When to call in a turnaround expert to help a client in financial strife

As a result of COVID-19, our radars are more highly-tuned than ever to the financial struggles of our clients. You’ve most likely felt the immense pressure of your critical advisory role during through these tough times.

 

But when a client is experiencing financial difficulties, how far do your obligations stretch? What should you be expected to know? And at what point is it time to call in a turnaround expert to assist in the situation?

 

If you have a client facing difficulties – no matter how big or small – give us a call so we can offer our advice and workshop the best solutions together.

It’s never too early to seek expert advise – click here to arrange a confidential consultation today.

We see it so often – business owners experiencing financial difficulties who leave it too late before seeking help. Unfortunately, these are the ones who end up insolvent.

Some business owners are too busy on the tools to be aware of any troubles brewing or are overly focused on putting out the small fires. Others are oblivious to the seriousness of their financial position or may be in a denial, blame or head-in-the-sand mindset.

Whatever the reason, the reality is that many clients are simply not in the best position to see or deal with the problems they’re facing. Because of this, the responsibility passes to you. By helping your clients pick up on the early warning signs and starting those difficult conversations, you can be the hero.

Swift honesty around financial matters from both sides is critical. So as soon as you suspect a client may be in trouble, it’s time to talk. The quicker you do, the better the outcome.

Identifying the early warning signs

There are several early warning signs you should be looking out for that can indicate a client is in financial trouble. Some of the most obvious include cash flow shortages, dragging accounts payable and an increasing inability by your client to meet their tax and super obligations.

Other less obvious indicators include stagnant growth, debt dependence, runaway expenses, sales decline and a lack of competitiveness or responsiveness.

The demise curve – corporate financial distress

These early warning signs fall into Stage 2 and Stage 3 of what is known as the ‘demise curve’. The demise curve (see figure 1) covers the degrees of corporate financial distress.

As demonstrated by the curve, if underperformance and distress aren’t promptly dealt with, a client’s situation will only go downhill. Worst case, their business can fall off into insolvency. Not a good situation for you or your client to be facing.

 

Figure 1 – The demise curve

Call a turnaround expert before the curve drops

While it pays to be proactive in taking the first step, don’t put it on yourself to resolve the issues alone. By calling in a turnaround expert at the early stages of corporate distress, you are helping your client out and positioning yourself as a trusted partner.

Turnaround experts aren’t just there for when crisis hits. Their role is actually to help you avert crisis. By bringing a turnaround expert into your discussions early, they can workshop the best solutions and outcomes for your clients with you.

Turnaround experts can also offer advice on the complexities of insolvency law and talk through all of your client’s options, including accessing safe harbour and assessing whether or not they need to restructure their business.

The advice you get from ASIC regulated turnaround experts is honest, and your client may not want to hear it. But ignoring it or turning the other cheek will create bigger issues in the long run with more pain sustained over a longer period of time.

The turnaround process

In order to help you help your financially distressed client, turnaround experts follow a number of predefined steps, many of which overlap (see figure 2).

Figure 2 – Turnaround process

Firstly, they’ll assess the viability of your client’s business and provide advice and scenarios. This high-level and detailed investigation of the situation is also known as a diagnostic review.

If your client’s business is deemed viable, a turnaround expert will begin to implement stabilisation measures such as cash management, short term financing and first-step cost reduction. They’ll also start developing a business plan – which includes determining turnaround strategy.

Turnaround experts always have a stakeholder focus and involve them in the development of the turnaround strategy. In many cases, this provides the best source of solutions and support.

As the strategy continues to evolve, a turnaround expert will begin to implement the plan and continue to manage your client’s stakeholders. As well as financial restructuring, a turnaround plan typically includes new or improved leadership, organisational change and process improvement.

The best-case scenario – and the scenario turnaround experts are always aiming for – is a return to profitability and the opportunity for growth going forward.

The sooner you seek help for your client, the better the outcomes for their business. Don’t wait until crisis hits to call in a turnaround expert. Seek their advice as soon as you pick up on any signs of financial trouble.

Turnaround experts aren’t miracle workers. If your client is already facing a financial crisis so severe they can’t pay their wages tomorrow, it’s too late. However, if you engage them early enough, together you can usually achieve a positive outcome.

If you have a client facing difficulties – no matter how big or small – give us a call so we can offer our advice and workshop the best solutions together.

It’s never too early to seek expert advise – click here to arrange a confidential consultation today.