During periods of transition, companies need financing partners and advisors who have the expertise to provide a flexible path toward stability. The key to the right turnaround strategy is knowing how to secure financial support before true distress occurs.
GBC works with turnaround advisors who need lenders with deep turnaround expertise to serve clients across a variety of industries. What ABL provides is the flexibility to help companies navigate uncertain financial circumstances — often during periods of distress.
Recently, we shared what it’s like to work with an asset based lender — through the eyes of a turnaround advisor. In that article, David Kebrdle, managing partner at Chikol Equities, shared his expertise and experience working with Gibraltar. In our conversations with David Kebrdle, he also went the extra mile to share some tips for avoiding distress and navigating challenging times if they do occur.
Avoiding Challenging Times Before They Occur
Beyond sharing what borrowers and advisors look for in an asset-based lending partner, Kebrdle shared some scenarios and knowledge gaps that may lead a company to experience distress. Being aware of these issues and shoring up knowledge gaps before they occur is key to managing a healthy operation. These common triggers and gaps include companies and management teams that:
- Have quick expansion and growth resulting in increased costs over earnings catch up.
- Have strong sales growth, but failure to look at the minutiae of costs, expenses, and related processes until they are under a microscope in trouble.
- Lack detailed insight into where and when cash comes in from or how it is spent within purchasing, invoicing, A/R and A/P management.
The common theme here is attention to expense and cash detail especially during periods of rapid growth when a company may be tempted to overly focus on the top line, not yet fully understanding their costs.
Underscoring the Importance of a Cash-First Focus
Back when we last weighed in key turnaround tactics, we talked about focusing on cash first to give yourself the breathing room to implement changes. That’s where a strong alternative lending partner like Gibraltar can be critical to your going forward strategy.
In focusing on cash first, many lenders and advisers will require the use of a 13-week rolling cash flow analysis of disbursements and receipts to closely manage and analyze business cash flows.
Beyond implementing this methodology, Kebrdle emphasizes a deep focus on the details of inflows and outflows. For instance, when properly populated, Kebrdle said the 13-week rolling cash flow of disbursements and receipts will include confirmed source data, starting with sales forecasts, bookings, billings, DSO on receipts and disbursements and a granular detail of all costs.
Chikol Equities also recommends utilizing an “Add-Back” schedule — a method that the company first created and utilized back in the 80’s. This process entails creating a list that details identified and monetized annual recurring initiatives such as specific material, personnel, occupancy, and other cost reductions that are targeted to occur and positively affect EBITDA. That strategy also involves targeting one-time cash pickups that will generate funds to pay down debt, such as selling off idle equipment and inventory. Annual recurring expense reductions include rightsizing the workforce, redundant facility exits, insurance and property tax costs fine-tuning as well targeting product de-costing programs.
Kebrdle also recommends that these documents be shared and discussed weekly or regularly with your lender partner, so they are always kept in the know of progress planned and when achieved.
What this strategy provides companies, he said, is visibility for all stakeholders, and a glimpse of the future cash burn, or — in a better scenario — cash generation for the next 13-weeks. That look ahead, Kebrdle emphasized, provides an opportunity to change gears in a timely manner.
Chikol Equities works with secured creditors, private equity groups and business owners to assist with revenue growth strategies, credits in distress, refinancing and recapitalization working capital, on site due-diligence work and acquisition rollup implementation. The company leverages lending relationships that empower long lasting positive change so that clients can continue to achieve financial and operational success even in times of economic and business change.
Want to learn more about what it’s like to work with an asset-based lender? Or what borrowers and advisors look for in an asset-based lending partner? Read more from Kebrdle.
