Corporate Turnaround services emergency action plan insolvency business management

Article : Corporate Turnaround

Corporate turnaround is often described as "a substantial and sustainable positive change in the performance of a business". There are a thousand different types of businesses, but there are just a handful of reasons why they fail. In most companies turnaround actions commence only after the Owner or board of directors accept and recognise:

"In 2002 there were 16,305 corporate insolvencies and 30,587 individual insolvencies and these numbers have been rising every year since 1997."

Often the management try and remedy the situation themselves and this can result in success. However, it is the existing management that have allowed the profitability to suffer and typically get mesmerised by the problems, do not have enough time to deal with it because of the normal pressures of running a company or are not skilled and experienced enough to successfully fight the battle. Too often one finds that the owners have laboured too long in trying to improve things and as each month goes by the problems escalate and get deeper. Also when in a financial crisis the last consideration is to spend money to get out of the hole. But the decision in reality is simple…."can I afford not to spend money to fix the problem?" Personal guarantees and the possibility of losing the company should help focus the mind.

Serious commercial problems as this do normally require the assistance of a well seasoned Turnaround manager. These individuals not only have the necessary skills in turnaround situations but ideally have also owned or operated a business. They have broad business knowledge, an ability to learn very fast, very disciplined thinking, move quickly, are organised and have absolute integrity.

Very individualistic and savvy they have a proven track record in evaluating issues and taking swift corrective action. The process they follow is based on disciplined and systematic application of planning, controlling, organising and motivating. Taking calculated risks, planning for contingencies, independent creative thought, steady hard work and a skill at dealing with people at all levels and working alongside external agencies.

The Turnaround Timetable is the same for any company that is placed in "intensive care".

Stop the bleeding
Quick stabilisation
Create some breathing space
Cash and rapid payback are King
Decisive, intuitive action rather than analysis paralysis
Education of management to detect/prevent situation recurring

In the majority of cases of companies losing their way it is normally due to the inability or complacency of management. It is often believed that the length of time it took the company to get in the rut equals the length of time to fully recover. This is a misconception. I had one client that suffered seven years of accumulating losses and only two years to get back to profits. Another suffered two years of sizeable losses, four months to get it to breakeven followed by profits.

More often than not management for some reason lose sight of the basics necessary for running their company. They have drifted into some sort of commercial apathy and then seem blinded in finding the solution to salvation. Time and time again I see this strange trait especially when I am fixing poor trading performance rather than setting a new strategic direction. I find myself telling the board things they already know but have failed to acknowledge and deal with.

With all businesses there is a set of financial numbers and reports that are fundamental to measuring and monitor how the company is performing. These tend to get abandoned over time but they are key for keeping a finger on the pulse. They are critical for highlighting when things are starting to move off-course. Find religion and stay with these essential basics.

Benchmarking is also a much under utilised tool. Comparing yourself with the competition can be a very fruitful exercise. Where your sector is supported by an industry association see whether they report on industry performance standards. Check the filed accounts of your competitors. Get your hands on their company literature.

Poor clarity within the organisation regarding responsibility and accountability. Little objective and target setting. No actions to take the company onward and upward. Momentum needs to be created harnessing the expensive management hierarchy.

Head-in- the-sand. This crisis is not really happening. It will get better it is just a matter of time. Hide all you want but the hole is getting bigger and the longer it goes on the likelihood of you losing your business increase.

Although turnarounds can be difficult and extremely demanding on management other alternatives should also be considered. These would include the sale of the company, product or a business unit which may be perceived of greater value by the acquirer than the seller.

Are there any early warning signs of company insolvency? There are many. A lack of current financial statements; payables and receivables getting older. Being put "on - stop" with suppliers. Increasing complaints. High turnover. Margin dilution. Constant firefighting. Rising funding needs. Of course, one sign all by itself doesn't mean trouble. It's multiple problems that bring companies to the brink of disaster.

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