Description
Business Turnaround Strategies Brendan Waters take a look Business Turanround Strategies at a time of recalibration in the economy.
20
Fi nance & Management Busi ness Turnaround Strategi es
Since the beginning of the economic downturn
business people and investors have been looking
frantically at how the recession has impacted their net
worth and solvency. Their trading companies are
experiencing significantly reduced revenues at a time
when the business is built on a high cost base following
years of growth. On top of this they have seen a decrease
in the value of their properties and equity investments
funded by borrowings that are now greater than the value
of those investments. While some companies have
identified and implemented cost reduction strategies, this
is only the first step in securing their medium to long term
position.
The changed market conditions have significantly
damaged consumer confidence and overall consumption
in a variety of sectors. A lot of business owners in Ireland
today now see survival as their key goal until activity in the
economy picks up. This strategy of hope and waiting for
green shoots will not work if the company does not have
an inherently sound sales pipeline supported by a strong
business model, secure financial position and a focused
management team.
Trading in Ireland today can be compared to life in the
jungle where only the strongest animals will survive –
instinctively the animals know that the future of the herd
cannot be put at risk by seeking to protect the runt.
Wildlife documentaries show that when the herd is
attacked the predators always seek to pick off the weakest
members, either those on the fringes or those who have
become detached as the herd seeks food and sanctuary.
These documentaries demonstrate that if an animal is
to survive it must have sufficient energy to keep up with
the herd and sharp responses to react to dangers in the
environment.
Similarly, as regards the Irish economy, weaker
businesses are at risk as the limited resources available in
terms of sales activity and bank facilities are insufficient to
support all of the businesses operating in the various
trading sectors, where over capacity is the predominant
characteristic. The dawning realisation is that we have
reached a time of recalibration where there will be
casualties and only the strongest firms will survive and
prosper. The new era of tougher trading has posed
significant dilemmas for owners/managers who require
comprehensive understanding of their personal and
corporate financial positions.
Understandably the scale of the issues and the
competing nature of demands in terms of personal debts,
personal investments and business needs have resulted
in some paralysis. Emotional responses are distorting
reality with a resultant loss of clarity. The management
team is often too close to the business to bring objectivity
to the situation. In order to address difficulties facing the
company the stakeholders require an organised,
consistent and agreed approach to allow the company’s
problem areas, as distinct from the potentially conflicting
problems of the owner/managers, to be precisely defined
and systematically dealt with.
In these times of distress stakeholders are increasingly
looking to more fundamental turnaround solutions for
personal and corporate survival.
The Turnaround Process
The first step in the turnaround process can often lead
to replacement of the board of directors or replacement
of members of the senior executive team, where
confidence has been lost in them by their bankers and
shareholders. In other cases the shareholders recognise
the need for an objective assessment of the company’s
position, often seeking external expert advice to take
unpopular yet necessary steps for the firm’s survival.
Regardless of the options adopted the turnaround
assessment must involve a comprehensive review of the
firm’s position as opposed to a narrow approach solely
targeted at cost reduction.
The overcapacity in the market and the shortage of
credit places a greater emphasis in the assessment on
whether the business can have a future after remedial
action or whether the directors should pursue alternative
strategies such as putting the company up for sale or
placing it in liquidation.
B u s i n e s s Tu r n a r o u n d
S t r a t e g i e s
Brendan Waters take a look Business Turanround Strategies at a time
of recalibration in the economy.
21
Fi nance & Management Busi ness Turnaround Strategi es
Where the turnaround assessment suggests that the
company will survive and may prosper in the medium to
long term after remedial action, the following options in
addition to cost reduction must be considered:
• Reformulation of strategy
• Management team change or restructuring
• Retention of existing customers
• Revenue generation opportunities
• Working capital management and cash flow
• Utilisation of management information
Reformulation of Strategy
In preparing the turnaround plan, management must be
able to identify and protect the firm’s most profitable assets
in terms of products, services, teams, customers and
locations. This knowledge is vital in making key decisions and
recommendations in terms of prioritising investment or
rationalising parts of the business, regardless of the final
options which emerge from the assessment.
Management should take a strategic approach and
carefully examine which costs to cut as terminating the
incorrect expenditure could lead to the loss of customers or
the inability to obtain new customers. It should also
differentiate between revenue and profit. This knowledge will
allow the business to prioritise investment decisions and
rationalise the firm’s expenditure where necessary by ranking
each heading in order of business necessity.
The decision makers must identify those business activities
that do not have the potential to yield a positive result for the
company in the foreseeable future.
Management Team Change or
Restructuring
Businesses are now operating under very different
circumstances where demand no longer exceeds supply.
They must now generate sales rather than just fulfil orders.
This new scenario requires that the right people, with
appropriate skills and information, are making the key
decisions in a planned and disciplined manner. It is very
important that management is not afraid to make hard
decisions if certain areas of the business need to be
rationalised. The benefits of professional advice or the
appointment of a new manager, perhaps enticed from
another firm, should be considered.
