TURNAROUND PROCESS

Build Current Reality

Severity : Cause(s)
Turnaround Viability Build Reality Critical Metrics to
Undesirable Effects "How did this
Analyzer Templates "Blood Wall" Happen?" Gauge Progress

Emergency Actions
Immediate Cash Flow Improvement Immediate Sales Improvement Build Turnaround Navigation Map

IMPLEMENTATION

Crisis Management
Increase Throughput,
Leadership TOC Five Step Process Decrease Investment, Develop Competitive
Cash Management Sales - Ops - Finance Elevate Constraints and Reduce Operating Advantages
Expenses

IMPLEMENTATION

Survival Plan
Develop and Implement
Improve Systems Improve People
Behavior Change Practices
Sales - Ops - Finance Sales - Ops - Finance
Sales - Ops - Finance

IMPLEMENTATION
 TURNAROUND PROCESS

I. Assess
A. Project Type
1. Turnaround
2. Improvement
B. Capacity in Sales, Operations, and Finance
1. Sales Capacity
i. Market Capacity (Dollar Volume in Market)
ii. Internal Sales Labor Capacity in Volume
2. Operations Capacity
i. Plant Capacity (Dollar Volume physical Plant can handle)
ii. Labor Capacity (Dollar Volume Labor can handle)
3. Finance Capacity
i. Labor Capacity (Dollar Volume Labor can Handle)
ii. Working Capital Capacity (Dollar Volume the business can cash flow)
C. Severity
1. Undesirable Effects List
2. Blood Wall
D. Cause(s)
1. How did we get here?
2. Identify behaviors that must change
E. Critical Metrics
1. Leading Indicators
2. Lag Indicators
II. Emergency Actions
A. Cost Reductions
1. Reduce Materials
i. Increase Yield or Decrease Scrap
ii. Exercise Terms or Discounts
iii. Sell with Less Materials
iv. Downgrade Materials used
v. Source with new suppliers
2. Reducing Purchases Services
i. Use Current Labor Capacity
ii. Bid Process for Purchased Labor
iii. Source with New Suppliers
3. Reduce Operating Expenses
i. Line by Line Analysis of Overhead Costs
ii. See Exhibit for Detailed Reduction Strategies
4. Reduce Debt Servicing
5. Reduce Tax Burden
B. Asset Reduction
1. Sell or Lease Fixed Assets
2. Increase Inventory Turn
3. Sell or Lease Obsolete Inventory
C. Leadership (Sales, Operations, Finance)
1. Take Control: SBC is Turnaround CEO
 TURNAROUND PROCESS

2. Hire Staff, Fire Staff, Train Staff, and Reallocate Staff

D. Funding Turnaround
1. Internal Business Funding
i. Within Business Cash Flow
ii. 100 Ways to Grow Cash Flow (See Exhibit)
2. Traditional Lending
i. Line of Credit, Asset Based Loan, Business Loan
ii. Debt Restructuring
3. Alternative Lending
i. Receivables Factoring
ii. Leasing of Assets
iii. Credit Cards
4. Out of Pocket
i. Mortgage, Second Mortgage, Personal Line of Credit
ii. Life Insurance Equity
iii. Investments or Personal Portfolio
5. Creative Borrowing
i. Family or Friends
ii. Vendors
iii. Customers
6. Capital Strategies
i. Partners
ii. Private Investment
iii. Regulation D Offerings
iv. Convertible - Collateralized Notes
E. Cash Management
1. SBC, as Turnaround CEO, takes control
2. Spend Less
3. Pay Out Cash Slower
4. Sell More
5. Collect Cash Faster
III. Turnaround Program (TAP) or Value Enhancement Program (VEP)
A. Cash Management
1. SBC, as Turnaround CEO, takes control
2. 100 Ways to Grow Cash Flow (See Exhibit)
B. Metrics
1. Leading, Behavioral Metrics (See Industry Metrics)
2. The Goal
i. Increase Net Profit
ii. Increase Return on Investment
iii. Increase Cash Flow
3. The Goals Operating Metrics
i. Increase Throughput
ii. Decrease Investment
iii. Reduce Operating Costs
C. Workout
 TURNAROUND PROCESS

