1. determine the current crisis phase.
If your company has fallen into a crisis, you should first determine the current crisis phase and identify the causes of the crisis. The aim must be to determine the actual status of your company as quickly as possible in order to be able to initiate the necessary countermeasures in a targeted manner. There are no patent remedies here, as every corporate crisis is different. To make matters worse, the necessary data for quick decision-making is often lacking or must first be processed accordingly.
It is important to know this: Crisis phases and causes of crises can always be identified using more or less the same approach. If in doubt, you should therefore contact a restructuring or reorganization consultant who will analyze your company's situation. Ultimately, it is crucial to implement suitable measures quickly in order to keep the damage to your company as small as possible and minimize any liability risks.
2. Have a restructuring report prepared.
In an earnings or success crisis, but at the latest in a liquidity crisis, banks and other creditors often demand a restructuring report according to IDW S6 (Institut der Wirtschaftsprüfer e.V.), which is usually prepared by a restructuring or reorganization consultant. Its purpose is to provide information about the current status of the company and possible ways out of the crisis before you receive further loan commitments.
The core requirements for a restructuring report in accordance with IDW S6 include:
- A description of the subject matter and scope of the order,
- basic information on the economic and legal situation of the company in its environment (including the net assets, financial position and results of operations),
- a determination of the stage of the crisis and the causes of the crisis as well as an assessment of whether there is a risk of insolvency,
- a presentation of the future mission statement including the business model of the restructured company,
- a summary of the measures to be taken to avert insolvency, overcome the corporate crisis and establish the described mission statement,
- an integrated corporate plan and
- a summarized assessment of the restructuring capability.
Once the restructuring report has been prepared, all parties involved must agree to support the restructuring concept. This includes
- the management, the shareholders, the supervisory board and the works council,
- externally the banks, other lenders and lessors as well as suppliers, customers and finally
- the Chief Restructuring Officer or CRO, if already appointed.
3. Appoint a Chief Restructuring Officer (CRO).
Restructuring and its successful completion are of crucial importance to a company's stakeholders. To make this success possible, you need an experienced crisis manager with leadership and execution quality who can develop suitable restructuring measures impartially under time pressure and implement them reliably. This is the CRO - the Chief Restructuring Officer, known in German as the restructuring manager or generally as the crisis manager. The CRO should perform his or her duties for a limited period of time and with an explicit crisis and restructuring focus, have original management authority and be responsible for the company. Its central tasks are
- the creation of transparency,
- establishing trustful communication with the most important stakeholders and
- the reliable advancement of the restructuring measures.
The skills that a CRO must have for this include
- the ability to see a company as a whole,
- a strong financial expertise and last but not least
- solid knowledge of the liability and criminal law particularities of a crisis situation.
It is also essential
- many years of experience as a managing director as well as restructuring and reorganization experience from various projects.
Companies usually fill CRO positions with an external person on an interim basis. This is primarily driven by banks and other lenders, even if the company in crisis ultimately hires the CRO. The reason for this is that the company is usually at a late stage of the crisis, so time is of the essence and the right person must be available almost immediately. In addition, it is almost impossible for internal people who could be considered as CROs to implement the restructuring concept due to their dependency. Their involvement could at the very least prolong its implementation.
4. Implement the restructuring measures quickly.
Once the CRO has been implemented and the mandate to implement the restructuring has been issued, there is not much time for a long induction period. The CRO must quickly gain an overview of the overall situation through site inspections and in-depth discussions with the key players in the specialist departments. The CRO has days rather than weeks not only to present himself and the reorganization concept, but also to carry out an assessment of the current situation - which, incidentally, must be compared with the reorganization concept immediately afterwards. In addition, a functioning crisis management structure must be set up in parallel, which includes a performance-oriented restructuring task force, a change management and communication concept and an efficient management operating system (MOS).
On this basis, the implementation of the first stabilizing measures, which are primarily intended to prevent or even eliminate possible liquidity problems, begins in alignment with the restructuring concept. The subsequent steps relate to the details of implementation planning and monitoring: the creation of a restructuring project plan, including all sub-projects and deadlines, as well as the appointment of project managers and the composition of teams, results in an efficient project management package, including the controlling of measures. This allows the implementation of measures to be managed and the results to be monitored.
The creation of a financial controlling setup, including a KPI dashboard for continuous monitoring and support of the restructuring, enables a continuous and timely business evaluation with qualitative cost accounting, integrated corporate planning, supplementary short-term detailed financial planning, rolling forecast, timely plan/actual deviation analyses, continuous monitoring of impending insolvency due to inability to pay and over-indebtedness - with an early warning system. Depending on the scope and complexity, a Project Management Office (PMO) or a Project Management Officer may also be required here.
Immediate operational measures are tackled with the implementation of short, medium and long-term restructuring measures, such as
- the reduction of material, personnel and other operating expenses,
- the short-term increase or stabilization of sales,
- the optimization of inventories,
- the management of accounts receivable and accounts payable,
- disinvestments and the reduction of investments.
5. Regularly review the practicability of the restructuring concept.
Even if the practicability of the restructuring concept appears to be good at the beginning, it is important to continuously review its practicability and operational implementation. This is because the business environment can change very quickly, making it necessary to adjust the restructuring concept or its implementation, even in the case of restructuring and reorganization.
The coronavirus pandemic has shown us this: on the one hand, there have been complex negative impacts and dependencies on third parties as a result, while on the other, opportunities have opened up for some industries.
6. Monitor the progress of the restructuring.
In addition to project management, project controlling is absolutely critical. In the case of reorganization and restructuring, much more in-depth controlling with a hands-on mentality is required than in normal business operations. The aim here is not to report a project phase or action plan as completed, but rather to proactively accompany, monitor and secure the necessary project phases together with the project manager and, if necessary, provide early intervention support.
The focus of controlling is on missed deadlines, budget overruns, deviations in results and any restructuring measures that cannot be implemented but are planned. In addition, project controlling works out the expected effects in the areas of earnings, liquidity and balance sheet based on the project stages achieved with scenario planning. It is important to keep the CRO continuously informed about progress and delays and to involve him directly if necessary. All action plans and project details are presented transparently via the established steering committee on a regular basis, for example every 14 days, and restructuring progress or delays are discussed. This allows the CRO's mandate to be adjusted accordingly if necessary.
7. Actively manage your stakeholders.
It is critically important to keep all stakeholders - from lenders, shareholders and employees to customers and suppliers - informed about the reorganization and restructuring project on a group basis on the one hand, and continuously and transparently on the other.
This is convincing, creates trust and ensures broad support. Without the trust and support of stakeholders, a restructuring project cannot be successful. The aim is for all stakeholders to feel part of the team and work together to achieve the desired goal of overcoming the crisis.