Retention of Existing Customers
Management must recognise that their customers will also
be reviewing their operations. This could lead to a decrease
in the demand for the firm’s products/services or they could
be replaced completely by a cheaper alternative. At a
minimum it is vital that the firm’s products or services offer
value for money. In the current trading environment a
strategy must be in place to retain customers (particularly
good customers), to identify potential new products, services,
locations and clients and look at cross selling opportunities
within the company’s existing relationships.
Revenue Generation Opportunities
Firms operating in a particular industry should have a
detailed understanding of how the economy is affecting their
customers and competitors. Knowledge of changes in the
marketplace gives rise to potential new product/service
opportunities to existing customers or a new customer base.
Research into the firm’s core products should continue
despite the downturn -- acquiring the edge over competitors
with the launch of a new value for money product/service at
this time could revitalise the market and improve the firm’s
chances of retaining or growing its customer base. Informed
customers, convinced of the benefits of the firm’s offering,
are more likely to transfer from a struggling competitor.
Working Capital Management and Cash
Flow
Most companies have to date concentrated on stopping
the haemorrhaging of cash by eliminating unnecessary
expenditure. It is crucial that management continues to
maintain the cash flow of the company particularly at a time
when bank credit is tight. It must seek to release the funds
trapped in stock and debtors and look for further efficiencies
in the conversion of stock/work in progress into finished
goods and services.
The servicing of existing debt also continues to be a
significant cost for companies. It is important to continue to
plan the businesses finances carefully by working closely with
the company’s bank.
Utilisation of Management Information
All of the above can only happen if the key people have
the appropriate information upon which to base their
decisions. Management must ensure that the firm’s
management information systems and key performance
indicators are sufficient to allow the decision makers to
identify trends and be in a position to respond with timely
corrective action.
The Future
Businesses who want to be part of tomorrow’s herd must
now plan for two to three years of challenging times in the
knowledge that:
(1) The rules for funding have changed;
(2) The business will only have a future if it is in a
position to make sales and generate revenues;
(3) The business has the strong and talented
management team required to make the correct
decisions to lead the business through difficult times.
However, if the owners feel that the business cannot
achieve the required revenues they should explore ways to
retain the remaining value in the business by selling the
business or entering into joint ventures.
Brendan Waters is a Business Advisory Partner with
Mazars, one of Ireland's leading professional services firms.
The firm has over 25 years of experience in providing
business, accounting and consulting services to a range of
clients across professional service firms, corporate and
institutional markets
doc_820358022.pdf
Business Turnaround Strategies Brendan Waters take a look Business Turanround Strategies at a time of recalibration in the economy.
20
Fi nance & Management Busi ness Turnaround Strategi es
Since the beginning of the economic downturn
business people and investors have been looking
frantically at how the recession has impacted their net
worth and solvency. Their trading companies are
experiencing significantly reduced revenues at a time
when the business is built on a high cost base following
years of growth. On top of this they have seen a decrease
in the value of their properties and equity investments
funded by borrowings that are now greater than the value
of those investments. While some companies have
identified and implemented cost reduction strategies, this
is only the first step in securing their medium to long term
position.
The changed market conditions have significantly
damaged consumer confidence and overall consumption
in a variety of sectors. A lot of business owners in Ireland
today now see survival as their key goal until activity in the
economy picks up. This strategy of hope and waiting for
green shoots will not work if the company does not have
an inherently sound sales pipeline supported by a strong
business model, secure financial position and a focused
management team.
Trading in Ireland today can be compared to life in the
jungle where only the strongest animals will survive –
instinctively the animals know that the future of the herd
cannot be put at risk by seeking to protect the runt.
Wildlife documentaries show that when the herd is
attacked the predators always seek to pick off the weakest
members, either those on the fringes or those who have
become detached as the herd seeks food and sanctuary.
These documentaries demonstrate that if an animal is
to survive it must have sufficient energy to keep up with
the herd and sharp responses to react to dangers in the
environment.
Similarly, as regards the Irish economy, weaker
businesses are at risk as the limited resources available in
terms of sales activity and bank facilities are insufficient to
support all of the businesses operating in the various
trading sectors, where over capacity is the predominant
characteristic. The dawning realisation is that we have
reached a time of recalibration where there will be
casualties and only the strongest firms will survive and
prosper. The new era of tougher trading has posed
significant dilemmas for owners/managers who require
comprehensive understanding of their personal and
corporate financial positions.
Understandably the scale of the issues and the
competing nature of demands in terms of personal debts,
personal investments and business needs have resulted
in some paralysis. Emotional responses are distorting
reality with a resultant loss of clarity. The management
team is often too close to the business to bring objectivity
to the situation. In order to address difficulties facing the
company the stakeholders require an organised,
consistent and agreed approach to allow the company’s
problem areas, as distinct from the potentially conflicting
problems of the owner/managers, to be precisely defined
and systematically dealt with.
In these times of distress stakeholders are increasingly
looking to more fundamental turnaround solutions for
personal and corporate survival.
