Corporate Turnaround Strategies: 7 Moves That Buy a Company Time

A turnaround purchases time, and every strategy in the field is a method of paying for it. Cash control pays with discipline, cost cuts with capacity, asset sales with future earnings, and negotiated extensions with fees and concessions to lenders who know exactly how much the company needs them.

Seven moves follow, from the ones a management team can make alone on a Monday to the one it makes only when the others have failed. They are cumulative. A company that reaches the seventh without having made the first usually arrives there with less to sell.

1. Cash Control Before Any Other Plan

Every other move depends on knowing where the cash is. A company in trouble should be able to state its bank balance, its expected receipts, and its scheduled disbursements for each of the next several weeks, and one named person should approve every payment that leaves the building.

The forecast does two jobs. It tells management how long the runway is, and it becomes the document every lender, funder and adviser will ask to see before agreeing to anything. A company that cannot produce one negotiates on faith, and faith is priced accordingly.

Centralized approval also reveals the payments no one remembers authorizing, the subscriptions, the auto-renewing services, the vendor who has been paid twice. There are usually a few. Their total is rarely what saves a company, though the habit of finding them is.

2. Cut Costs That Do Not Produce Cash

The distinction is between spending that generates receipts within the forecast period and spending that does not. Marketing that brings customers next month survives; a lease on a second location that has never broken even does not.

Headcount reductions are often the largest line and the hardest one. A reduction large enough may trigger advance-notice duties under the federal WARN Act or New York's stricter version, and the notice periods, 60 days federally and 90 days in New York for covered employers, belong in the forecast before the decision is announced.

3. Release Cash Trapped in Working Capital

Receivables, inventory and payables hold cash the business has already earned or already spent. Collecting invoices faster, selling slow inventory at a discount, and asking suppliers for longer terms each move money from the balance sheet into the account.

Two cautions apply. The first concerns receivables: a company that has already sold its future receipts to an advance funder, or granted a lender a security interest in them, cannot sell or pledge them again without colliding with that claim, and a factor examining the file will find the earlier filing. The second concerns taxes. Withheld payroll taxes are not working capital, and a company that finances its turnaround with them has transferred the risk to whichever officer controlled payment.

4. Sell What the Business Does Not Need

Idle equipment, a second vehicle, a building the company owns but could lease back: each can become cash without touching the core operation. Each may also be collateral. Under New York's UCC 9-315, a security interest generally continues in collateral after it is sold unless the secured party authorized the sale free of it, and it attaches to identifiable proceeds, so the lender's written release belongs in the transaction from the start.

5. Amend and Extend, Then Exchange

With the lender who matters most, the conventional move is an amendment: a longer maturity, a waiver of covenants the company has breached or is about to breach, perhaps a period of interest-only payments. Lenders charge for this in fees, higher rates, additional collateral or tighter reporting. They grant it when the alternative looks worse for them, and the cash forecast from the first move is how the company demonstrates that it does.

When the debt is spread among many creditors, the amendment becomes an exchange: the company offers each creditor something different from its current claim (a reduced balance paid sooner, a longer schedule, sometimes equity) in return for releasing the old one. The difficulty is arithmetic. Outside bankruptcy, each creditor decides for itself, and a creditor who declines keeps its full claim while benefiting from the concessions everyone else made. The holdout is the reason out-of-court restructurings fail, or are abandoned before they begin.

Chapter 11 answers the holdout problem with a vote. Under 11 U.S.C. 1126(c), a class of claims accepts a plan when creditors holding at least two-thirds in amount and more than one-half in number of the claims actually voting approve it, and a confirmed plan binds the dissenters in that class, subject to protections such as the requirement in section 1129(a)(7) that each dissenting creditor receive at least what it would in a chapter 7 liquidation. That is the whole case for a court, if we are candid about it: the ability to bind the minority that would otherwise hold the majority hostage.

A turnaround is, in the end, a negotiation over who absorbs the loss that has already happened.

Merchant cash advances fit awkwardly into this move, because each funder has its own contract, its own debit schedule and often its own view of whether it is a creditor at all. For businesses whose distress is concentrated there, Delancey Street reviews MCA balances without charge and negotiates with funders. The company is not a law firm, files no chapter 11 cases, and sends legal questions to independently licensed attorneys. A company with many creditors and a determined holdout may need the vote that only a court provides, and should hear that from counsel early rather than late.

6. Appoint a Chief Restructuring Officer

A CRO is an officer brought in to run the turnaround, often reporting to the board rather than to the chief executive whose plan brought the company here. Lenders tend to extend more patience to a company whose cash is managed by someone without a history in it.

If the company later files, the arrangement changes shape. Professionals a debtor in possession employs need court approval and must be disinterested under section 327(a), so the terms of a pre-filing engagement deserve a lawyer's reading before it is signed.

7. The Section 363 Sale, When Time Has Run Out

The last move sells the business rather than saving the company. Under 11 U.S.C. 363(b), a debtor in possession may, once creditors have had notice and the chance of a hearing, sell estate property outside the ordinary course, and section 363(f) permits the sale free and clear of other interests if nonbankruptcy law permits it, the interest holder consents, the price exceeds the aggregate value of the liens, the interest is in bona fide dispute, or the holder could be compelled to accept money for it.

Two further provisions shape who buys. Section 363(k) allows a secured lender to bid its claim rather than cash, which often makes the lender the buyer to beat. Section 363(m) protects a good-faith purchaser from reversal on appeal unless the sale was stayed, and that is what buyers are paying for.

The operation may survive a 363 sale under new ownership; the proceeds go to creditors in their order of priority, and the old equity holders see nothing unless those ahead of them are paid or agree otherwise. It is a rescue of the business. Whether it counts as a turnaround depends on whom one asks, and the owners who signed guaranties will have a view, since the sale of the company's assets leaves their personal promises exactly where they were.