Should FDs focus on reopening, resuscitating or restructuring?

Aside from government restrictions indicating when businesses can resume normal practice, data and forecasting can help determine an organisation’s best recovery options, according to restructuring and insolvency professionals.

“It is simply not going to be a case of throwing open the doors and saying ‘open for business,’” Matt Dunham, partner at Dunham Dean Advisory, said via email. “The business environment is going to be significantly different from before lockdown.

“To reopen your business successfully, you must have thought about at least some elements of restructuring. You need to consider not only about how your customers may have changed, but also how your business has changed and to build a new business plan to meet this new environment.”

However, according to the chair of the Institute for Turnaround, Steve Swayne, businesses with underlying market value could consider a straightforward “resuscitation” approach.

“Insolvency will be inevitable for some businesses, but for viable businesses, turnaround safeguards the value of a business for all stakeholders,” Swayne said via email.

“Businesses viable for turnaround are experiencing underperformance or distress, but are not yet classed as ‘fatal’, so they have the chance to be resuscitated and survive through turnaround,” he said, adding that the typical turnaround process takes six to 18 months.

According to James Don-Carolis, managing director of analytics firm TrueCue, running both pessimistic and optimistic scenarios with available data will help firms determine strategic direction.

“You need to be able to spot signs and then react in an agile way,” Don-Carolis says. “That really requires forecasting, but also just good data, data pipelines and getting information and intelligence from the front line of your business data into the central decision-making team.” The less time it takes for information to migrate from the company’s frontline back to the CFO, the better function that data can serve, he says.

Dante Quaglione, a managing director at Berkeley Research Group (BRG), suggests that businesses with large amounts of short-term debt will be good candidates for financial restructuring and negotiations.

“Restructuring would appear particularly attractive in cases where businesses can overcome the strategic dependency from disrupted supply chains,” Quaglione said, adding that this form of restructuring requires the resources to finance an investment.

Outside of cashflow, businesses should look at data they have harvested from  previous downturns to determine their history of success, and weigh that against the current environment, says BRG managing director, Phil Crooks.

“Primary candidates for restructuring following the lockdown will likely be companies burdened with debt or cashflow issues, which also do not offer a special or unique service that would suggest investment or support to save the business was likely,” Crooks added.

However, Dunham says that businesses should not be afraid to forecast, review and change business plans, tweaking them until they work.

“If the model doesn’t work after all the adjustments, then that is the time to be realistic and face the fact that you may be unable to reopen,” Dunham said.

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