The stress and anxiety of business troubles or insolvency can be psychologically detrimental and, even, destructive. Fortunately, for many organizations that are experiencing distress for one reason or another, business turnaround strategies can help overcome troubled times.
What is Business Turnaround?
A successful business turnaround strategy restores struggling companies back to solvency through thoughtful analysis, objective assessment and strategic planning. Put simply, business turnaround puts derailed organizations back on track.
What is an Effective Business Turnaround Strategy?
Generally, organizations can’t “buy” their way out of business decline. In other words, when backed into a corner, some businesses may try to borrow their way out of the problem. But debt typically disintegrates into a vicious cycle of borrowing more and more. Instead of accumulating debt to “pay Peter while robbing Paul,” a business turnaround strategy can help to generate positive cash flow and pave a path to future profitability.
However, the process of business turnaround is not only for distressed companies. Even profitable businesses can benefit from turnaround strategies and reach performance improvements through their implementation. After all, it’s about generating and increasing positive cash flow.
Following these four steps can help most businesses return to and then accelerate along the road to vitality.
Start at the start. It’s important to understand, in as much detail as possible, how the business arrived at its compromised state. Finding a path back toward business profitability and viability is possible only by understanding the root cause, or causes, of business degradation. In certain situations, this crucial first step can also highlight fundamental problems with the business or its stakeholders. And it can help illuminate any core, potentially irreversible issues. For instance, is there simply not an adequate demand for the business’s offerings to sustain healthy profitability? Is the problem with the balance sheet (excessive debt relative to assets) or an operational issue?
As the saying goes, get those ducks in a row. Carry out the necessary steps to precisely understand the business’s financial predicament. Put all assets, debts and liabilities on the table. This step could involve a professional business valuation. It also includes collecting cash flow projections, financial analyses or any major legal documents, including leases, contracts and loans. It may involve understanding the nature of the major creditors, their priority and security and their willingness to work out a deal to help the company move forward successfully.
Here’s where the rubber meets the road. Setting a strategy may include reducing costs, selling assets, implementing cash flow management techniques, negotiating with creditors, filing for bankruptcy or even changing key personnel. A willingness to make the “tough decisions” is key to any business turnaround strategy. The list below represents just a few considerations.
- Often, businesses focus too closely on reasons other than stakeholder management for their decline. But it’s important to consider the role all members play within an organization.
- This may be a good time to identify the “low hanging fruit” to develop quick revenue and gain momentum.
- Remember that finding ways to increase revenue doesn’t always equate to increased profits.
- Work to ensure employees remain engaged, loyal and productive throughout the business turnaround process.
Finally, it’s time to make the necessary changes. Sticking to the plan will require persistence, commitment and tenacity. Stay accountable and dedicated. Some companies fail after establishing a turnaround strategy simply due to a lack of attentive follow-through.
The turnaround professionals at Rocky Mountain Advisory have provided turnaround and consulting services in various situations across a number of diverse industries. We help companies understand the root causes and help management execute the strategic decisions necessary to restore distressed companies to profitability. Contact us to learn more.