WHAT IS BUSINESS TURNAROUND | MEANING AND PROCESS

Business turnaround involves reviving a struggling or probably a dying business. This implies taking steps that would turn a company’s distressed financial position into a healthy and profitable one. It is widely believed that business turnaround is a short term action designed to ease short term financial difficulty. A company that struggles to meet up with its short and long obligation is obviously dying and needs a turnaround.

Business turnaround simply means all that professionals and management do to revive a dying and struggling business. The process is a painful and stressful one that usually takes time, money and effort to save a dying enterprise. There are five major stages in business turnaround strategy which will make the bulk of this post.

FIVE (5) GOLDEN RULES OF BUSINESS TURNAROUND

Get the picture of the current financial position of the business: the starting point of any business turnaround process is to get the picture of the current position of the company. Most of the information can be found in the financial statement of the business if there is any.

Also, the business turnaround consultant should review the operational policy of the business. This document often contains vital information that tells you how things are done in an organization.

You may also want to observe things for yourself. By observing processes been carried out, you will quickly figure out apparent and potential flaws in the internal control if the business has one. Another way you can obtain useful information regarding the true financial position of a struggling business is to interview the employees.

Employees would express their fears regarding any worrying issue that might affect the company. In periods of business turnaround, the turnaround specialist should also contact the suppliers and customers of the business to gather more information.

There are no hard and fast rules when it comes to gathering information that would enable you understand the financial and operating situation of a company. The unique situation of a dying business determines what sources of information are best.

Stabilise the current financial position: the next thing that needs to be done after equipping yourself with useful financial details of the business is to stabilise the deteriorating financial situation of the company. Cost cutting is the most popular option and unfortunately, it begins with firing expensive staff and replacing them with reasonably qualified and yet, cheaper staff.

This idea of relieving key staff of their duties and replacing with cheaper labour have been criticised by many on the grounds of ethical considerations, but the truth of the matter is that the business would not have fallen into heavy financial difficulty if the affected employees were efficient in the true sense of it.

Inject new capital: once the financial situation of the business is stabilised, the business turnaround strategist should then seek ways of raising new finance and restructure the existing capital structure if need be. The newly raised finance would then be used to rejuvenate the existing business operations.

Evaluate strategic options: at this point, the management would now have a breathing space to think of a suitable strategic option for the business. Detailed strategic business analysis is carried out here in order to determine the company’s core competence. Depending on the outcome of the analysis, the company may choose to a cost leader or a differentiator in the market segment that it has chosen. A dying business who for example discovers that it has a unique competence would want to follow the strategic option of differentiating its products.

Implement and monitor chosen option: the implementation and monitoring phase of strategic option is the last stage of the business turnaround process. This is a continuous process that feeds into the management accounting control system. The feedback the come from this implementation and monitoring phase of the business turnaround strategy cycle is used to re-evaluate the whole change management system and any corrective action taken.

For you to fully understand what a business turnaround is, you have to look at it from continuous process perspective. Business turnaround strategy is not a one off event as many would think. Remember that the best turnaround strategy is one that is sustainable.