The experts' advice

It is time to demonstrate leadership qualities and harness the support of his team - with a clear mission they can be an unstoppable force...

BRIAN BERGIN (Restructuring Partner, PwC):MARK'S SITUATION is not uncommon for companies that expanded rapidly during the boom years, particularly in the case of debt funded MA. The key challenge for Mark is how to respond and he must adopt a three-part strategy: do a detailed bottom-up review of all aspects of the business; focus on working capital management; and have an open and transparent engagement with his lenders.

A detailed review of the business should identify and eliminate non-essential spending and drive costs down by seeking quotes from alternative suppliers. This should be done on a bottom-up basis and be led by project managers independent of the areas they are reviewing. Long-standing relationships with suppliers or contracts entered into at the height of the market must be challenged.

Mark should focus on loss-making areas. Regardless of the initial rationale for an aspect of business, if the figures don’t add up, don’t try to rescue it. Take the hit and focus on more lucrative aspects.

For Mark, this will necessitate critical decisions on his US operation and the retention of aspects of his core Irish business. Exploration of alternative business practices should also be considered, including analysing whether outsourcing or relocation to low-cost jurisdictions are appropriate.

Mark should seek to improve operating cash-flow management by concentrating on working capital. A restructuring plan should focus on accelerating collections, further extending payables and reducing inventory. Introducing a system of accountability around working capital metrics can be effective. Alternatively, he could introduce incentives for achieving targets. Successful cashflow management should include a more challenged capital investment plan. Capital spend should be reduced to as close to zero as possible and new projects should be underpinned by a detailed business case.

Engagement with lenders or potential third-party investors should be transparent, but should only happen after a detailed business review and cost-reduction programme has been implemented, to build credibility.

The challenge of renegotiating existing bank facilities – or refinancing with another bank – should not be underestimated, and advance planning is recommended. Open, candid communication between all parties facilitates the building of trust. The relationship between the company and its lenders is crucial.

Refinancing proposals should be prepared with lenders in mind, clearly outlining the business case for them in supporting the company. Any proposal should provide the company with headroom to deal with the downturn and a return to growth.

This may involve rescheduling capital repayments, restructuring interest or reducing debt via a debt for equity swap.

DR PAUL McGRATH (Lecturer in UCD Business School):THERE ARE three options available to Mark: he can sell the firm as a going concern and start again; sell an equity stake to the "business angel"; or retrench and restructure with a view to surviving the crisis and achieving slow, sustainable organic growth.

I’d investigate option three which would, in any event, inform considerations of the other two options. To do this, Mark needs a tight, supportive management team around him to drive the process – this should include the existing financial comptroller and possibly his father (as an external consultant).

He needs to reassess all processes, procedures and practices and consider how things can be done in in a more efficient, profitable way. The strategic positioning of the firm needs to be reassessed. In this context, it is important to develop clarity on the factors that improve profitability and help meet customer needs and eliminate the remainder. He needs a comprehensive survival plan with clear and achievable strategic and operational goals.

He needs to focus on strategic actions to produce immediate, certain results. This may include some level of restructuring or downsizing, but I would encourage him to consider downsizing and disposing of assets. Mark needs to be clear on the likely impact of any action on the long-term viability of the business, given the changing nature of the industry and the proposed repositioning of the firm. In a firm relying on the creative competencies of staff, downsizing should be a last, not first, resort.

He needs input from employees before making a final decision on selective downsizing. This will help engender creativity in the process and hopefully minimise layoffs. It will also help promote trust in the restructuring plan.

If layoffs are necessary, the process for selecting excess positions must be seen to be fair and consistent. He should help departing employees as much as possible to increase their chances of returning, should matters improve. He must pay special attention to the survivors, ensuring they have a reason to stay and commit to the new operation. He should assess training needs around new processes and procedures.

He must reconsider the financing of the firm’s debt, exploring options with the bank and potential business angel.

Finally Mark must communicate – credibly, constantly, consistently and confidently – inside and outside the organisation if his plan is to have a chance of success. Key stakeholders must understand and have confidence in the plan if the firm is to survive.

MIKE McGRATH (Business coach, Mentor with Enterprise Ireland):MARK NEEDS TO make tough decisions, quickly and decisively. While it might be tempting to liquidate the business, Mark's father has higher expectations for his son and the future of the business.

First, Mark needs to draw a line under the past and focus on his future and delivering on the goal of business survival. He needs to become his own turnaround specialist, stopping things that haven’t been successful in the past and focusing on those that will produce more effective results. He needs to write a well thought out, action-orientated survival plan with clear goals and deliverables to be achieved against well defined timelines.

This may sound simple, but for many business leaders in this situation, clarity of thought under pressure can be very difficult.

Mark should consider hiring a business coach who will work with him to create his plan, act as a sounding board and help rebuild his confidence. This would also ensure that Mark maintains his focus on the key deliverables and milestones in his survival plan, adjusting and reviewing as required following discussion with his coach. Enlisting the support of his financial controller will also be critical.

With a clear vision of where Mark wants to bring the company, and a written plan for its achievement, communication of this plan is critical.

He is fortunate to have a loyal, long serving workforce so he must share his plans with them and ensure he has their support and understanding. This cannot be a once-off – frequent, honest, two-way open communication to the entire workforce is key to the success of his plan. With cost management foremost in his mind, welcoming the ideas and suggestions of his workforce could be key. Now is the time to demonstrate his leadership qualities and harness the support of his team. A team with a clear mission can be a powerful, unstoppable force. Other critical stakeholders to consider are customers and suppliers. Mark should meet with as many as possible to explain his situation, outline his recovery plans and seek their help, understanding and patience and, where possible, ask for more business.

By encouraging his staff to find ways to do their jobs better, Mark will create a culture that could sustain the company.