Business Turnaround

If your company can’t pay its bills, is struggling financially or facing insolvency, a business turnaround could be the effective solution you need. A business turnaround is a plan that’s put into action when a company begins to fail. It gives your business a chance to reorganise, restructure and refinance for future profitability.

If your company is a positive candidate for business turnaround management, an insolvency practitioner can assist you with the implementation of a plan designed to save your company from insolvency.

Turnarounds aren’t easy and they can be brutal on employees, but with a professional turnaround team such as Irwin Insolvency, your beloved business could come back from the brink and survive long into the future.

What Is a Business Turnaround?

A business turnaround is a plan of action that aims for a rapid transformation that shakes up businesses and reverses financial fortunes. A business turnaround needs to happen fast and it needs to happen effectively. Unfortunately, business turnarounds are challenging, and don’t always work unless they happen under the right circumstances and are led by the right people with the right attitude and expertise.

A business turnaround can prove to be an effective way to save a business that’s heading towards liquidation. It can help to save assets and finances while building a stable foundation that can lead to success again in the future. Negatively, a turnaround could lead to job losses and restructuring, as it aims to save the core of a business and often has to dispose of the fringes.

That can ultimately mean that many sacrifices need to be made, and parts of the company will not only be shaken up but could be cut altogether. For this reason, business owners will often bring in a professional turnaround team who are able to make these somewhat brutal decisions become a reality.

What Can Cause a Business Turnaround?

The primary goal of business turnaround management is to save a company from liquidation. The direct cause of this can vary from one company to the next. There might be a single overriding factor, or there could be a multitude of reasons as to why a business is failing.

The business may face external pressures outside of their control, such as political decisions that affect their ability to trade, worldwide pandemics like Covid-19, or stricter regulations and laws. They may also face financial issues due to rising competition, cyclical financial markets, or changing consumer tastes and demands.

The major causes that lead to the implementation of a failing business turnaround plan can include all of the following:

• Cash flow or balance sheet insolvency.
• An extended period of poor sales.
• The loss of an important client or customer.
• The insolvency of creditors or debtors.
• Economic problems such as a recession.
• Political problems such as Brexit.

It’s important to note that a company doesn’t have to be insolvent to begin a turnaround plan. In fact, unstable economic conditions might force a company to plan ahead and bring in professional insolvency advisors before their books enter the red.

Business turnarounds aren’t a position to be taken lightly, as jobs are at stake, reputations are on the line, livelihoods are under threat, and entire industries can suffer. Turnarounds do offer failing businesses the chance for a rapid, yet drastic change in structure, which can lead to a reverse in fortunes that could ultimately save the company from insolvency and liquidation.

How to Implement an Effective Business Turnaround

In theory turnarounds should not be necessary, but in reality they often are. In most companies, turnaround actions commence once the directors have accepted two basic facts. First, the company is in real danger, and second that the problem is serious and small incremental improvements will not solve it.

When considering if your business is a suitable candidate for a rapid turnaround, there are three questions that a business owner or director must ask:

• Is your business a positive candidate for a turnaround?
• Is a turnaround feasible?
• When can the turnaround be completed by?

Turnarounds are primarily based on the disciplined and systematic application of planning, controlling, organising and motivating functions, taking calculated risks, planning contingencies, much independent thought and steady hard work. There is no magic solution. This means doing what has to be done when it has to be done. Turnarounds are not big on formality but big on business discipline where time is always of the essence.

Once it’s been decided that a business turnaround plan is the best way forward, an insolvency practitioner will often follow these three steps:

1. Assessment: the financial and operational situation of a company is fully assessed.
2. Planning: a comprehensive business turnaround management plan is created and presented to company directors.
3. Implementation: the turnaround plan is put into action.

What Are the Priorities of a Business Turnaround?

Before a turnaround is implemented, a business owner or director needs to consider the implications of what they are setting out to achieve. Turnaround professionals are able to lay down a rapid and effective plan that will be put into action quickly. To do this, they will identify the major priorities that the turnaround needs to target or that it needs to achieve.

Turnarounds can be harsh on staff and parts of the business that are deemed to be unnecessary. But if it’s a choice between the liquidation of a company and the preservation of its core assets, then a tough choice has to be made.

Most businesses that are facing a turnaround do so because they are about to enter liquidation. This means that the business is no longer able to pay its debts. There’s a negative cash flow and more money is owed than is flowing back into the company accounts.

The turnaround aims to halt that and to achieve some level of stability to avoid liquidation. In most scenarios, a turnaround will aim to prioritise the following actions:

• Haemorrhaging must be stopped. Positive cash flow must be restored and ongoing losses must be stopped.
• Stabilisation must be achieved quickly. Nothing must stand in the way of actions required to achieve these objectives.
• Any breathing space and time gained is vital. This is a limited reprieve and the momentum of changes must continue.

