Drum Roll: Turnaround Specialist Gets to the Core of Problems
Cash Flow is the Key
by Patti Ghezzi on April 1, 2009
While sailing on drought-ravaged Lake Lanier, Debra Pauli saw a metaphor for how the economy affects companies in crisis.
“When Lake Lanier is full, you don’t worry about hitting a tree top,” the Certified Turnaround Professional says. “But when the water is down and all those obstructions are exposed, you realize they were just below the surface.”
For many companies, the favorable economy masked problems. “That problem was always there, the high water was covering it up,” says Pauli, a graduate of Georgia State who is also a certified public accountant.
Pauli knows all about hidden problems company leaders don’t want to see. In 1997, she started Corporate Financial Solutions, a consulting practice that helps companies in crisis. In Georgia, Pauli was the first woman to receive certification as a turnaround specialist from the Association of Certified Turnaround Professionals. Statewide, there are 13 others with the designation, which reflects experience in crisis management and in the restructuring of troubled businesses.
Pauli helps companies merge, downsize, expand and figure out why they’re not making money. She can help a large company through a transition and work on the front end to help a small-business owner develop a sound plan and processes.
Often, she helps managers get real about deficiencies in allocating cost. “They think they’re making money on paper, but they don’t have their cost recognized,” she says. “They mislead themselves.”
In many companies, the in-house CPA is focused on compliance issues, unable to devote time to analyzing cost allocation. Pauli brings her depth of experience as well as fresh eyes to a problem. As an outsider, she can be frank with management.
Before striking out on her own, Pauli was controller of Oxford Industries, CFO of the U.S. subsidiary of a German-owned company and an audit manager for what is now Ernst & Young. She says she has gravitated in her career toward companies’ most challenging issues. “I like fixing problems, “ she says. “I thrive on adrenaline.”
She believed a consulting practice specializing in crisis management would always have clients. “There’s always someone with a problem,” she says, adding that she works with about two or three clients a year.
In good times, many companies fall into crisis because they grow too fast, and their processes cannot keep up. Sometimes, a company hires her to fix a small matter. Once Pauli gets in, she finds serious problems lurking beneath the surface.
The most common? “Cash flow, cash flow, cash flow,” she says. Many companies take a long-term view of cash, planning for 12 months, but they fail to consider short-term needs. For a company that has ups and downs, that can be devastating, Pauli says, recalling some insight a friend once gave her: “You haven’t lived until you have had to make payroll.”
Pauli recommends a weekly cash flow plan that covers at least 13 weeks.
The hardest part of Pauli’s job is when she gives a client advice, but the client doesn’t take it. “You have to have perspective on what you can control and what you can’t,” she says. It’s also hard when she gets emotionally invested in a company and then has to recommend drastic moves such as layoffs. “It’s incumbent on management to recognize if you’re able to save the corporation, you’re able to save some jobs and are positioned for a better day.”
Pauli once analyzed a company planning to merge with a company in another state. She had to recommend whether the Atlanta-based company should relocate to the other company’s city or vice versa. “I was going to run the numbers and make my recommendation,” she says. “But I always said to the people I knew, ‘I’m pulling for you!’”
Unfortunately, she had to deliver the news that the Atlanta company had to relocate.
The thrill is when Pauli can save a company from potential disaster. She did just that with a large client that operated all its business functions as a single unit. She convinced the president to structure each function as a unique business. She assured him such a structure would enhance profits, hold the staff accountable and give him a clear view of what was going on.
“That business survived and was later sold at a phenomenal return for the investor,” she says. “I got a lot of referrals from that firm.”