1. Goals
2. Strategies
3. Tactics
D. Behavior Change
1. Indifference
2. Projection
i. Denial
ii. Anger
iii. Depression or Grief
iv. Negotiation
3. Acceptance
4. Intention
i. Percieved Seriousness
ii. Perceived Susceptibility
iii. Perceived Benefits
iv. Perceived Barriers
5. Behavior Change
i. Accomplishment of Tasks
ii. Measure the Change
iii. Focus on the Numbers
iv. Work the Plan
6. Advocacy
i. Metrics
ii. Milestones
iii. Meetings
iv. Motivation
E. System, Processes, and Personnel
1. Support Material
2. Organization
3. Tools and Resources
IV. Implementation
A. Take Control
1. Move into CEO Role
2. Prepare Client for the Role
3. Abdicate the Throne
B. Results (Increase Simultaneously)
1. Increase Net Profit
2. Increase Return on Investment
3. Increase Cash Flow
C. TOC Five Step Process
1. Identify the systems constraint
2. Decide how to exploit the systems constaint
3. Subordinate all else to the above decision
4. Elevate the systems constraint
5. Repeat as needed
D. Operational Metrics
1. Increase Throughput
 TURNAROUND PROCESS

2. Decrease Investment
3. Reduce Operating Expenses
E. Develop Competitive Advantages
TURNAROUND PROCESS
 100 WAYS TO FIND MORE CASH FLOW FAST
1 Collection Procedures: Squeeky wheel is the winner, design process to be throughough
1-A Keep Spouses hands out of the till
2 Approval Process: approve every expense no matter how small, this will prevent all unnecessary costs
3 Excess Inventory: sell excess inventory, to competition, others, consumers, eBay, etc…
4 Asset Sale: sell unused or unneeded assets…pick up cash fast
5 Sell/Lease: sell assets and lease back to obtain some fast cash
6 Returns: return goods for cash or credit if not selling or will not use
6-A Adjustment of Payroll cycle and or Commission cycles, ie weekly to bi-weekly, hold back 3 weeks, etc.
7 Stretching: stretch payments to the fullest possible length of time…be surprised how far you can go
8 Extended Terms: pay out in 60 days or longer, negotiate two or three types of terms, existing, new, etc.
9 TOC Sale: if positive throughput, without cannibalization, and you have excess capacity, make the sale
10 New Markets: move into markets your not in to grow revenues
11 Reduction in force: careful layoffs are probably necessary, ensure well planned and work can be done
12 Business Supplies: most businesses spend twice what is needed
13 Debt Restructure: work with bank to restructure debt
14 Shop Supplies: inventory and care for materials here, use whats on hand and control purchasing
15 Price Increases: careful increase of prices can boost revenues and therefore cash, need the sale though
16 Supplier Discounts: you may need a discount for your business to survive…take advantage of this area
17 Shop: look for alternative suppliers who can deliver lower prices, better terms, and equal service
18 Use Less Materials: Increase yields or reduce scrap
19 Excess Capacity: sell it to competition if possible…excess capacity is most expensive cost ever
20 Downgrade: use less quality materials if the price breaks are worth it and your customer will not see
21 Labor: use current capacity, do not purchase labor if possible, keep your crew productive and busy
22 Deposits: take deposits on sales when possible
23 Terms: offer agreesive terms for quick payment
24 Credit Cards: gather all cards except for the owner and enforce the first process, approval procedures
25 Note Payable: exchange your trade payable for a note payable as high as five years (3 Yrs Typical)
26 Slow Pay: most banks have a ten day grace period before you show up as past due
27 Pre-Sell: pre-sell goods or services for the upcoming season
28 Traffic: increase traffic to sell more or have more opportunity to sell
29 Cash and Carry: deliver products or services in exchange for cash
30 COD: after deposits, collect COD to reduce number of Accounts Receivable Days
31 Up selling: boost transaction size to get more cash from same traffic
32 Closing Percentage: reduce the number of touches it takes to get a sale
33 Sell with less materials, i.e. use 8 ounces instead of ten when possible, use less
34 Front Load: front load contracts to collect administrative fees and build up in the beginning
35 Incentives: pay out bigger incentives to encourage additional selling
36 Collection Agencies: fast cash on bad debt?
37 Judgements: if any, seek to get paid now, be relentless
38 Competitive advantages: something all customers want your competitors cannot or will not do
39 Insurance: Shop all insurance and cut all unecessary insurances including in some cases "key man"
40 Marketing: increase free marketing like paying for referrals or "bird dogging"
41 Representatives: increase the number of reps moving your products
42 Scale: scale down service or product and sell direct to consumer
43 Lease or Rent: Negotiate with landlords, in many cases, a turnaround arrangement can be made, sublet space to reduce rent
44 New Product: release new product to generate cash and increase sales
