Entrepreneurship and Financial Distress A Framework for Business Planning in a Turnaround

Description
This paper aims to make a connection between success and failure factors of turnaround processes and business planning.

PAPER G-Forum 2007 Aachen
Strategic planning and business planning



Entrepreneurship and Financial Distress
A Framework for Business Planning
in a Turnaround Situation

Jan Adriaanse
Leonie Lispet
1


This paper aims to make a connection between success and failure factors of
turnaround processes and business planning. Based on an extensive research project
it is argued that the chances of survival rise when reorganisations are worked out in
a more structured manner. Therefore a framework for turnaround planning is
presented providing entrepreneurs and their stakeholders with tools for more
structured approaches towards resolving financial distress.

1. Introduction

[…]“ Therefore, do not let our princes accuse fortune for the loss of their principalities
after so many years' possession, but rather their own sloth, because in quiet times they
never thought there could be a change (it is a common defect in man not to make any
provision in the calm against the tempest), and when afterwards the bad times came they
thought of flight and not of defending themselves, and they hoped that the people,
disgusted with the insolence of the conquerors, would recall them […]”
2
Niccolò Machiavelli, 1515

Although a positive relationship exists between written business plans and decreasing
chances of failure
3
, Dutch research into success and failure factors of corporate
turnarounds shows that little formal planning is carried out in company rescue practice.

1
Dr. Jan Adriaanse ([email protected]) is operational director of the Centre for Business
Studies, Faculty of Law, Universiteit Leiden (The Netherlands). He is engaged in the interdisciplinary field
of entrepreneurship and turnaround management. He is also associated to consultancy and investment firm
The WissemaGroup in The Hague in the practice of business restructuring and new business development
(www.wissemagroup.nl). Leonie Lispet MA ([email protected]) is a lecturer and researcher in the field
of entrepreneurship at Delft University of Technology (The Netherlands). She is also working as Project
Manager at the TU Delft Centre for Entrepreneurship.
2
See N. Machiavelli, The Prince, 1515, translated by W.K. Marriot 1908, www.constitution.org, p. 118.
See in the same sense D.B. Bibeault, Corporate Turnaround. How managers turn losers into winners!,
Mcgraw-Hill Book Company, New York, 1982 (reprint 1998), p. 26.
3
See S.C. Perry, ‘The relation between written business plans and the failure of small businesses in the
U.S.’, Journal of Small Business Management, 2001, p. 201-208.
1
As an example, in a survey
4
among specialised insolvency lawyers 71% of the
respondents confirmed that while asking for a moratorium on payments at a bankruptcy
court, a reorganisation plan indicating the possible viability of the company in the long-
term is practically never provided by company management (as it is not available).
5

Therefore this paper explores the practice of entrepreneurship in a turnaround context and
on the basis thereof it provides a framework for more structured turnaround planning.

A turnaround is defined by us as a reorganisation route which takes place outside the
statutory framework with the objective of restoring the health of a company in financial
difficulties within the same legal entity. In the turnaround, a plan to reorganise (business
plan) should be drawn up to reach the objective which has been set. This will ideally
consist of two processes:

— business restructuring;
— financial restructuring.
6

The underlying idea is that it is impossible and undesirable to carry through financial
restructuring without restructuring the business operations (which usually have led to the
deteriorated financial situation within the company). Solving problems should also
involve removing the causes thereof. The nature of the problems—as well as the moment
action is taken in the organisation—will be a decisive factor for the planned measures.

First the concept of turnarounds is further explored (§ 2), then the methodology used will
be described (§ 3). We carry on by showing results of the research project with regard to
found causes of corporate decline and measures taken to prevent insolvency (§ 4) as well
as success and failure factors in Dutch turnaround practice (§ 5). On the basis thereof § 6
details a framework for turnaround planning and § 7 describes the principles of (much
needed and accompanying) stakeholder management. In § 8 several concluding remarks
will be summarised.

2. Description of turnaround process

This section will detail the phenomenon of turnarounds on a more in-depth basis. First,
business restructuring (§ 2.1) will be examined; thereafter, financial restructuring will be
discussed (§ 2.2).

2.1 Business Restructuring

Particularly important questions when restructuring business operations are the
following: which concrete strategic, operational, and financial plans have been made to
become a viable company again; and what are the plans for the actual implementation

4
See § 3.
5
See J.A.A. Adriaanse, Restructuring in the Shadow of the Law. Informal Reorganisation in the
Netherlands, Kluwer, Deventer, 2005, p. 337.
6
See also O. Couwenberg, Resolving Financial Distress in the Netherlands, University of Groningen,
Groningen, 1997, p. 21.
2
thereof? The process is also aimed at a restoration of confidence in the company and its
management among interested parties.
7
Business restructuring can be defined as follows:
a comprehensive plan of which the aim is to restore the operational profitability of a
company in financial difficulties.
8
The main features of a restructuring process should
consist of the following phases (based on DiNapoli 1999): (i) stabilising, (ii) analysing,
(iii) repositioning and (iv) reinforcing.
9
These four phases are described below; in
practice however, the different phases (and actions to be taken) will frequently overlap.

