Training and Consulting in Fraud and Corruption
BUSINESS TURNAROUND AND RECOVERY
What is 'Turnaround'
Turnaround is the financial recovery of a company that has been performing poorly for a period of time. In order to effect a turnaround, a company must acknowledge and identify its problems, consider changes and develop and implement a problem-solving strategy. Possible characteristics of a troubled company in need of a turnaround include revenues that do not cover costs, an inability to pay creditors, layoffs, salary cuts for officers and a significant decline in stock price. Poor management and/or social, technological and competitive changes may have caused the company’s products or services to be perceived as sub-standard or over-priced by consumers.
Considerations for a workable Turnaround.
Think like a firefighter.
Much like firefighters, we don’t initially know what's going on inside. Usually the flames are bigger than explained so when we walk in we don't know if the house will collapse before we put out the fire. That's because we're often called when it's almost too late.
We appreciate that raising the white flag is tough. Most people don't want to admit they need help or that they are failing. Everyone holds out hope, even to the end, so always assume the business is in a worse shape than you were led to believe.
The flawed business plan.
A business plan is often little more than fantasy. Maybe there was a plan and it wasn’t followed or maybe the plan is totally unrealistic. I worked with a company that had burned through many millions of dollars and had only half a million dollars in sales to support it. They were operating under a flawed business plan and model that would never ever work.
Often people go into businesses they don't understand. Only spend time reviewing the business plan if that will help you identify why the business is struggling. Instead put all your attention on reality: revenues, expenses, operations, cash flow.......
Focus on people.
If a once-successful business is struggling, it's almost always a people-related issue. Not financing, not capital but Employees, management, or owners or all three.
Somewhere along the way something broke and now there's a disconnect between the owner's concept and what people did with that concept. The problems may be entitlement, complacency, laziness, or ego.
Eventually, between the reality of the marketplace and the company's ability to act within that reality, something fractured. Always start with people, because it's usually about people.
Assess the brand.
That disconnect always manifests itself in one or two places: on the front end with the brand and sales, or on the back end in sourcing and operations.
Maybe the brand has lost its core attraction or value perception. Or maybe distribution can't support the brand.
Either way, when did that disconnect occur, and what was the reason? If it's a brand problem, when did the company stop looking at new avenues for sales? Have they ignored international expansion. Many domestic companies underestimate the enormous potential overseas. We've done great things with home brands and in every case the owners underestimated or even ignored the international opportunity.
If a brand or a business once had value in the eyes of customers, it can recover that value, and that value can be extended, whether regionally, nationally, or internationally.
The main problem may lie with the brand, but ultimately the issue will be a question of operations, because if the wheels are not working the business is still a lost cause.
Brand starts, but back end delivers.
For example, in the apparel business it's all about the back end and sourcing, since that's where the cash is usually burned.
No brand is better than its delivery. Owners get excited when they land big accounts, but if your back end can't feed those accounts, it can kill you.
Rapid expansion is attractive, but operationally expansion can be a nightmare—especially because of the cash required to finance a major expansion.
In the apparel business you're often nine months from contract to getting paid—and then you need to be ready at the end of the season to deal with charge backs, markdowns, marketing contributions... That's where the cash flow issue becomes a nightmare, and is typically when we're brought in to help turn things around.
Often a business bit off way more than it could chew. Oddly enough that's a good sign, because it means there's great ambition and opportunity.
Your turnaround proposition is to develop operations that can meet the opportunity.
Then go back to people
Many owners will not talk about what the real problem is, often due to ego.
The difficulty is sorting through all the agendas, defensiveness, and embarrassment at all levels of the organization so we don't create and fill binders with reports. No binder has ever made a profit.
Roll up sleeves and participate in the company. Be open. Talk to people. Show them you care.
It’s important not to immediately clean house. Sometimes we are forced to let some employees go, but we try not to. It's extremely important to maintain the talent that originally created the concept or brand; they are the company. People deserve a fair chance. Give them the opportunity to not only save their jobs but to regain their pride in their company and their work.
Look for quick fixes...
First find ways to expand or finding new sources of revenue. Then streamline the back end and ensure the "machine" is capable.
If you need to rely on big suppliers, have them hold your hand. Go into the expansion together and set up shared risk. Good suppliers will support you through financing and credit so you can feed an expansion. Open your book, and ask them to open theirs. Make sure they have the capacity to support you.
And go back to people….again
Here's the best part of a turnaround: It's exciting and can be incredibly fulfilling. It's great when it works. It's rewarding to see a business that was left for dead keep going, because it's the employees who benefit. Saving jobs is the ultimate pleasure.
When you get to see people realize that their jobs are secure, and see them excited about the company again it's an incredible feeling. That's why, in any business, it's always about people.
How can we help ?
Hiring a business turnaround consultant may be a prudent and cost effective step in bringing your business back to life by making it more profitable and a fun place to work again.
At Fraudintegrity Simon Padgett has over 20 years of experience in managing and consulting to a variety of organisations, worldwide. He has been the Head of Risk for two publicly quoted companies as well as Head of Risk and Internal Audit for the largest family owned conglomerate in The United Arab Emirates. Simon has advised organisations on becomeing more profitable whilst being at Director level in the worlds largest firms of Accountancy Consulting firms.