutiny of investors.

Q    What should you expect during a turnaround?

The process goes through five stages: changing management focus (leadership), analyzing situation and developing plans (viability), emergency action (crisis control), restructuring business (change), and return to normality (going concern). It is key to coordinate the functions and focus of the company to complement each other.

Q    Can you detail they key steps that are involved when turnaround services are required?

You need clear thinking to quickly determine what is wrong, develop strategies that no one else has tried before, and implement plans to restructure the company. The problems are rarely obvious. Instead, there are often two or three underlying systemic ills that must be fixed. You can't focus on the symptoms, but must find the real causes.

There is a process for guiding an entity through corporate renewal. It involves using a transferable set of skills to revitalize the property and restore it to a sale-worthy state. Then, you sell the entity and realize returns.

Bring Leadership. Change Management Focus. – In times of crisis and transition, who can handle the crisis management role? This is a predicament. If there is a qualified leader within the company, then delegate the job of 'turnaound' to that person, and provide proper support. If there is not a qualified leader in the company – and there often isn't – don't hesitate to go outside the company to locate a professional for this job.

The leader must get directly involved in making decisions to achieve the ultimate goal — turnaround and sale at increased valuation. They must be held accountable for performance and timely results. Most importantly, they must get things moving. On the revenue/sales side, look at where and how revenue is generated and keep it coming. On the throughput/production side, get the product or service out the door. How else can you bill for it?

To complete the turn, hire a marquee manager to lead the enduring team. This permanent team adds to value equation.

Set Strategy -- An effective strategy is key to implementing change. You must establish a new vision, distill this direction into concrete goals and objectives, and create a guide for all stakeholders to follow. Rebuilding momentum is critical to success.

Focus on a new perspective of what is going on and fix it. Question:

• Is the business viable? Turnable?
• What is the purpose of the business?
• Should it be saved? Why? Are these reasons valid?
• Is there a core business that can be the foundation for the emerging business?
• Are there sufficient cash resources to fuel the recovery?
• Are there existing managers capable of leading parts of the company?

Remember, not all companies are salvageable.

Identify effective turnaround strategies. Operational strategies include increasing revenue, reducing costs, selling and redeploying assets, and establishing competitive repositioning.  Strategic initiatives include adopting sound corporate and business strategies and tactics and setting specific goals and objectives that align with ultimate stakeholder goals. Too often, goals are misaligned with the ultimate direction and lead to confusion, wasted time, false starts, and employees sent in the wrong direction.

Build a Quality Management Team -- The value of a company increases sharply with a strong, permanent, credible team who can demonstrate their ability to produce consistent sales, profit and cash-flow results. Establish continuity in the organization to allow everyone to expect orderly change and opportunity.

Capitalize on available under-utilized human capital — those remaining middle managers. Chances are they are dedicated to the company and its success. Guide them to their next level, and they will take the company the next big step.

Acquire New Business/Sales -- There are only two ways to increase sales: 1) sell new products to existing customers, and 2) sell existing products to new customers. Most under-performers have forgotten, or never had, the basics of marketing and promotion. Clearly promote what your products and services can do for your customer to satisfy their needs; differentiate why your product stands apart from the competition.

Become market driven, adapt to changing conditions and improve your competitive position. Deliver only what customers are willing to pay for.

Establish a Sound Capital Structure -- Create reasons for investors to invest and for buyers to buy. A sound strategy with a viable marketplace, efficient delivery and production vehicles, high probability of future cash flows — coupled with a cohesive marketing-oriented management team — will entice the investment community. Securing new capital becomes much easier when investors see high probability of return and a viable exit strategy.

As important to infusing cash for working capital needs, is to make certain cash won't be diverted into past sins. Establish relationships with creditors so they will work with the new management team — give them upside when the turn is complete. Consider a "creditor's committee" approach to keep them plugged in and participating. Pre-packaged bankruptcies are also available to ensure cooperation. You can always purchase assets out of bankruptcy to ensure a clean structure, a strategy being utilized more often as buyout funds get more comfortable with the process.

Implement Processes -- Use systems and processes to drive the business and control the day-to-day environment, which allows management to run the critical elements of the company. Many managers waste time on tasks where results would be essentially the same, managed or not. Focus on the important things — controlling cash and costs, increasing sales and enhancing value creation. Manage these.

Processes define guidelines and expectations — watch for the benefits derived from communicating what is expected. This will reestablish delegation of authority and expectation to those who can turn the events of the company. When results are recurring, this stimulates value.

Nurture Resources -- Leverage all resources —people/facilities/advisors — to complete the turnaround. Set up an incentive structure that pays only when they accomplish the goals set forth in your long-term strategy. A robust incentive structure shares the risk; if successful all will gain. If not, you're not subsidizing poor performance. Incentives should be based on performance that will take a company beyond its sale. After all, they are a key asset your buyer is looking for.

