A Successful Business Turnaround Involves Completing a Three-Phase Process

Three phases need to be completed for a business turnaround and include a first, emergency phase to try to ensure survival, followed by a stabilisation phase which includes a thorough look at any fundamental changes needed to achieve a viable business and finally the growth phase to secure its future on solid foundations.

It is vital that the main objectives of each stage are completed before going on to the next one. This needs a clear understanding from all those involved of the objectives of each phase. The focus of activity changes throughout the process from hoarding cash, terminating contracts and limits on spending while trying to survive in the emergency phase is very different to funding marketing activities, new processes, training and other efficiency related initiatives during a stabilisation phase.

The aim of the turnaround process is to achieve a viable company that can survive, which is different from the insolvency process, which is aimed at putting a business in the best shape to sell the assets and liquidate the company.

The first phase can be likened to triage and is similar to the actions usually carried out by a paramedic at the site of a traffic accident. The paramedic’s job is to stabilise the situation so that the injured can be moved to the surgeon (if needed) who would carry out the second phase of dealing with the damage.

Phase 1 of a turnaround is therefore about arresting decline and saving the business. It requires decisions to optimise survival and a total focus on becoming cash positive as quickly as possible by only paying essential suppliers and liabilities.

It is far easier to do this with the help of a turnaround adviser to take an objective look at the business, and help strip it down to the essentials to achieve what in essence is a viable business, one that is cash flow positive and profitable.

Once the adviser has had a detailed look at the accounts and the business operation to establish the essentials they can then also put together a proposal for ensuring that there is sufficient cash flow to deal with the immediate situation in a way that will allow the business to continue trading while a strategy is being prepared for the next phase.

It will depend on the state of each individual business what the adviser will suggest to stabilise the situation but there are a number of tools that can be used.

However, it is likely that they will identify and prioritise those suppliers and liabilities that are key to put the company on a more secure footing so that it can continue to function.

For example, a company uses materials critical to its production and imported from China, but they are held up at the docks because it has been paying other bills rather than paying the freight forwarder, so in order to survive by having stock, paying the freight forwarder’s bill has to be a top priority.

In another illustration a company with a turnover of