When it Makes Sense to Hire a Turnaround Consultant

By: Jeff Wright, Senior Vice President, Hennessey Capital

In my 27 years in the asset-based lending and commercial loan workout business, I have observed many companies experiencing significant problems with operating performance. In a typical scenario, these businesses endure a substantial decline in revenues and/or are dealing with costs that are increasing at a higher rate than revenues. Management is often slow to begin cutting overhead expenses. Losses and tight cash flow frequently trigger covenant violations with their lenders who, in turn, to take steps to protect their security interests. When this occurs, it may be time to consider hiring a turnaround consultant.

Many companies, however, use the excuse that they can not afford an outside consultant or they can handle the task internally. It is important to recognize that even the most talented businesspeople can benefit from the support and guidance of an experienced consultant.

Hiring a consultant can provide an unbiased, independent opinion of the company’s current position. When tough decisions need to be made to reverse downward trends in operations and changes must be implemented and monitored, consultants can analyze the business decision from a position of greater objectivity. Moreover, some of the “change” burden can be handled by the consultant so that management can focus on the day-to-day responsibilities of running the company.

The most common benefit to hiring an outside consultant is access to his or her experience. The consultant can draw on that field experience to fill gaps in the management team’s skill set and develop and implement a plan that has worked in a similar situation in another organization. Other benefits include the consultant’s ability to draw on sources in their network for advice, and to connect with potential customers, suppliers, investors, or buyers. Many consultants also have relationships with a variety of lenders and can help in negotiating favorable restructuring agreements.

The overlying take-away here is that cash is king. The ability to improve cash flow is the consultant’s primary objective, so that the company can continue as a going concern, grow the business, and take advantage of new opportunities.