Turnaround and recovery – identifying the cracks

Simon Rowe explains the options available in the turnaround and recovery processes. When times are tough, the first step is to acknowledge you’re heading towards bleak times and to identify the cause of the problem early, in order to implement a business recovery plan to turn the position around.

A nice problem to have?

Over-trading or over-expansion within a business can seem like a nice problem to have. Winning new clients, securing a new site or acquiring another business can all be very positive moments for a business, but if they are not properly planned and executed, they can lead to the demise of the whole operation.

Where a business finds that it is struggling to cope with its new size and scope, there are steps which can be taken to correct the position

Step 1 – Analyse the position

Get as much data as you can on the performance of the different parts of the business (existing and those acquired if appropriate) and critically assess which bits are working and which are not. The problem may not be where you think.

Step 2 – Time for action

Identify the problem areas and develop an action plan to change the situation. This may be as radical as jettisoning part of the business (my Insolvency team recently dealt with a leisure sector business that divested itself of 40% of its revenue generating capacity). Equally, it might be a case of improving practice and operating procedures. We often see businesses that have expanded very rapidly struggle because the processes, strategy and structure they had in place when they were half the size are no longer fit for purpose.

Alternatively, especially where there has been an acquisition, there can be issues in the way different parts of the organisation communicate and operate with each other which cause additional strain. We had a client who acquired their largest competitor and one of the biggest challenges was getting the employees to stop viewing each other as “the enemy”.

Step 3 – Gain the resources

Whatever the issue – and its solution, you need to be mindful that it won’t be fixed overnight. Look at a timeframe for you to implement the changes needed and for those to bear fruit. Try to forecast the effect it is going to have on the financial position. If you will need additional funding, seek it early in the process and do not leave it to the point of most dire need.

Don’t forget the good stuff

In times of crisis management, it can be easy to take your eye off the ball and concentrate solely on the problem areas. The positive parts won’t need as much input but ignoring them entirely can cause new problems for later on.

Simon Rowe is a Partner and a licensed insolvency practitioner specialising in management consultancy and business turnaround. For more information or to get in touch with the team email: advice@milstedlangdon.co.uk

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