Phase I. Stabilising

In the stabilising phase, the focal point is to identify and react to the critical problems
which require immediate action in order to stabilise the current situation. The emphasis in
this phase is foremost on increasing the cash flow. This involves actions aimed at
increasing the incoming—and reducing the outgoing—cash flow. In this way, the
required “breathing space” can be created to meet critical short-term financial
obligations. Possibilities of actions to be taken are: (non-exhaustive) reducing the current
expenses both in the field of costs and with regard to investments, selling off excessive
stock, as well as reducing the stock, quicker collection of receivables and/or reducing the
payment periods, selling excessive assets (asset stripping), as well as increasing (insofar
still possible) the (re)payment periods among existing financiers of the company.

Phase II. Analysing

In the second phase, it is necessary for the company to look at its prospects in the long
term. As such, drawing up a well-founded turnaround (business) plan is of vital
importance, particularly to restore confidence of the relevant interested parties (see more
detailed § 6 and § 7). The relevant interested parties in this phase include foremost the
financiers of the company, i.e., the providers of loan capital (for example, banks and
large suppliers) and of equity (for example, shareholders). When doing so, it is important
for the turnaround plan to adequately set forth the core activities of the company—
including the (potential) value which they can create. In addition, consideration must be
given to which specific products/services and customers can be retained (or must be
axed). The measures to be taken to restore profitability in the long term can be diverse
and will depend—as can be expected—upon the specific situation. Summarising, it can
be stated that the company must indicate in a turnaround plan which objectives it pursues
in both the short and the long term in order to halt the insolvency process and to
reorganise the company, as well as the manner in which the company is going to pursue

7
Sociology mostly considers confidence as the “lubricant” for interactions; it ensures that interactions run
more smoothly. See for instance Stewart Macaulay, ’Non-Contractual Relations in Business: A Preliminary
Study’, American Sociological Review, 1963, p. 55-67. In a more economic sense: business contexts are
influenced by two major institutional characteristics: the distribution of information among different market
players (stakeholders) and the presence of mechanisms/norms granting or punishing fair respectively unfair
behaviour.
8
D. DiNapoli & E. Fuhr, ‘Trouble Spotting: Assessing the Likelihood of a Turnaround’ in D. DiNapoli et
al., Workouts & Turnarounds II, Global Restructuring Strategies for the Next Century, Insights from the
Leading Authorities in the Field, John Wiley & Sons, New York, 1999, p. 1-20.
9
See DiNapoli et al. 1999, p. 1-20.
3
these objectives. It is important that the plans are realistic, particularly so because the
interested parties will take decisions on this basis. Financiers decide on the basis of the
plan whether or not they are prepared to maintain the credit facilities granted or to make
new funding
10
available in order to finance the reorganisation (financial restructuring; see
hereafter). Suppliers of products/services decide whether or not to continue to supply (on
credit). In addition, shareholders/investors will consider making or not making available
any required (risk-bearing) capital. This involves, for instance, the depositing of
(informal) capital and/or (subordinated) loans. In order to restore the aforementioned
confidence, it is often also necessary to recruit or consult persons such as interim-
managers, advisors and accountants who are specialised in carrying out turnaround
processes. After all, the management/interested parties relationship is most of the time
under pressure as a result of the deteriorated state of affairs, and the question is whether
or not the interested parties still have sufficient confidence in the abilities of the current
management to reorganise the company on their own.

Phase III. Repositioning

In the repositioning phase, the management—together with any consultants—will need to
initialise the reorganisation as outlined in the turnaround plan. This process is also called
the value recovery process. The company has hit heavy weather as value was reversed
and endangering the continuity; the process of value reversal is now stopped. It is
important that the established objectives are feasible and that management reports to the
interested parties in an open and timely manner. After all, the process of the intended
recovery of the company is also the process of the intention to restore confidence among
the interested parties of the company.

Phase IV. Reinforcing

In addition to initiating the reorganisation—during which the organisation tries to
regenerate positive cash flows from the business operations—often the company will also
need to be “reinforced”. This is understood to mean reinforcing in the field of (replacing
and/or enhancing current) management as well as in the company’s balance sheet
(improving debt-equity ratio). In addition, this can (also) be achieved through transferring
the company to another (healthy) company—as a result of which future payments can be
guaranteed. As stated before, it is often necessary to involve third parties in the
turnaround process, as it still remains to be seen whether the current management will be
able to independently complete this operation successfully. During the reinforcement
phase, the question emerges as to whether or not current management is able to
successfully run the company in the future and whether or not the existing organisation
and management structure fits within the “new” company. Changing the organisation and
management structure—including position changes or dismissal of certain key figures in
management—may be required. Situations can, of course, arise in which decisions on this
subject have already been taken in a previous stage; however, a key point is that—in
addition to the reorganisation of the business operations—the “strength” of the
organisation and management structure and the current management also needs to be

10
In this context, often called a “bridging loan”.
4
examined.

Reinforcing the balance sheet, as described in this phase, is interconnected
with financial restructuring. Financial restructuring will be described in the following
paragraph.

