The corporate life cycle concept is well understood with a curve that exists as a business approaches the peak of its maturity before embarking through a series of phases on its natural decline. However, not all businesses follow such a trajectory or steadily decline. Rather than accept the corporate life cycle as unavoidable, proactive management teams regularly rethink their business strategy and apply turnaround disciplines to transform operations and performance.
What are the key triggers for turnaround?
Every situation is different and dependent upon a number of factors. These may include:
- A period of loss making performance, or sustained profit/margin deterioration
- An unexpected shock to the business, such as the loss of a major customer/supplier or technological advancements resulting in product obsolescence
- Insufficient cash resources resulting in increasing pressure from creditors and the threat of legal action
- Overtrading, when revenue grows at a faster rate than a business is able to finance.
- Stakeholder issues, such as covenant breaches and being transferred to the high risk team for relationship management within a lender
- A change in the macro economic environment including changes to legislation
The key consideration at the outset of each turnaround will be time – i.e. how much time is available to resolve the underlying business issues or is the runway to achieving a turnaround too short to mitigate a
The steps to business turnaround
Assess the situation
An initial rapid assessment of the current status of a business is therefore crucial in considering the time that is available and the key factors that would enable a turnaround strategy to be developed and implemented. This will include preparing robust cash and trading projections and giving consideration as to the suitability of the current funding structure.
Develop a turnaround plan
Once cash is stabilised, the next stage is to develop an effective turnaround plan that provides solutions to the issues being faced by the business and supports improvements to operational performance and financial stability. Successful implementation of this plan should then provide a step towards achieving the ultimate goal of value preservation or enhancement, within a new phase of business growth.
Implement the turnaround
Although the turnaround process is conceptually straightforward, management teams can often find the practical implementation difficult, thus making it less likely to succeed. This may be due to competing priorities with the need to continue running the business day to day, a lack of experience in turnaround situations or a shortage of certain skills and capabilities.
We have initially produced a guide for the manufacturing sector that provides a practical hands on solution to management teams with four case study examples.
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Supporting businesses in their search for a new phase
Our turnaround services team is experienced in helping stressed businesses overcome the challenges they are facing, partnering with our clients to assess, develop and implement turnaround plans that deliver improved business operations and financial performance.
If you would like to discuss any aspect of the turnaround service in more detail and how it will affect the type of service or product you provide please contact Richard Austin, Chris Marsden or Stephen Cooney who will be happy to help.