What is company turnaround?
Company Turnaround is a widely used word to describe a business that is experiencing difficulties and needs some form of resolution.
We at Opus believe true Turnaround is much broader than that. Especially if the process is going to create real value in the longer term. Simply addressing the symptoms e.g. with the introduction of additional funding, doesn’t cure the underlying problems. It just serves to mask them in the short term.
When these problems start, the leaders of the business will likely be dealing with the issues as they arise. Often, on a one off, firefighting basis. This process will slowly become more and more a part of their daily routine and increasingly divert them away from the day job.
It is our experience that the problem issues if left unresolved, will grow or re-occur at a later date. This can often cause potentially irreparable damage to the organisation.
Acknowledging the distress signs
Whatever the underlying issues, the need for a Company Turnaround will invariably first become apparent with a tightening of the company’s cash flow. There will possibly have been a recent build-up of debt and increasing pressure from disgruntled creditors. This will sometimes include HMRC commitments with outstanding PAYE and VAT payments.
Invariably there will be additional factors that are worsening what is already a difficult situation, such as:
- Debtors taking ever longer to pay
- Cost increases
- Slowdown in sales
- Funders withdrawing support
- Bad debts
- Employee issues
Preserving business value
The team at Opus have significant experience in identifying and resolving these issues. Our sole aim is to preserve Shareholder Value.
In our experience there is invariably a way we can achieve this.
John Thompson, Partner of Opus Business Advisory & Turnaround, has turned around the fortunes of many businesses experiencing these issues, including his own business which he turned around and sold to a PLC within 2 years.
It is worth confirming that we start from the basis that the Turnaround will avoid the need for any formal Insolvency Process.
Finance for Company Turnaround
The first stage of the Turnaround process will be to stabilise the situation and stop any haemorrhaging of cash. If allowed to continue this will of course be terminal.
The Company’s lenders are very often already aware of a deteriorating cash flow situation.
Opus have links with all the traditional funders and many providers of specialist Turnaround Finance.
We work very closely with all these finance companies to ensure they are fully bought in to the agreed plan and that there are no surprises that could potentially jeopardise the situation.
We seek to introduce new funding as needed to facilitate the Turnaround Plan.
Turnaround Process – the steps
Whilst we are not prescriptive about the Turnaround Process, there are several key steps that we look at when advising clients:
1 Make sure you have the right team in place
Seek external help from someone with real experience of dealing with these issues. Make sure they have no agenda other than to preserve your value in the business.
2 Stabilise the situation
This will include stopping the haemorrhaging of cash and easing back on any non-profitable activities.
3 Communicate with your funders
At Opus we always keep the funders of the business updated and involved with the progress of the Turnaround Plan. This is essential in maintaining the trust between you and your lender. (We are very often introduced to the management team by the provider of finance).
4 Reduce your cost base
Continue this process vigorously over the first three months of the process.
5 Identify the issues
Once stabilised start the analysis process and identify the underlying problems and deal with them. Remember the cash flow issues are simply a product of the underlying problems. Produce a robust financial forecast.
6 Introduce additional funding where needed
The Turnaround Process will need appropriate levels of funding as identified in the financial forecast. Opus can assist in this process.
7 View the Turnaround as an opportunity
Business does not go in a straight line. As owners and managers of businesses, problems are thrown at us constantly. These Bumps in the Road are an opportunity to get it right and to develop a Plan for Growth that refreshes and revitalises the business.