Additionally, during the critical stages of a failing business turnaround plan, there is often no time for formal studies before certain drastic actions are taken. Decisions guiding these actions must be based on a quick and penetrating analysis. In turnarounds, business owners authorise drastic, unpopular and unpleasant actions, such as laying off employees or closing down some facilities. If things continue on their present course, business owners stand to lose equity. There is no time to move at the usual pace.

Because things need to happen fast and efficiently, business owners need to quickly seek professional advice and implement actions that have been proven to be successful in previous, similar scenarios, and that have saved other companies in the past. This is where the experience and knowledge of a professional turnaround team come into their own.

Let’s take a more detailed look at how to assess if your company is suitable for a turnaround and whether that turnaround could be successful:

Is Your Business a Candidate for a Turnaround?

Business owners, directors and turnaround consultants need to come together and make a quick, yet fundamental decision. They need to rapidly decide if the business is a candidate for a turnaround before any plans can be put into action.

To make this decision, a quick assessment of a company’s assets alongside any available profit and loss charts and accounting reports needs to be undertaken. A turnaround will only work if the business has yet to have entered into formal insolvency proceedings and is yet to be liquidated.

Business owners and turnaround professionals can make a decision based on past experiences with similar businesses in similar financial scenarios. They may also need to take into account the current economic climate, as external market forces can be just as important as internal changes. The earlier a turnaround can be put into action, the more effective the results are going to be, so this is a decision that needs to be made quickly.

Is a Business Turnaround Feasible?

If it has been decided that a failing business will make for a good turnaround candidate, the next step is to decide if the turnaround is going to be feasible on a practical level. If a turnaround has a chance of producing good results and turning a negative cash flow into breakeven or positive cash flow, the business needs to start making the necessary changes to bring about a successful turnaround.

This is the stage when tough decisions often start being made by the turnaround professionals and company directors in order to see the necessary results and create a positive upswing in the company accounts.

The goal of the turnaround is to fix cash-flow problems in order to avoid insolvency. To achieve this, there are multiple routes that can be taken. Accounts need to be put in order and money coming in and out better analysed and forecast. Areas that are deemed unnecessary to the business might have to be cut or closed down, and that means staff might need to be made redundant.

Money owed to the company needs to be chased, departments might need to be restructured, and expenses will need to be cut down to an absolute minimum. Deals might be made with creditors that are owed money by the company or loans might be taken out to cover financial holes in the short term. Change is vital at this stage, in order for the turnaround to be a success.

When Is a Turnaround Complete?

A turnaround can be deemed a success when a company has put its finances back in order and pulled itself out of the red zone. This can mean that the threat of immediate insolvency or liquidation has passed, and money coming in is soon going to equal the money going out or surpassing it.

But a successful turnaround in the short term might not entail a successful long-term turnaround. In fact, a turnaround might not be absolutely complete for several years to come. At this important stage in the turnaround process, it’s integral that the business continues to make positive changes for the company’s long-term benefit. Keeping the momentum going and continually progressing out of the red and further into the green is the only way forward.

Once stability has been achieved, the business can take a deeper, more thorough look at its structure, finances and sources of revenue. New areas for improvement, cuts, and eventually growth need to be identified and plans put into action.

Company policies, values and targets need to be assessed and evaluated. Sweeping changes may need to be instigated across the board to ensure the long-term viability of the business. At the end of the day, there’s no reason to make a drastic turnaround if the business is simply going to keep falling back into a negative cash-flow situation time and time again. After the company has been saved, the turnaround needs to focus on creating a sustainable business model and a company structure that allows for that to become a reality.

As with any complex business decision, always seek independent financial and legal advice from an insolvency practitioner that has experience working with successful business turnarounds. Their advice, experience and expertise will prove to be invaluable through trying times.

Contact Irwin Insolvency Today to Find Out More About Business Turnaround

Irwin Insolvency has an experienced team of professionals who are adept at offering consultations and advice for struggling businesses. Our personalised, tailor-made business services are just a phone call away.

We have experience working with and helping companies across a wide range of industries in the United Kingdom. We’ve instigated successful turnarounds in multiple sectors, leading to rapid transformations and positive long-term outcomes for the businesses involved.

We can offer a consultation service and advise on the best possible turnaround procedures for the fastest possible turnarounds. As licensed insolvency practitioners, we also deal with corporate recovery and liquidation, if the worst-case scenario needs to be implemented.

Let us help you save your business. Simply call us on 0800 254 5122, or fill in our enquiry form and we will call you back.