There may also be some hard personnel decisions to make, says Sanginario. "Very often, when a company is in distress, there's just a 'lackadaisicalness' throughout the company that's very tough to change," he says. "I've been at companies where every delivery they ship out is late, and it doesn't even seem to bother anybody." In that case, he says, the CFO may have to examine the corporate culture and replace problem staffers.

Still, "the CFO has to be careful not to cut things that can be critical to the company," Sanginario adds. In an effort to clean house and jump-start a turnaround, finance executives, who often have years of cost-cutting experience, can go too far. Sanginario cites the example of one distressed client where the management team made deep cuts in their safety and environmental compliance group and later received a significant fine for an environmental violation. Finance chiefs need to strike a balance between reducing costs and ensuring the business has the resources to eventually return to its full strength.

Be an Honest Broker
As much as a restructuring will put a finance chief squarely on the front lines, CFOs should also recognize the valuable role they play as intermediaries, representing the company to stakeholders on all sides of the business: lenders, equity holders, vendors, and customers, in addition to employees and board members.

Understanding the interests of these various parties, and taking them into consideration in drafting restructuring and turnaround plans, is perhaps the most challenging and most valuable part of the finance executive's job, says Moriarty. "It's important for the CFO to really know everything that he can about the parties involved," he says.

This reconnaissance can often help the finance chief find solutions to the company's woes, he adds. "What buttons might the CFO be able to push with each of the various stakeholders?" he asks. "Say you're running short on cash. Do the equity holders have the ability to provide more funding? Do they want to? Are the debt holders able to provide more flexibility relative to payment terms?"

Finance executives can increase the odds of winning such flexibility by communicating clearly and frequently to all parties and demonstrating a command of all of the facts of the company's situation. "It's an art form that the CFO has to learn. It's pretty amazing how much more cooperation you get from lenders when they have confidence that you're making things transparent and not trying to do things to circumvent their interests," says Sanginario.

"You need to be able to explain the situation to lenders in a thorough, comprehensive, honest way," agrees Houlihan Lokey's Cleveland. "Acknowledge any management missteps, show the desire to fix the problem, and describe any strategies that have been put in place to do so."

Telling lenders that the company has closed underperforming locations and reduced head count helps demonstrate that the management team grasps the gravity of the situation and is already working to improve things. That's far better than living in a state of denial, a reaction that turnaround experts say is a common problem among executives at troubled firms. "It goes a lot easier if you can point people to something positive that you're doing, rather than just throwing up your hands," says Moriarty.

If all of this sounds exhausting, it is. While experts and finance chiefs alike acknowledge that restructuring a company and leading it through a turnaround is grueling, it is also an incredibly valuable experience, and one that truly can take a CFO to the next level. "It's a tremendous career opportunity, because so few people have that trial-by-fire experience," says Cleveland. "From a personal standpoint, a CFO should look at it as the hardest 12-to-18 months of his or her professional career, but know that it will pay long-term rewards."

Kate O'Sullivan is a deputy editor at CFO.

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