Distressed/Turnaround Firm Liquidity Management Process
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Distressed/Turnaround Firm Liquidity Management Process
Streamline turnaround with an actionable liquidity management process, from identifying financial distress to implementing a successful strategy.
1
Identify and analyze financial distress signals
2
Evaluate the current liquidity management structure
3
Define the crisis and describe its nature
4
Establish a crisis response team
5
Prepare a cash flow forecast for the next 13 weeks
6
Approval: Cash Flow Forecast
7
Identify and prioritize sources of cash inflows
8
Identify opportunities for quick asset liquidation without impairing operations
9
Prepare a priority list of creditors and their claims
10
Develop a strategy to negotiate payment terms with creditors
11
Initiate negotiations with creditors
12
Approval: Creditors Negotiations
13
Create a detailed operating plan to turnaround the operations
14
Prepare financial restructuring alternatives
15
Evaluate financial restructuring alternatives against business strategy
16
Obtain necessary internal and external approvals for the turnaround strategy
17
Approval: Turnaround Strategy
18
Implement the turnaround strategy
19
Monitor the performance of the turnaround strategy regularly
20
Prepare final report on the implementation and outcome of the turnaround strategy
Identify and analyze financial distress signals
In this task, you will identify and analyze financial distress signals that indicate potential liquidity issues. By understanding these signals, you can take proactive measures to address them and prevent further financial troubles. What are the key indicators of financial distress? How can you analyze these signals to determine their severity and impact on the company's liquidity? What tools or resources can you utilize to gather and interpret this data? Be thorough in your analysis and document your findings.
1
Declining revenue
2
Increasing operating expenses
3
Cash flow deficits
4
High debt-to-equity ratio
5
Delayed payments
Evaluate the current liquidity management structure
Assessing the current liquidity management structure is crucial to understanding the existing framework and identifying potential shortcomings. In this task, you will evaluate the effectiveness of the current liquidity management practices and processes. What are the current practices for managing cash flow? Are there any inefficiencies or bottlenecks in the system? How is the company currently monitoring and projecting liquidity needs? By conducting this evaluation, you can pinpoint areas for improvement and strengthen the overall liquidity management structure.
1
Cash flow monitoring
2
Cash flow projection
3
Working capital management
1
Seasonal fluctuations
2
Supplier payment terms
3
Demand variability
4
Interest rates
5
Credit availability
Define the crisis and describe its nature
In this task, you will define the crisis facing the distressed/turnaround firm and provide a detailed description of its nature. What specific event or circumstance has led to the financial distress? How severe is the crisis and what are its immediate and long-term implications for the company? By clearly defining the crisis and its nature, you can outline a more effective strategy for addressing the challenges and improving the liquidity situation.
Establish a crisis response team
Creating a crisis response team is essential for effectively managing and resolving the financial distress situation. In this task, you will establish a team of individuals who will be responsible for overseeing and executing the turnaround efforts. Who will be part of this team? What roles and responsibilities will each member have? How will the team collaborate and communicate throughout the process? By establishing a cohesive and dedicated crisis response team, you can ensure a coordinated approach to addressing the liquidity challenges.
Prepare a cash flow forecast for the next 13 weeks
Developing a cash flow forecast is crucial for understanding the short-term liquidity requirements and anticipating potential shortfalls. In this task, you will prepare a detailed cash flow forecast for the next 13 weeks. Consider both inflows and outflows of cash, including revenue, expenses, investments, and debt payments. How will different factors impact cash flow? What assumptions are being made in the forecast? By accurately predicting cash flow, you can make informed decisions and take appropriate actions to manage liquidity.
1
Stable demand
2
Consistent payment terms
3
No major changes in costs
4
No new investments
5
No additional debt
Approval: Cash Flow Forecast
Will be submitted for approval:
Identify and analyze financial distress signals
Will be submitted
Evaluate the current liquidity management structure
Will be submitted
Define the crisis and describe its nature
Will be submitted
Establish a crisis response team
Will be submitted
Prepare a cash flow forecast for the next 13 weeks
Will be submitted
Identify and prioritize sources of cash inflows
Identifying and prioritizing potential sources of cash inflows is crucial for improving liquidity in a distressed/turnaround situation. In this task, you will identify and prioritize various sources of cash inflows that can help alleviate the liquidity challenges. What are the options for generating additional cash? How will the company prioritize these sources based on feasibility and impact? By focusing on the most viable options, you can optimize cash inflow and stabilize the financial situation.
1
Sale of assets
2
New debt financing
3
Stock issuance
4
Government grants
5
Customer prepayments
1
Likelihood of success
2
Amount of cash inflow
3
Timeline for implementation
4
Impact on operations
5
Potential dilution of ownership
Identify opportunities for quick asset liquidation without impairing operations
In this task, you will identify opportunities for quick asset liquidation that can inject cash into the business without negatively impacting ongoing operations. How can assets be monetized swiftly? Are there any idle or underutilized assets that can be sold? What would be the potential impact of asset liquidation on operations and future growth? By identifying and pursuing these opportunities, you can increase liquidity while minimizing disruptions to the business.
1
Minimal impact
2
Temporary disruption
3
Significant disruption
4
Long-term consequences
1
Market value of the asset
2
Time required for liquidation
3
Impact on ongoing operations
4
Liabilities associated with the asset
5
Potential for future value creation
Prepare a priority list of creditors and their claims
In this task, you will prepare a priority list of creditors and their respective claims against the distressed/turnaround firm. By understanding the creditor landscape, you can prioritize payments and negotiate payment terms more effectively. Who are the major creditors? What are their outstanding claims? What is the priority order for settling these claims? By documenting this information, you can streamline the negotiation process and ensure fair treatment of creditors.