Q    What is your final word of advice?

Do not expect miracles overnight. A turnaround can take years of hard work to achieve. Outside advisors are a catalyst to speed and direct the process, and increase probability of success and returns. Owners must make hard decisions and commitment to enabling the process to take place. Ultimately, the success of a turnaround rests upon the shoulders of a business' most valuable assets; owners, advisors, leaders, creditors, lenders, its management and employees, all dedicated to turning around the company – get buy-in. Good luck.

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About the Interviewee: John M. Collard

John is Chairman of Strategic Management Partners, Inc. (410-263-9100, www.StrategicMgtPartners.com ) in Annapolis, Maryland.  John is a Certified Turnaround Professional (CTP), and a Certified International Turnaround Manager (CITM), who brings over 35 years senior operating leadership, $85M+ asset and investment recovery, 45+ transactions worth $1.2B, new business developed $950M+ and win ratio 3.5 of 5.0, and $80M fund management expertise to run troubled companies, serve on and advise company boards of directors, and raise capital. John has served as CEO, CRO, Receiver, senior executive to turn around troubled entities, and serves as an outside director.  John is enshrined in Turnaround Management, Restructuring, and Distressed Investing Industry Hall of Fame. John is Past Chairman of the Turnaround Management Association (TMA), Past Chairman of the Association of Interim Executives (AIE), and a Senior Fellow of the Turnaround Management Society. John is a co-Founder of TMA. John is Prince George's Business Leader of the Year. John is honored with the Interim Management Lifetime Achievement Award from the Association of Interim Executives. John is honored as Most Admired CEO in Maryland by Daily Record. John is honored with SmartCEO Distinguished Leadership Award.

About Interviewee's Firm:

Strategic Management Partners, Inc. (www.StrategicMgtPartners.com 410-263-9100)  is a turnaround management firm specializing in interim management and executive CEO leadership, asset and investment recovery, board and private equity advisory, raising money, and investing in and rebuilding underperforming distressed troubled companies. The firm has been advisor to Presidents Bush (41 & 43), Clinton, Reagan, and Yeltsin, World Bank, EBRD, Company Boards, and Equity Capital Investors on leadership, rebuilding troubled companies, investment recovery, turnaround management and equity investing. SMP is celebrating 25+ years of service to its clients. SMP was named Maryland's Small Business of the Year, and received the Governor's Citation, Governor Martin J. O'Malley, The State of Maryland as a special tribute to honor work in the areas of turning around troubled companies and saving jobs in Maryland.  Turnarounds & Workouts Magazine has twice named SMP among the 'Top Outstanding Turnaround Management Firms'. American Business Journals named SMP among the Most Active Turnaround Management and Consulting Firms in Baltimore, Washington, and the Mid-Atlantic Region.  Global M&A Network Turnaround Atlas Awards named SMP as Boutique Turnaround Consulting Firm of the Year.

Strategic Management Partners, Inc.: turnaround managers ready to run troubled companies, recover assets from investments gone bad, advise boards of directors and investors on company viability in distressed situations.  We provide strong interim and operational leadership, strategic planning, financial, defense conversion, sales and marketing acumen developed building organizations in large and small companies, including President of public & private middle-market companies providing solutions to Commercial, Federal Government, International markets. Enterprises range from start-up to $100+mil. Industry expertise: Manufacturing; Job Shop; Engineering Services; Computer Processing/Services/Software/Integration; Communications; Defense Electronics; Aerospace; Federal Government Contracting; Systems Integration; High-Tech; Finance; Marine Services; Real Estate Development; Construction; Fabrication; and Printing.

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Reference:

www.StrategicMgtPartners.com   Turnaround Managers

www.StrategistLibrary.com   or  www.StrategicMgtPartners.com/library/libindx.html

Turnarounds Explained. An Interview with John M. Collard Published by Finance Monthly.

Hiring Outside Directors When Private Companies Don't Have To: They Bring Change Published by Board Leadership, a Wiley Periodicals publication.

Building Value In Companies To Prepare Them For Sale: Investing In Distressed Opportunities Published by Corporate Live Wire Expert Guide on Bankruptcy and Restructuring.

Fixer-Uppers: Rebuilding Value Published by Private Company Director

Raising Money Capital Published by Chief Executive Magazine

Is Your Company in Trouble?  Published by Corporate Board Magazine

Managing Turnarounds Phases and Actions Published by RMA Journal

Social Media:

John M. Collard on Facebook at  http://www.facebook.com/JohnMCollard

John M. Collard on LinkedIn at  http://www.linkedin.com/in/JohnMCollard

John M. Collard on Twitter at  http://twitter.com/JohnCollard

Collard on NewsReleaseWire

Firm:

www.StrategicMgtPartners.com  Turnaround Management Experts

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