Independence and objectivity are the key drivers of viable transformation. Creating a professional and empathetic connection with the business is a necessary starting point for overcoming the perception of the restructuring team as an outsider.
2. Financial recovery depends on meaningful financial reporting
As the partnership develops, the financial analysis provided by the restructuring team reveals neglected issues but also unrealized opportunities. Josie Parisi, a partner in BDO's FRS group, who has recently successfully restructured businesses in the construction and manufacturing sectors, helps companies face the reality of their challenges. “When we, as restructuring professionals, deal with push-back or resistance to change, this mindset will be very apparent in the financial results,” says Parisi. “We often hear, ‘we didn't expect that to happen', ‘it was too late to change', ‘that's how we've always done it' or ‘we expect things go back to historical norms'.”
Helping management teams make sense of their financial reporting is ground zero for analyzing past decision making and providing future direction. The first step is to help executives review their plans objectively. Managers can easily underestimate the critical nature of their situation. Common problems include relying on the wrong data, overly optimistic assumptions and having an imbalanced perspective on their short- and long-term goals. “We help businesses understand their risks. Once these are identified, it's easier to model what different scenarios might look like. The issues are revealed in the financial models, the transaction level data, the debt structure of the business. The transformation plan is developed to deal with these issues and prepare for the future,” says Parisi.
Tailoring financial reporting to each organization so that meaningful decision making can follow is the first stage of the restructuring process. It's about a lot more than managing costs and being lean. Accessing capital to allow for future investment and its deployment is a crucial element of the restructuring plan. That said, in a post-COVID world, being lean will be essential. As businesses and consumers all trend toward greater frugality, margins will become smaller, making change and innovation more challenging.
3. Transformation is multidisciplinary
Technology and digitization are obvious lessons from the current pandemic. But many small to medium-sized businesses have yet to fully make this leap. Investment in infrastructure requires a careful approach that draws on diverse knowledge, from technology, cybersecurity and artificial intelligence to marketing and workforce management. Businesses need a coherent voice for prioritizing the wide range of solutions that are available to them.
Restructuring professionals are generally known for being industry agnostic. But this strength can play a part in a client's initial resistance to change. Many prefer to seek advice from within their own fields. “While every business and sector has its idiosyncrasies, there are common pain points that we recognize very quickly, such as lack of integration and siloes that create friction within the organization and create barriers with the customer more generally,” says Lonergan. A successful restructuring challenges this mentality and draws creatively from a range of disciplines.
With access to capital being tight, viable investments for the post-COVID world will need to be carefully vetted. From a client perspective, working with a multidisciplinary consultancy will give them access to a diversity of resources under one roof. The restructuring team will take down the barriers within the organization that stymie growth but also create a partnership with a firm whose own ethos is multidisciplinary dialogue and cross-pollination.
4. Transformation is not possible without an engaged workforce
COVID-19 presents a unique opportunity for redefining a business's vision. The need for transformation is widely acknowledged. The economic threat of continuing business as usual is not lost on anyone. Without change, the reality is that many businesses will fail. In many ways, companies are already primed for understanding the necessity of change.
The resistance is often most acute within the workforce. Disengagement happens when employees are blindsided by upper management's decisions and are excluded from the change narrative. In the most successful restructuring efforts, executives build ownership of the transformation by communicating proactively with their employees.