1
Secured creditors
2
Employees
3
Tax authorities
4
Unsecured creditors
5
Shareholders
Develop a strategy to negotiate payment terms with creditors
Negotiating payment terms with creditors is a key aspect of managing liquidity in a distressed/turnaround situation. In this task, you will develop a strategy for negotiating payment terms that align with the company's financial capabilities. How will you approach creditors? What concessions can be requested to ensure the company's survival? How will you prioritize payments based on available cash? By developing a comprehensive negotiation strategy, you can improve cash flow and maintain key relationships with creditors.
1
Critical suppliers
2
Key service providers
3
Creditors with legal actions
4
Trade creditors
5
Non-essential vendors
Initiate negotiations with creditors
In this task, you will initiate negotiations with creditors to discuss and agree on revised payment terms. How will you communicate with creditors? What information will you provide to support your requests? How will you address any resistance or objections from creditors? By engaging in open and transparent negotiations, you can reach mutually beneficial agreements that reduce the financial burden and improve liquidity.
Approval: Creditors Negotiations
Will be submitted for approval:
Identify and prioritize sources of cash inflows
Will be submitted
Identify opportunities for quick asset liquidation without impairing operations
Will be submitted
Prepare a priority list of creditors and their claims
Will be submitted
Develop a strategy to negotiate payment terms with creditors
Will be submitted
Initiate negotiations with creditors
Will be submitted
Create a detailed operating plan to turnaround the operations
Developing a detailed operating plan is critical for executing a successful turnaround strategy. In this task, you will create a comprehensive plan that outlines the specific actions and initiatives required to improve operational efficiency and profitability. What are the key areas for improvement? How will you measure progress and success? How will you align the plan with the overall turnaround strategy? By creating a well-defined operating plan, you can provide clear guidance and direction for the turnaround efforts.
1
Cost reduction initiatives
2
Process optimization
3
Supply chain improvements
4
Product portfolio analysis
5
Customer retention strategies
1
Revenue growth
2
Profit margin improvement
3
Working capital reduction
4
Customer satisfaction scores
5
Employee productivity
Prepare financial restructuring alternatives
Considering financial restructuring alternatives is crucial for improving the distressed/turnaround firm's financial position and long-term prospects. In this task, you will prepare a range of financial restructuring alternatives that can address the company's debt and capital structure challenges. What are the options for debt restructuring? How can the capital base be strengthened? What are the potential implications of each alternative? By exploring these alternatives, you can identify the most appropriate path for financial stability and growth.
1
Dilution of ownership
2
Changes in capital structure
3
Impact on credit rating
4
Restructuring costs
5
Alignment with business strategy
Evaluate financial restructuring alternatives against business strategy
Evaluating financial restructuring alternatives in the context of the company's business strategy is essential for making informed decisions. In this task, you will assess the viability and alignment of each financial restructuring alternative with the overall business strategy. How does each alternative support the company's long-term goals? What are the risks and trade-offs associated with each option? By conducting this evaluation, you can select the most appropriate and sustainable financial restructuring approach.
1
Highly viable
2
Viable with modifications
3
Marginally viable
4
Not viable
5
Requires further analysis
Obtain necessary internal and external approvals for the turnaround strategy
Securing approvals from relevant stakeholders is essential for implementing the turnaround strategy effectively. In this task, you will identify and obtain the necessary internal and external approvals for the proposed turnaround strategy. Who are the key decision-makers and approvers? What information or documentation is required to support the approval process? How will you address any concerns or objections raised during the approval process? By obtaining these approvals, you can proceed with confidence and ensure the necessary support for the turnaround efforts.
Approval Request for Turnaround Strategy
Approval: Turnaround Strategy
Will be submitted for approval:
Create a detailed operating plan to turnaround the operations
Will be submitted
Prepare financial restructuring alternatives
Will be submitted
Evaluate financial restructuring alternatives against business strategy
Will be submitted
Obtain necessary internal and external approvals for the turnaround strategy
Will be submitted
Implement the turnaround strategy
Implementing the approved turnaround strategy is a critical phase in improving the financial position and viability of the distressed/turnaround firm. In this task, you will initiate the execution of the planned initiatives and actions outlined in the approved strategy. How will you communicate the strategy and associated changes to the relevant stakeholders? How will you monitor and track progress towards the desired outcomes? By effectively implementing the strategy, you can create a foundation for sustainable recovery and growth.
1
Cost reduction targets achieved
2
Debt restructuring completed
3
Positive cash flow generated
4
Operational efficiency improvements realized
5
Market share growth
Monitor the performance of the turnaround strategy regularly
Regular monitoring of the turnaround strategy's performance is essential for assessing its effectiveness and identifying areas for adjustment or improvement. In this task, you will establish a monitoring framework and process to track the key performance indicators (KPIs) and milestones identified in the strategy. How often will performance be assessed? Who will be responsible for monitoring and analyzing the data? How will deviations from the desired outcomes be addressed? By monitoring the strategy's performance, you can make informed decisions and take corrective actions as needed.
1
Identify root causes and adjust strategy
2
Seek additional external support
3
Communicate and seek input from stakeholders
4
Modify resource allocation
5
Reassess and update KPI targets
Prepare final report on the implementation and outcome of the turnaround strategy
Summarizing the implementation and outcome of the turnaround strategy in a final report is essential for capturing and communicating the valuable insights gained from the process. In this task, you will prepare a comprehensive report that outlines the key actions taken, challenges encountered, and outcomes achieved during the turnaround efforts. What were the major milestones and achievements? What lessons were learned? How will this report be shared with stakeholders? By preparing this report, you can provide a holistic view of the turnaround journey and lay the foundation for future improvements.
