We are most familiar with triage in the emergency medicine sense—patients are ranked by the severity of their injuries, so those most in danger can be tended to first. In business, this type of process management also takes place during crises or crunch times. Disruption can come in many forms, causing financial, regulatory, and organizational strain, and business leaders must be prepared to quickly evaluate each situation and prioritize next steps.
Financial triage deals with urgent and critical circumstances where time is of the essence, requiring rapid assessment of a situation based on imperfect and incomplete information to derive an objective evaluation, set priorities, and execute on a plan that is constantly being evaluated based on new information.
Typical drivers of financial triage
Large events or transactions. Large events, such as transactions that require heavy lifts that can overwhelm the existing finance team, are the most frequent driver of financial triage. Examples include IPO, M&A, or divestiture, where significant stress and change are taking place and critical deadlines are overlaid onto the normal business activity.
Major system changes. Another frequent driver is when significant challenges arise from the finance system environment. This can occur when a new ERP is added or when systems and data are on life support.
Changes in leadership. Any change in senior leadership in either finance or the rest of the organization can create challenges for the finance team. This can be a catalyst for company strategy, the business model, or what defines success.
Key warning signs when financial triage may be needed
- Rapidly declining cash flow and depletion of cash reserves
- Bank covenant violations
- Regulatory or stakeholder reporting issues
- Industry specific challenges, such as oil prices, new tariffs, housing bubbles
- Underperforming divisions or product lines
- Restatement of revenue or financial statements
Five steps to financial triage
To help clients with financial triage, MorganFranklin developed a 5 step process – easy to remember and with the right expertise, easy to execute.
Step 1: Assess and plan: Perform a rapid assessment. Your organization is in pain. Extensive analysis is not an option. We quickly identify the pertinent issues and get to work before the situation deteriorates any further. We develop a plan for immediate action and a roadmap for longer term stability and improvement.
Step 2: Gather information: Obtain objective evidence of the key issues within the context of the entire enterprise. This includes looking at not only financial but also operational, sales and marketing key performance indicators to derive the “pulse” of the business.
Step 3: Diagnose and design: Separate the symptoms from the key issues, design solutions, and prioritize the most life-threatening situation first. Viability is the first order of business.
Step 4: Execute: Bring order to chaos. Stabilize the needed areas based on the prioritized key issues buying time to deal with the larger strategic decisions the enterprise may face.
Step 5: Deploy: Implement appropriate action plans to effectively correct the situation in the mid to long-term, monitor and re-triage if necessary until success is achieved, including hand-off to the business.
Understanding these 5 steps and the common situations that cause them can help you prepare your company for financial triage when it is needed most.