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Management Dilemma! Help!
Rank: Veteran Joined: 9/5/2007 Posts: 627
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@Obi: Impressive! I like you way of thinking! I agree that the cash leakage is everywhere. We stopped production because we could not access credit to buy raw materials. Production will resume once we can access a cash injection.
There are products in the warehouse which continue to be sold. The company's products have demand and are therefore moving. Problem is the terms of sales (30 - 60 days credit). Debt collection has been very slow (Debtors total about 38 million). The company's debtor age analysis consists of about 65% >90 days debts! I have taken steps to reduce the cash-conversion-cycle which will ease the working capital constraints!
I also agree about the receivership issue. Administrative Receivership is not different from a full receivership (at least here in Kenya). My client has already moved in secure the charged assets. It is the employees who now have to go! That is my dilemma!
My client still harbours the hope that the directors will cooperate with us! They have indicated that they are looking for financing and we have given them 30 days from 15 April to get it. In the interim, we will allow them to retain some powers (although not to deal with the charged assets).
To your options: Option a) is already in full swing. We just haven't gone public! No liquidation. If worst comes to worst, we will resume production with a view to selling the company as a going concern. Resuming operations normally proves to the potential buyers that the company is operational and increases the goodwill!
Option b) has worked for me before but that is only where the directors do not commence civil action! That is my biggest concern. They (directors) have indicated that they have no intentions of doing that but you can never trust these Indians!
Immorality: The morality of those who are having a better time!
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Rank: Member Joined: 9/20/2007 Posts: 98
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@ Sasha,your dilemma is that you would like to get the company on its feet,but you need to make some hard decisions.
1.If production has stopped,what is it going to take to get a cash injection?
2. Can the credit that had been extended to the company be restructured such that assurances are given that costs will be cut (read jobs)?
If you say that the companys goods are in demand,that means there is always a way someone somewhere will be interested in doing business with you.
That HR department is a real drain on resources and needs to be cut down to size.
Thinking is free...............so THINK!!
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Rank: Veteran Joined: 9/5/2007 Posts: 627
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@albertross: My client has indicated they are willing to inject some cash into the business but only on condition reduce the recurring liabilities, the biggest of which is HR! We have prepared a cash flow forecast for the next 6 months and with the current payroll, we would need an injection of about 100m for that period. The cost-cutting must be implemented before the cash is advanced.
Restructuring the debt would not help at the moment. The company has defaulted in servicing of the loan for 5 months! They have no funds! Restructuring the debt would also mean returning the company to full operation in order to generate money to service the restructured debt! Back to square one! Cut costs!
Immorality: The morality of those who are having a better time!
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Rank: Member Joined: 9/20/2007 Posts: 98
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@ Sasha,that is a start. Getting this company back on its feet is dependant on getting production going again,because it seems the goods will sell so revenue streams are virtually guaranteed. So make the tough choices for the sake of your client and the employees who will remain,it is unfortunate that some have to go but............. I wish you well and I am sure you will complete the turnaround successfully. Give me a shout when you do at: nyeri_al@yahoo.comThinking is free...............so THINK!!
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Rank: Veteran Joined: 9/5/2007 Posts: 627
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Thank you albertross! I will keep you informed!
Immorality: The morality of those who are having a better time!
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Rank: Elder Joined: 5/27/2008 Posts: 3,760
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Just wondering,if there is no production,but there is stock available for sale,doesn't this mean working capital is tied up in stock? When production resumes maybe you could adopt just-in-time where demand drives production.
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Rank: Veteran Joined: 9/5/2007 Posts: 627
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@Gekko: That is in play already! They have stock worth about 15 million which we have adopted a very aggressive sales & marketing strategy to get rid of in 2 months! Of course we are insisting on COD,cheque on delivery or a maximum of 30 days credit for clients who have a good payment record!
Thank you for your advise!
Immorality: The morality of those who are having a better time!
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Rank: Member Joined: 3/23/2007 Posts: 127
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A fire alarm rang at 4 pm in a large office campus when almost all employees were present ( approx 5,000 people ).
As per past fire-drill practices,the entire office was quickly evacuated within 3 minutes,and all employees gathered outside the complex in designated areas waiting for further announcement.
Before long,the fire drill officer in-charge made the following broadcast over their loud-speakers system :
' My dear colleagues : With sincere regret,I have been asked to announce that for many of you,this will be your last evacuation drill with us. Due to the on-going recession and bad business climate,the company is laying off almost 50% of its staff. So when this announcement finishes,I ask all of you to move back into the building. And if your swipe-card does not work,then it means that you have been laid off,in which case you will not be allowed inside,and all your personal belongings will be couriered to you by tomorrow.
The company is using this innovative,never-before approach as we do not want to choke our email system with lay-off notices and farewell messages going by the thousands,and we also wish to avoid any fighting inside the office and the consequent security issues for all staff.
We hope you have had a rewarding career with us. Now please move back in… and good luck ! '
I would have said something smarter..but the moment passed
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Rank: Member Joined: 6/26/2008 Posts: 16
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@sasha. I do unconventional turnarounds. Softly,firmly but veeery effectively. Your analysis is purely records based. An indian run business rarely has more than 40% facts recorded. Go outside the box.
1. Are the finished good inventories higher than normal?speak to customers,Big & Med ones. They'll tell you why they stopped buying and what you need to do for them to buy again. They know what went wrong,when,and who caused it. - If anything is wrong at all.
2.Collaborate customers story with visits to suppliers. Big,medium,small. especially those with outstandings. They'll tell you what and when went wrong with prodn and what can be done.
3. Get confidential chats with top,mid,lower mgrs. Follow up with messengers and drivers. They know where and when the rain started beating them-and who caused it.
4. HR has little cash leaks when compared with Board,Sales,banking,or supplier based leaks in that order.
5. If these leaks are minimal/nonexistent,then call all top & mid level managers to brainstorm how to move inventory fastest. As they get busy to save their jobs by selling more,get on with some surgery-if necessary.
5. If you intend to keep it as a going concern,then make sure you retain key people for a while,otherwise restarting could be difficult.
NB: My turnarounds grow sales by more than 50%,create upto 20% more jobs and return a PBIT within 6 months. All the best
Good Ideas are like buses,behold another one comes
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Rank: Member Joined: 6/3/2006 Posts: 553
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I largely agree with msasani,unless you've done this already? The thicker the thigh the sweeter the pie. The thicker the thigh the sweeter the pie.
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