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Turnaround Lessons Learned

Corporate Restructuring Group – June 2013 newsletter

The Deloitte CRG Newsletter addresses the current state and outlook for the CRG practice, including recent engagements, announcements, case studies, and upcoming events.

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Penny-wise and pound-foolish
In every turnaround situation, the very first priority is preserving – and ideally growing – cash flow. That's straightforward enough. It's also true in every turnaround that you never have enough time or resources to address every issue right away. Thus, when there are too many "holes in the dike" to plug right away, you sometimes need to let some problems persist temporarily – even if you know it's costing you money – while you focus on more fundamental issues.

After its revenue backlog had declined significantly, one company that a Deloitte CRG client acquired out of bankruptcy needed to make dramatic reductions in headcount. This was certainly a reasonable response for a company that, due to its project-based revenue stream, carefully managed its payroll to align with its workload, or expected workload. In fact, the target had only two remaining projects, both within weeks of completion, and had already made the decision to terminate certain "non-core" employees as their respective scopes of work were completed. However, rather than addressing the revenue decline, the CEO of the acquirer wanted to review the staffing on each project to understand what every "non-core" employee assigned was working on, in order to ensure there was not a single penny in "excess" payroll.

The CEO was ultimately persuaded to postpone this thorough review of staffing and project management practices until after the target had started rebuilding its backlog. While there may have been some "excess" payroll, this problem would resolve itself in a few weeks, once the projects were completed, and all "non-core" employees had rolled off. Additionally, going through this exercise could have caused further disruption among the employees and potentially jeopardized the delivery dates and, perhaps most important, however commendable his zeal in preserving cash, the CEO risked diverting time and resources from the higher, more immediate priority, namely, finding more work to keep the remaining "core" employees engaged when their projects were completed.

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Learn how to avoid mid-market misfires.

Featured engagements

Deloitte CRG’s featured engagements this month include work with the following selection of clients: Tecta America, commercial bank, mobile marketing company and The Kimmel Center. For an in-depth look at Deloitte CRG’s recent engagements, check out featured engagements.

As used in this document, 'Deloitte' means Deloitte LLP [and its subsidiaries]. Please see for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

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