What is business turnaround?
Business turnaround usually refers to the process surrounding the financial recovery of an organisation that has been under-performing for a significant period of time. There could be many reasons why a business needs assistance – it may be losing serious amounts of revenue, or worse, could be facing insolvency. A turnaround usually comes into effect when a business has tried to self-rescue, but these efforts have proved unsuccessful.
What are the signs of a distressed business?
Often called “Distressed Businesses”, these entities usually recognise that they are in need of additional support to work through the challenges they are facing if they are to survive.
Typical symptoms of a business in this situation include:
- They don’t understand, nor do they accurately prepare the necessary financial statements and reports to recognise trends within the business (more often than not because managers are too busy simply managing day to day issues);
- They have loss-making customers;
- They don’t understand their cost base, and as a result spend money on the wrong things, at the wrong time and fail to address waste within their organisation;
- Over reliance on a few major customers;
- Low morale within the business;
- Failing to recognise and respond to changes in the markets within which they operate usually linked with a failure to develop new products or services;
- There is no clear sense of overall strategy within the operation’s management; and
- They either fail to conserve the cash required to sustain the business and / or fail to identify the need to obtain suitable funding to allow the business to develop ahead of when the finance is required.
So, when a company finds itself in this position, this usually means that it cannot meet, or has difficulty paying off, its financial obligations to its’ creditors, typically due to a combination of high fixed costs, illiquid assets, poor credit control / cash management or revenues sensitive to economic downturns.
What causes a business to get in to distress?
Books and studies have been written about this exact topic – and the reasons why businesses become distressed could be anything. From having the wrong management team in place with an unsynchronised focus, through to poor management of costs and cash balances, through to an outdated business growth strategy.
However, there is now something far more disturbing that is causing many organisations to face this challenge – and those stem largely from business environmental factors. We live in an age where markets fluctuate overnight, clients’ demands are constantly changing, changes in financial lending legislation, changes in bank interest rates and more, are having a direct impact on how we run our businesses, and what our growth strategies look like.
For many, their business strategies are simply not robust enough to withstand and adapt to environmental changes like these – and at the first sign of challenge, undermines their foundation and renders them vulnerable.
How does a turnaround start?
An organisational turnaround usually starts with someone accepting that an entity has a problem, and that they need help. Although the term “turnaround specialists” is relatively new in the international business world, this work has been going on for many years, but in this era of rapid, sometimes painful, change, these specialist professionals are quickly becoming sought-after.
Businesses fluctuate according to market swings and demands, and can very quickly find themselves lagging behind, and all too quickly can reach a point of not being able to cope at all. The solution to this problem begins by tapping into specialist expertise that has:
- Proven experience of delivering financial rescuing to other organisations;
- Proven experience of running a variety of businesses successfully;
- Proven experience of understanding markets, an organisation’s client-base, and industry trends; and
- Independent insight that is focussed on delivering success and helping the business move forwards.
Why do you need someone outside of your business to work within your business?
Business turnaround specialists arrive with an independent, fresh view point. They have led turnarounds before, and so can easily recognise factors within your business that need to be addressed and can quickly recommend proven solutions to deliver improvement.
Their impartial perspective gives them the ability to identify opportunities and effect change, which the business may not have previously recognised. There is no political agenda and no ego – they simply want to see your business grow and flourish, and when it comes to making difficult decisions, they can help you take them because they are detached from the emotional connection to your business.
They step in when you need help and can even take over the reins if that’s what is required. Most turnaround specialists bring experience in handling crisis situations – and when an organisation is facing a critical situation, such as insolvency or a massive loss of revenue, the turnaround specialist is able to make key decisions quickly and accurately – delivering immediate steps towards rescue.
How EFM Ireland can support your business turnaround
Our team of accomplished EFM Experts have experience across a wide variety of industries. EFM Ireland are best-placed to help lead a business to profit. Through an established network, we are able to work with almost any industry and any business size.
For more information around our business turnaround service and to book your free one hour consultation, please contact the central team. Email or call EFM Ireland on 0872326945.
Article created by EFM Ireland’s Business Development Director, Áine Collins.