Site icon CleverlySMART SavvyCorner

Turnaround | Business and Finance Restructuration

Turnaround business finance restructuration

Turnaround | Business and Finance Restructuration

Turnaround Strategy

In the economic field, we speak of turnaround to designate the time between the placing of an order and its execution, or between the placing of an order and its delivery.

In finance, the turnaround is a strategy for analyzing a company whose results are disappointing. This strategy consists of finding the origin of the problems and implementing solutions. The turnaround will take the form of a set of measures that should contribute to the restoration of the company’s margins and growth. It may materialize, for example, through restructuring or the creation of new products.

To meet this growing need, there are more and more firms specializing in business turnaround. This is an all-out restructurations. Meaning, a sick company must be able to recover again with correct methods and fast actions.

Turnaround steps

Business transformation management, takes you to discover a little more about this business savior world. Here are the steps:

Step 1: The problem you will see

It is obvious that the process of calling turnaround professionals is not easy for companies. Failure is always hard to admit for people running a business. In many cases, the evil is hidden in the hope of internal redress. Sometimes the company returns to profit before shareholders have even seen a drop in activity. Shareholders who have noticed a performance deficiency call on their expertise by asking them to take over the management of the company for an indefinite period (generally twelve months) in order to support the company.

The initial leader sometimes leaves the office, if she or he cannot bear not to be omniscient. Some regain all of their prerogatives following the recovery.

It should be noted, however, that the support of the company is done in various ways since after an identification of the problems, the new management team must draw up its diagnosis and therefore announce the transition to the recovery phase. In extreme cases of profound technological change, experts provide palliative care in their own way to support society in its final years and accompany teams towards new horizons.

Step 2: The cash you will analyze

The first indicator of a company’s poor health is its cash flow. This is why a thorough audit of expenditure and revenue must be carried out.

But it is also necessary to understand the formation of the result. Many charges are assimilated as fixed by companies, whereas this concept is simplistic and maybe misleading. The audit must make it possible to highlight precise cost accounting. It is necessary to analyze the loss-making products in order to cross-reference the information by customer, product and machine. For example, the ABC company, which commissioned the Hello firm a few years ago, used to buy laboratory supplies in large quantities. These supplies were then repackaged in smaller quantities to meet customer needs. What seemed like an economy of scale turned into a loss once you added the cost of handling due to repackaging. Sales were certainly increasing, but the margin was also sharply reduced.

When analyzing accounts, all the so-called fixed charge items (where the salary cost is included, for example) must also be called into question. Since the President is remunerated by the company, he must contribute to its income. How is this contribution organized? Etc.

Steps 3: The activity you will perpetuate and reinvent

Sustaining an activity cannot be done without the support of the company’s employees. At this stage, many business transformation and turnaround firm believes that the most important allies of the turnaround are those belonging to middle management. In addition to knowing the inner workings of their business perfectly, they are particularly open to change.

Once the cash analysis has been carried out, the new leaders work to pacify relations with Bercy and negotiate new deadlines with the banks. Forcing the immediate repayment of creditors often ensures the almost immediate disappearance of all activity for the debtor company.

Step 4: The disruption of habits

When a society enters a phase of transformation, habits are unraveled. In a reversal plan, many business transformation and turnaround firm recommends revisiting the meaning and the way of embodying the hierarchy as they were conceived. From now on, all employees have the keys to change and its actors can change the entire organization. The condition of success remains that everyone is active in the success of the project. For example, if the strategy adopted is that of freeing up stock to quickly increase the company’s cash flow, the sales team must be as close as possible to the project since success will also depend on the ability not to deliver the late customers. By giving a mission of meaning and support to pre-existing hierarchies, an important work of empowerment of employees is to be carried out.

Financial Risk Management Unveiled: A Deep Dive into Strategies and Solutions

The context of a turnaround mission: What is turnaround management?

To flatter Anglophiles, we refer to the Cambridge dictionary, which defines turnaround management as: “The management methods needed or used to change a failing organization into a successful one”.

To try to be as simple and concrete as many Anglo-Saxon friends, it is therefore a question of transforming a failing organization (company or branch of a company) into a virtuous and once again competitive organization. In any case, it is in this sense that Albus Partners conceives its mission.

When should a manager involve a firm specializing in turnaround?

Historically, turnaround firms mainly intervene when the company is in a downturn. This motive for action, which can be described as defensive, can be linked to exogenous factors such as:

Unexpected crises that Nassim Nicholas Taleb (essayist, mathematical statistician) theorizes in his work: “black swan, the power of the unpredictable”. The Covid crisis is a very good illustration of this type of crisis, in the face of which companies can lose their bearings.

