What images come to mind when we think of a Company Turnaround?Is it the business that is in a major state of distress?
Laying off staff?
Not paid its creditors?
Winding up petitions?
Directors arguing?
Empty offices?
Massive stockpiles of unsold goods?
Etc., etc.
Whilst this of course can be the case in the most severe situations, I believe the vast majority of company turnarounds take place in a much more controlled way, where a business has a particular problem that needs to be addressed, and is probably viewed by the directors as more of an intervention or transformation.
My view is that these are still turnarounds as without these ‘more controlled’ changes being made the disaster situations described above would very quickly become a reality.
The question is:
When are turnaround strategies not turnarounds?
Here are 4 situations I have been involved in recently that would not necessarily be badged Turnarounds by the principals of the individual businesses, but that without the necessary remedial actions having been identified and implemented, they may well have slipped into a highly distressed trading situation.
1 Outdated business strategy (turnaround)
This is where a business got stuck in the business model that was successful for it in the early part of the noughties. The surest thing in business is that things don’t stay the same. If this is the case, and both the industry or sector that you operate in (for example Jessops and cameras), and/or the external environment has changed in the way consumers buy your product (HMV and music), you need to have changed with them.
The client had not reviewed their strategy for some time and we were able to quickly review the situation, and the resources available, and make recommendations accordingly. The business in question has gone from strength to strength.
2 Suffered a significant bad debt (turnaround)
It can happen to the best of us. Best laid plans etc. etc. There is always a balance between making that last sale to hit target and making sure that you have appropriate cover in place if it all goes wrong.
When it does happen it can be disastrous if appropriate actions are not taken to protect and preserve the owners’ value in the business.
It can be a precursor to the bank reviewing its position and often reducing their funding leading to a death spiral for the business.
This is NOT necessary. There is always something that can be done to preserve that hard earned value. In the situation we were involved in the bank had introduced it’s intensive care division but we were able to address the specific issues and quickly find new finance facilities. The business is grown by 150% following these actions being taken.
3 Finance provider pulled out (turnaround)
This can (and did) cause significant difficulties for the business in question, but if dealt with correctly, can be seen as more of an opportunity rather than as a threat.
It may be that the provider of finance doesn’t like something that has happened within the business, the relationship has broken down and that as a result they have taken the decision to give notice.
In the particular case in point, and following a competitive process created to make sure the client had the best deal for their business, a new provider was quickly identified and put in place.
4 Carrying forward a legacy debt burden (turnaround)
In this case the model was good but the business was being held back by a significant debt burden as a result of having paid a very full price in a management buyout some years earlier. Assistance with renegotiation and restructuring of the debt alongside the introduction of new equity partners to both preserve the existing situation and lay the base for future expansion has proved successful in this situation.
None of these situations would have classed themselves as needing a Company Turnaround but it is a fact that without the actions being taken all could have found themselves on the slippery slope to being in a very challenging position…….
If you have any comments on this article or would like to discuss any aspect of it please contact me at john.thompson@transcapital.co.uk or on 0845 689 8750.
John Thompson is Managing Director and founder of Trans Capital Associates
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