Business turnaround is about reversing a business's decline, restoring it to stability and then re-growing its value. But business turnarounds are about healing the sick, not attempting to raise the dead, and so this article looks at the seven key factors that need to be in place and the key stages in the process.
So, to achieve a turnaround, you will generally therefore need to have the following seven things present:
1 A viable business: Some core business that has future potential growth and profitability around which the business can be rebuilt.
2 Time: Real turnarounds take time and if they are not started early enough, they will either fail or require protection through an appropriate insolvency procedure.
3 Cash: Turnarounds need money, often there are costs associated with the initial restructuring (such as redundancy costs) and then to finance the future regrowth of the business, and this money must be found either from within the business ('bootstrapping'), or from outside by way of new investment or refinancing.
4 Vision: A clear goal to which the business is to be directed, to provide both a target and motivation.
5 Management: Who have both the will to achieve the turnaround (it's your plan and vision) but also the skills (functional and situational) to make it happen, or access to external resources who can provide these skills when required.
6 Stakeholder support: Management cannot do it all by themselves. They also need to take suppliers, customers, staff, bankers, shareholders, and other stakeholders with them.
7 Confidence in the process: The stakeholders need to see how management (who will be regarded as having got us into this mess) are going to get us out again, and this has to entail a structured approach in dealing with the problem.
Turnarounds tend to divide into three key phases and whilst each phase needs to consider finance, people and marketing issues, there is definitely a shift in priorities over time from finance to marketing.
The first phase is normally crisis management, focused on short-term survival and restructuring down to a viable core concentrating on solving the immediate financial crisis. During this period, you may need to reduce employee numbers but it is important to keep key staff committed and businesses often also slim down their portfolio of products and markets to only those that are clearly profitable.
The second phase is one of stabilisation and preparation for the relaunch of the business. This involves putting both appropriate financing arrangements to support increased trading levels, and the right management team who can push the marketing and delivery of growth products.
The third phase is then regrowth based on achieving long-term sustainable competitive advantage. To do so involves managing the business's working capital cycle to support the business as it grows and recruiting and retaining the right people to drive growth of turnover and profits.
The five key stages of any turnaround plan can therefore be summarised as:
1 Recognising the need. The first, and in some ways, most important step towards solving a problem are realising that you have one, how urgent it is, what is causing it and the need to face up to it.
2 Being around to do it. This essentially means that to have a future you have to survive the immediate cash crisis and quickly get a strong grip on what your business's finances are and what these are telling you about its performance, the reasons for any problems, and possible solutions.
3 Deciding what to do. This involves taking an objective look at what you want to do with your business, its industry, markets, products, competitive strengths and weaknesses, and coming up with a broad picture of the key issues and your proposed strategy and priorities long and short term.
This then needs to be used to generate the detailed action plans for who is going to do what, when, and with what projected results.
Often you will need to do 'diagnostic work', drilling down into your performance in certain cases to get a better understanding of the cause of underperformance and its remedy.
Marketing plans and forecasts need to be prepared and you need to organise (or perhaps reorganise) your management team so as to achieve the planned milestones, budgets and objectives.
4 Doing it. You need to lock in whatever support it is you need from suppliers, customers, employees, the bank ('stakeholders'), to ensure that the plan can happen and ensure the required financial resources are in place.
You then need to manage, manage, manage, manage.
Manage the people: obviously yourself and your team, but also the stakeholders, by keeping them involved and informed in the process as it unfolds and develops.
Manage the process: constantly be identifing and capturing the values of the next 'quick wins' so that the plan continues to show positive results all the way through. Monitor progress and take steps to identify and deal with any slippages but also keep an eye on the overall realism of the plan. No plan survives contact with reality and as the business's circumstances change over time, so your plan also has to change. But if it does, ensure that you communicate this change and the reasons for it to the stakeholders.
Manage the business: don't forget to keep an eye on the numbers and ensure that the process of change does not distract from the need to continue to manage the day-to-day business as well, if not better, than before.
Manage the turnaround risks: keep an eye on the risks that you may be running whilst operating a business in difficulty and ensure that you cover yourself against potential problems.
5 Keep on succeeding. Once your business is heading back in the right direction, keep going. Use the skills and approaches you have adapted to return it to being a successful business to ensure that it continues to prosper and keep on using the business's numbers to assess its performance and keep the strategy and business development plan under regular review.
Mark Blayney specialsies in SME businesses and is an accredited turnaround professional with the Institute for Turnaround and author of a number of books for owner managers including Turning A Business Around, and Raising Finance For Your Business. For more information on sources of turnaround help contact him at: http://www.turnaroundhelp.co.uk
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