Imperatives to regain productivity linked to an acceleration of innovation cycles, is a must. Of course, turnaround firms can also intervene in a context of endogenous crisis (loss of competitiveness for example).

Nevertheless, whether in an exogenous or endogenous context, the company is facing an urgent crisis and must be able to react almost instantly to regain its competitiveness, whether it is:

● A liquidity crisis
● A loss-making activity or branch whose productivity must be quickly realigned
● A leadership function that is lacking. A manager finds himself at the limit of his skills, or faces a situation that he does not know how to manage, such as for urgent structural restructuring.

Therefore many people would be tempted to assimilate interim management to an exclusively “short term” approach, linked to the “recovery plan” and therefore to an absolute urgency. In any case, it is in this way that a majority of managers consider the intervention of a turnanroud cabinet.

But there is also an unknown component of interim management that applies to a more offensive register. If a company or a group that is not in immediate difficulty must make profound changes, adapt its organization, reorient its model to be more competitive, a turnaround firm can be the ideal partner to provide operational support.

when it comes to:

● A new internal project, strategic to improve its competitiveness. It is not uncommon for a company, for example, to choose to outsource the conduct of its digital transition.
● Drive a deep transformation / disruption to increase performance or improve the values ​​of key indicators
● Reorienting its expertise on the deployment of a specific offer then ensuring the continuity of this offer.

The Specter of a Turnaround Mission: Characterize the Mission

Partners intervenes when the client company must “strongly” catch up with the competition, or is under serious financial pressure, by operating according to a unique prism on the market.

Once the objectives and vectors of success have been defined, the mission is characterized. In the top three fields of intervention of a turnaround firm, we generally find:

➔ Transition management (30%) in the context of turnarounds, restructuring, interim management, etc.
➔ Project management (50%) during the integration of an ERP, the launch of a new offer, etc.
➔ Change management (80%) during resale or merger with another company.

Whatever the characteristic of the mission, the objective remains to turn around a company, a branch, an activity, a business unit, or to very significantly improve their productivity.

Growth Share Matrix (BCG) | How to make, analyze and examples

The remuneration of a firm specializing in Turnaround

Thus the remuneration of a firm specializing in Turnaround must, in all cases, imperatively include a share of success fees. The missions on which a turnaround firm intervenes are too strategic to be integrated according to the prism of a consulting firm.

The future of a company and the people who make it up depends on their success, the relevance of their choices, the precision of their interventions, the involvement and talent of their managers. It is essential to establish a relationship of equals with the client. To do this, they are involving financially in the success of the project, with a share of their fees linked to success, much higher than that of their competitors.

They are typically paid by the hour and sometimes a success fee.

Some firms get equity as a part of the deal, but it all depends on the outcome and the speed in which the ill company intend to get something done. Some turnaround firms will get increased revenues by 3X, profits by even more, kept things in the black the whole time, and the partners bitched because the company was now too big and impersonal.

Some firms still get paid their fees, even they couldn’t save a company or a division.

Main Causes of Startup Bankruptcy

Define the scope of responsibilities

The purpose of the turnaround firm is therefore to meet specific recovery objectives, by delivering concrete, operational results, defined contractually with the company.

In most cases, these objectives are set following an analysis phase.

During this phase, the parties agree on the priority needs of the company and define the scope of the mission: geography, KPIs, intervening functions… to agree on the objectives and the responsibility of each of the parties. As soon as the firm is mandated to operate, the seniority and experience of the experts must stand out as decisive assets. It is necessary to structure yourself precisely around an expert team, distinguished by its seniority. The average age of the firm’s experts (around 40 years old) and the human size of the team make it possible to intervene with a view to the operational resolution of complex situations.

Be realistic about project deadlines, define a precise timeline

On average, the duration of the intervention of a turnaround firm is 7 months. This period is often reduced by audit interventions that do not involve an operational mission. Normally the diagnostic phase lasts 7 to 8 weeks. Then many clients generally set objectives with precise indicators at 6, 12 and 24 months. The firm is committed in agreement with the client, from the characterization phase on objectified challenges, on a precise timeline with for each stage, precise objectified actions, KPIs which make it possible to quantify the influence of many actions and to measure its success.

SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats) : definition, explanation and examples

Sources: PinterPandai, The MacDonald Partnership (London), Investopedia, Finance Monthly

Photo credit: RonaldCandonga via Pixabay

Exit mobile version