Corporate Turnaround

In a challenging economic climate, even the most sophisticated business can fall prey to volatile market conditions and cash flow pressures. A quick response to the signs of company turmoil is crucial to turning the situation around.

One of the major drivers for business failures is that business their models were not challenged and strategic action was not taken when these businesses started to find themselves in a tight financial position.

In these situations, it is vital that an appropriate turnaround strategy is implemented quickly to allow the business the best chance to survive and avoid a formal insolvency appointment.

The following is a broad overview of the major steps in turnaround strategy how such a strategy would play out in the real world.

Analysing the Situation

Determine the chances of the business’s survival, identify appropriate strategies, and develop a preliminary action plan.

  • Questions to be asked?
  • Is the business in imminent danger of failure?
  • Does it have substantial losses but its survival is not yet threatened?
  • Or is it merely in a declining business position?
  • Analyse the three major requirements for viability of an organisation:
    • one or more viable core businesses
    • adequate available financial resources
    • sufficient organisational resources

Should the above requirements be present, the following should then be undertaken:

  • A detailed assessment of strengths and weaknesses in the areas of competitive position, engineering and R&D, finances, marketing, operations, organizational structure, and personnel.
  • Stakeholder communication should be increased.
  • Develop a strategic plan with specific goals and detailed functional actions. Management must be accountable to deliver these goals.

Implementing the Plan

Should the review identify any major financial issues, a turnaround plan must be implemented. Some common steps in a turnaround plan include:

  • Determine the current labour requirement. Rationalise workforce where needed.
  • Close underperforming business units and return focus to the organisations core business operation.
  • Change management team and structure.
  • Eliminate any unprofitable lines of business where possible.
  • Identify any surplus assets. Determine if these assets can be realised in a timely manner.
  • Eliminate any unnecessary capital expenditure.
  • Improve accounts receivable collection process.
  • Focus on the cashflow of the business.
  • Communicate with financiers and creditors.
  • Continue to focus on service for customers.
  • Seek advice from advisors.

Moving Forward

In the final step of a turnaround, an organisation slowly returns to profitability. While earlier steps concentrated on correcting problems, the final stage focuses on profitability and return on equity, and enhancing economic value-added. For example, the company may initiate new marketing programs to broaden the business and customer base and increase market penetration. It may increase revenue by carefully adding new products and improving customer service.

This final step cannot be successful without a culture shift as well. Rebuilding momentum and morale is almost as important as rebuilding return on investment. It means a rebirth of the corporate culture and transforming negative attitudes to positive, confident ones as the company maps out its future.

The key in any turnaround is to take action early and seek appropriate advice from your advisors before the situation is taken out of your control.

For more information on corporate insolvency or specific insolvency services, contact the team at Rapsey Griffiths on (02) 4929 3019 for a confidential consultation.

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