An infusion of new capital into a failing company only helps in 20 percent of the cases. More often, turning around a failing company centers on people, according to Gerald E. Hunsicker, senior partner in Turnaround Resources Inc.
Hunsicker said most failing companies send danger signals three years before a crisis is reached, so company managers must take action to avoid dissolution of the firm or filing for bankruptcy."My job is to stop the hemmorrhaging of the company and then turn it over to other people to complete the turnaround," he told members of the MountainWest Venture Group. "The turnaround process doesn't work in all cases, but I can usually tell within a few days if the company is going to make it," he said.
Most firms experiencing trouble are those with fast growth, a declining market, selling only one product and those held by a close-knit group such as a family.
The quick formula for a failing company is to control cash and inventory, speed up the accounts receivable collection, cut work force costs and cut non-profitable products or lines.
Some of the options for a failing company are to keep running the business the same way and face a crisis; work with financial, legal or management counselors; file a Chapter 11 (reorganization) bankruptcy petition, retain a crisis manager or hire a turnaround management team.
Hunsicker believes a turnaround management team is the desired approach because the members have conventional management skills, they do long-range planning, are concerned about rehabilitation and they have a wide variety of skills and knowledge.
He said in some instances, when dealing with owners of failing companies, he uses the "baseball bat approach" to do some heavy hitting. In some instances that approach is necessary and many important decisions must be made about people, because they are the reason the company is failing, he said.