The Turnaround Process
The first step in the turnaround process can often lead
to replacement of the board of directors or replacement
of members of the senior executive team, where
confidence has been lost in them by their bankers and
shareholders. In other cases the shareholders recognise
the need for an objective assessment of the company’s
position, often seeking external expert advice to take
unpopular yet necessary steps for the firm’s survival.
Regardless of the options adopted the turnaround
assessment must involve a comprehensive review of the
firm’s position as opposed to a narrow approach solely
targeted at cost reduction.
The overcapacity in the market and the shortage of
credit places a greater emphasis in the assessment on
whether the business can have a future after remedial
action or whether the directors should pursue alternative
strategies such as putting the company up for sale or
placing it in liquidation.
B u s i n e s s Tu r n a r o u n d
S t r a t e g i e s
Brendan Waters take a look Business Turanround Strategies at a time
of recalibration in the economy.
21
Fi nance & Management Busi ness Turnaround Strategi es
Where the turnaround assessment suggests that the
company will survive and may prosper in the medium to
long term after remedial action, the following options in
addition to cost reduction must be considered:
• Reformulation of strategy
• Management team change or restructuring
• Retention of existing customers
• Revenue generation opportunities
• Working capital management and cash flow
• Utilisation of management information
Reformulation of Strategy
In preparing the turnaround plan, management must be
able to identify and protect the firm’s most profitable assets
in terms of products, services, teams, customers and
locations. This knowledge is vital in making key decisions and
recommendations in terms of prioritising investment or
rationalising parts of the business, regardless of the final
options which emerge from the assessment.
Management should take a strategic approach and
carefully examine which costs to cut as terminating the
incorrect expenditure could lead to the loss of customers or
the inability to obtain new customers. It should also
differentiate between revenue and profit. This knowledge will
allow the business to prioritise investment decisions and
rationalise the firm’s expenditure where necessary by ranking
each heading in order of business necessity.
The decision makers must identify those business activities
that do not have the potential to yield a positive result for the
company in the foreseeable future.
Management Team Change or
Restructuring
Businesses are now operating under very different
circumstances where demand no longer exceeds supply.
They must now generate sales rather than just fulfil orders.
This new scenario requires that the right people, with
appropriate skills and information, are making the key
decisions in a planned and disciplined manner. It is very
important that management is not afraid to make hard
decisions if certain areas of the business need to be
rationalised. The benefits of professional advice or the
appointment of a new manager, perhaps enticed from
another firm, should be considered.
Retention of Existing Customers
Management must recognise that their customers will also
be reviewing their operations. This could lead to a decrease
in the demand for the firm’s products/services or they could
be replaced completely by a cheaper alternative. At a
minimum it is vital that the firm’s products or services offer
value for money. In the current trading environment a
strategy must be in place to retain customers (particularly
good customers), to identify potential new products, services,
locations and clients and look at cross selling opportunities
within the company’s existing relationships.
Revenue Generation Opportunities
Firms operating in a particular industry should have a
detailed understanding of how the economy is affecting their
customers and competitors. Knowledge of changes in the
marketplace gives rise to potential new product/service
opportunities to existing customers or a new customer base.
Research into the firm’s core products should continue
despite the downturn -- acquiring the edge over competitors
with the launch of a new value for money product/service at
this time could revitalise the market and improve the firm’s
chances of retaining or growing its customer base. Informed
customers, convinced of the benefits of the firm’s offering,
are more likely to transfer from a struggling competitor.
Working Capital Management and Cash
Flow
Most companies have to date concentrated on stopping
the haemorrhaging of cash by eliminating unnecessary
expenditure. It is crucial that management continues to
maintain the cash flow of the company particularly at a time
when bank credit is tight. It must seek to release the funds
trapped in stock and debtors and look for further efficiencies
in the conversion of stock/work in progress into finished
goods and services.
The servicing of existing debt also continues to be a
significant cost for companies. It is important to continue to
plan the businesses finances carefully by working closely with
the company’s bank.
Utilisation of Management Information
All of the above can only happen if the key people have
the appropriate information upon which to base their
decisions. Management must ensure that the firm’s
management information systems and key performance
indicators are sufficient to allow the decision makers to
identify trends and be in a position to respond with timely
corrective action.
The Future
Businesses who want to be part of tomorrow’s herd must
now plan for two to three years of challenging times in the
knowledge that:
(1) The rules for funding have changed;
(2) The business will only have a future if it is in a
position to make sales and generate revenues;
(3) The business has the strong and talented
management team required to make the correct
decisions to lead the business through difficult times.
However, if the owners feel that the business cannot
achieve the required revenues they should explore ways to
retain the remaining value in the business by selling the
business or entering into joint ventures.
Brendan Waters is a Business Advisory Partner with
Mazars, one of Ireland's leading professional services firms.
The firm has over 25 years of experience in providing
business, accounting and consulting services to a range of
clients across professional service firms, corporate and
institutional markets
doc_820358022.pdf