45 Line of Credit: if in early stages, apply for a line of credit at your local bank
46 Lines of Credit: if unused, use it in this critical working capital period
47 Advertising: Cut all if not dealing with consumers, if retail, cut ineffective advertising
48 Consignment: when available, consign goods rather than purchase them…eliminate carrying costs
49 Debt forgiveness: negotiate possible forgiveness of current in exchange for COD
50 Higher Credit Limits: this is like a higher interest free loan
 100 WAYS TO FIND MORE CASH FLOW FAST
51 Debt Reduction: offer cents on the dollar for reducing debt, you would be surprised of the results possible
52 Interest Only: negotiate with vendors, mostly though for banks, very could way to pay out less today
53 Tax: File a return if overpaid, get the return as fast as possible
54 Pay per Scan: increase number of places to sell with consignment or pay per scan
55 New Service: maintenance or service contracts, try to sell time in new and creative way
56 Dues & Subscriptions: cut out all subscriptions and dues for now, employees can pay to keep
57 Support Services: bring everything in house unless directly linked to billing more revenue
58 Telephone: Call around, competition is fierce, should get a 10% cost reduction with effort here
59 Travel: unless coming back with a sale, put a moratorium on travel
60 Leasing: lease all ",must have" capital expenditures, this will save two thirds the cost of these items
61 Memberships: cancel all immediately, if employees want they can pay for these themselves, a waste
62 Pay cuts: senior management for sure, rank and file, you will lose people and lose moral, careful here
63 Overnight delivery: if customers won't pay for it then eliminate it unless emergency dictates the use
64 Training: unless an immediate increase in sales will result, do not commit any resources to training now
65 Marketing materials: only print if absolutely out, get rid of promotional items, will return to these items
66 Charity: only give when you can afford to
67 Cell Phones: in a turnaround, this is a luxury we cannot afford
68 Write Checks: for everything! Get out of EFT or Tranfers of any sort…use the float it takes in mail
69 Variable Compensation: move to totally variable if possible, careful to control morale
70 Tax: if losing money, end the quarterly income tax estimating until profitable once more
71 Subcontract: increase the number of companies bidding, work closely to reduce costs for both parties
72 Trade: you probably have more time than money, trade the time for goods or services if possible
73 Service Contracts: most are a waste anyway, bet your machines will keep running (like the vendor)
74 Payroll: pay taxes monthly, pay bi-weekly or monthly, delay payment for even a week is solid here
75 Company Cars: all cars go, including the owners, a luxury a turnaround cannot afford
76 Computers and Software: you can go at least one year without upgrading, cut this line entirely
77 Receivables Factoring: sell receivables for quick cash…careful here…hard to get out of.
78 Accountants: use for taxes and compliance only, get them involved when we have money to count
Professional
79 Legal Services: only use in compliance or vital situations or in the case of bad debt collection Services only on a
80 Consultants: none allowed other than your turnaround professional must use basis
81 Credit Cards: cash advances or using credit cards to pay for expenses
82 Partner: get a partner if possible to put in necessary working capital
83 Private Investment: look for investors privately
84 Regulation D Offerings: more investment opportunities
85 Convertible: collaterarilized notes
86 Mortgage: property to be mortgaged, business or personal, to help build cash flow
87 Second Mortgage: put a second on property in business or personal 14 different ways to
88 Personal Line of Credit: again to infuse necessary cash into the business borrow money
89 Investments: sell off other investments or borrow against them
90 Life Insurance: cash in or borrow against equity built in life insurance policy
91 Family: borrow from a family member or make them a partner
92 Friends: borrow or get friends to invest in business
93 Customers: opportunities for investment or borrowing from people who know the business
94 Vendors: integrated marketing or borrowing from people who know you
95 Company Airplane: a luxury you must get rid off in a turnaround, a great source of cash
96 Codos or apartments: only when we can afford these luxuries
Only if your lucky
enough to have a
97 Limosines: drive employees, get the spouses involved, or at the very least use taxis instead
client with these
98 Sales Luxuries: season tickets, hunting dues, or other entertainment items must be sold
ammenities
99 First Class travel: no exceptions here, outlaw any unecessary travel luxuries
### Political contributions: like charity, today we cannot afford this expense