When the Call Comes
Every operating partner has received it: the portco CFO calls on a Thursday afternoon. Revenue missed forecast by 22%. The revolver is 80% drawn. Covenant compliance is at risk next quarter. The CEO says it is temporary. The lender is asking for a 13-week cash flow forecast by Monday.
This is not the time for a strategic offsite. This is triage. The decisions made in the first 72 hours after a distress signal determine whether the situation is managed or whether it spirals.
This playbook provides a structured five-step triage framework for operating partners who need to stabilize a distressed portfolio company before they can fix it.
Step 1: Cash Visibility (Hours 0–24)
The single most important action in the first 24 hours is establishing real-time cash visibility. Not monthly. Not weekly. Daily.
What to Build
A 13-week rolling cash flow forecast with three components: opening cash balance, sources (collections, draws, asset sales), and uses (payroll, rent, AP, debt service, capex). This is not a P&L exercise. It is a cash exercise. Accrual accounting is irrelevant when you are managing liquidity.
Common Pitfalls
Most portco finance teams have never built a 13-week cash flow. They will attempt to derive it from the P&L. This produces a forecast that is directionally correct and operationally useless. The forecast must be built bottoms-up from bank accounts, AR aging, AP aging, payroll registers, and debt amortization schedules.
The 72-Hour Cash Map
Day 1: Pull the current bank balance, outstanding checks, pending ACH transactions, and available revolver capacity. This gives you the real cash position, not the accounting cash position.
Day 2: Build the 13-week sources schedule from the AR aging report. Apply historical collection rates by aging bucket. Most companies assume 100% collection. In distress, assume 85-90% of current AR, 70% of 31-60 day, 40% of 61-90 day, and 10% of 90+ day.
Day 3: Build the uses schedule. Start with contractual obligations: payroll (including taxes), rent, insurance, debt service. Then layer in discretionary spend: AP payments (prioritize by operational criticality, not by aging), capex (defer everything non-essential), and one-time items.
The output is a week-by-week view of when cash goes to zero. That is your planning horizon.
Step 2: Stop the Bleeding (Hours 24–72)
With cash visibility established, the second step is to stop the three largest outflows that are not generating near-term revenue. This is not about cost reduction strategy. It is about buying time.
Immediate Actions
Freeze all discretionary capital expenditure. Every capex request goes through the operating partner for the next 90 days. This alone can preserve $500K-2M in a typical middle market company.
Freeze all hiring. No exceptions without operating partner approval. Open requisitions are cancelled unless they directly generate revenue within 30 days.
Review the top 20 vendors by spend. Identify which are critical to operations (cannot stop paying) and which have flexibility (can extend terms, reduce scope, or pause). Call the flexible ones and negotiate 60-90 day payment extensions. Most suppliers prefer extended terms to losing a customer.
The Payables Triage Matrix
Categorize every payable into four buckets: (1) Pay Now — payroll, taxes, utilities, insurance, critical raw materials. (2) Pay Slow — non-critical suppliers with negotiation leverage. (3) Pay Later — professional services, subscriptions, maintenance contracts. (4) Challenge — invoices with disputes, errors, or duplicates. In distress, 5-10% of AP is typically challengeable.
Step 3: Revenue Protection (Days 3–14)
Cost cutting in isolation is a death spiral. The third step is ensuring the revenue engine does not stall while the balance sheet is being stabilized.
Customer Concentration Risk
Pull the top 10 customers by revenue. If any single customer represents more than 15% of revenue, that relationship needs direct executive attention immediately. In distress, the risk is not that you lose the customer — it is that the customer senses weakness and renegotiates terms, extends payment, or shifts volume to a competitor.
Pipeline Integrity
Review the sales pipeline with the head of sales. Identify the three largest opportunities expected to close in the next 60 days. Validate each one: Is the customer real? Is the timeline real? Is the price holding? In distress, sales teams tend to inflate pipeline to offset the bad news. Discount the pipeline by 30-40% for planning purposes.
Pricing Review
In the urgency of triage, pricing is often overlooked. Review the last 90 days of quotes and won/lost analysis. Companies in distress often have margin erosion hidden in pricing concessions made by desperate sales reps. A 2% price recovery on $100M in revenue is $2M straight to EBITDA.
Step 4: Stakeholder Management (Days 3–21)
The fourth step is managing the four stakeholders who can accelerate or prevent recovery: the lender, the board, the management team, and the workforce.
Lender Communication
Rule one: never surprise the lender. Call before they call you. Present the 13-week cash flow, the cost actions already taken, and the plan. Lenders do not panic when they see a borrower who understands the problem and has a plan. They panic when they sense denial.
Request a waiver or amendment proactively if covenant breach is likely. Waiting until after the breach transforms a negotiation into a default.
Board and IC Communication
The investment committee needs three things: the honest current state, the range of outcomes (best case, base case, worst case), and the ask (time, additional capital, management changes). Do not present a single-scenario forecast. It will be wrong, and you will lose credibility when you update it.
Management Assessment
Within the first two weeks, the operating partner must make a judgment: is the current management team capable of executing the turnaround, or does it need to be supplemented or replaced? The indicators are not about past performance — the past already happened. The indicators are about response: Is the CEO in denial? Is the CFO producing reliable data? Is the head of sales protecting revenue or making excuses?
Step 5: The 90-Day Stabilization Plan (Days 14–21)
With triage complete, the fifth step is building the 90-day plan that transitions from crisis management to operational improvement.
Structure of the Plan
The plan should contain exactly three workstreams, each with a named owner, a weekly milestone, and a quantified target:
Workstream 1 — Cash and Liquidity: target minimum cash balance, revolver paydown trajectory, 13-week forecast accuracy within 10%.
Workstream 2 — Profitability: specific cost actions with dollar amounts and implementation dates. No vague commitments to "optimize" anything.
Workstream 3 — Revenue Stabilization: customer retention actions, pipeline acceleration, pricing recovery. Each action tied to a revenue or margin impact.
Weekly Operating Reviews
Institute a weekly 60-minute review with the CEO, CFO, and operating partner. The agenda is fixed: cash position vs. forecast, P&L flash vs. plan, workstream status (green/yellow/red), decisions needed. No presentations. No strategy discussions. Status, variances, decisions.
When Triage Is Not Enough
Not every distressed company can be stabilized. The triage framework is designed to buy 90 days of runway and establish the data infrastructure for informed decision-making. If the 13-week forecast shows cash-out within 6 weeks and there is no additional liquidity available, the conversation shifts from turnaround to restructuring, and legal counsel should be engaged immediately.
The operating partner's job is to make that determination quickly, honestly, and with data — not hope.
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