2.2. Financial Restructuring

Although the turnaround plan forms a basis for a successful rationalisation of the
company, some degree of financial restructuring will also often be necessary. The losses
from the past have—in most cases—disturbed the balance sheet ratios to such an extent
that the obligations towards the assets are excessive; as a result, (future) interest and
repayment obligations cannot be (or no longer have been) met. In addition, high
reorganisation costs are usually involved (for example, costs for redundancies
11
). The
company will not always be able to clear away the “burden” from the past with its own
current cash flows. Therefore, efforts from outside the company (shareholders/creditors)
must often be requested. Financial restructuring within the framework of a turnaround
can consequently be described as follows: forming part of the turnaround process in
which, on the one hand, the relevant creditors voluntarily commit to revised terms with
regard to the funding they made available (often called a “workout agreement”) and, on
the other, if so required, new funding is made available by providers of risk-avoiding
capital (debt) and/or risk-bearing capital (equity). Core of the measures within the
financial restructuring consists of deferment or remission of current financial obligations
as well as generating additional liquidity. The partial (or complete) takeover of a
company fits within the financial restructuring framework since the buying company will
usually (in part or in whole) act as guarantor for the performance of current obligations
and/or provide additional financial resources.

3. Methodology

This paper is based on an extensive research project and an additional literature search
which was conducted in the period 2003–2007, partly at the request of the Dutch
Ministry of Justice.
12
In The Netherlands—and outside—relatively little is known and
empirically recorded about turnaround processes (also called: informal reorganisations).
In particular this seems to stem from the relative silence in which these kind of
reorganisations often are carried out. The central question which was dealt with was the
identification of measures taken by company management and external stakeholders in
order to avoid the company in financial distress to enter a legal procedure (i.e.,
moratorium on payment and/or liquidation) as well as the attendant success factors and
bottlenecks casu quo failure factors. To illuminate this identification process:

11
In The Netherlands, ex-employees are often awarded redundancy payments in a redundancy package
engineered between the company and employers’ associations or through a court ruling issued with regard
to the redundancies. These payments are often based on the so-called “sub-district court formula” in which
the number of years of service and the employee’s age play a role.
12
The research has, among others, been published under the name of J.A.A. Adriaanse et al., Informele
reorganisatie in het perspectief van surseance van betaling, WSNP en faillissement, Boom Juridische
uitgevers, Den Haag, 2004, J.A.A. Adriaanse, Restructuring in the Shadow of the Law. Informal
Reorganisation in the Netherlands, Kluwer, Deventer, 2005 and J.A.A. Adriaanse, Turnaround
Management, Kluwer, Deventer, 2006.
5

(a) a literature review has been conducted;
(b) 35 case studies of financially distressed companies have been carried out among
four large Dutch banks (ABN AMRO, Fortis, Rabobank, ING Bank) and three
consultancy firms (KPMG, Resources Global Professionals, Zuidweg &
Partners);
(c) 23 specialists—mainly bankers and turnaround consultants—have been
interviewed, and
(d) 4 surveys have been conducted among the members of the Dutch trade association
for credit management (VVCM), a (non-profit) organisation which aims to provide
assistance and support for family businesses (Ondernemersklankbord), the
Federation of Dutch Insolvency Lawyers (INSOLAD), and a Dutch Federation of
Independent Accounting Firms (SRA), in that order.

The surveys yielded responses of 30%, 82%, 21%, and 16% respectively.
13
A total
number of 465 questionnaires were completed and returned. The companies included in
the case study research (b) were mainly so-called Medium-sized and Large-scale
businesses (60% of the companies realised annual sales between 1-100 million euros, of
which 40% realised a turnover larger than 10 million euros) within the industrial and
business services sectors (37% respectively 43%). The 35 companies examined were
studied
14
by means of datasheets and analysed using the following search structure:
history of the company, cause of the problems and course of the insolvency process,
proposed workout agreement and/or reorganisation plan, implementation of proposed
measures, as well as bottlenecks arising during the implementation of the reorganisation.
The studied material consisted largely of discussion reports and correspondence between
the interested parties involved, as well as annual reports, study reports, quick-scans and
internal memos. It was decided not to interview those involved about the progress of the
process, in order to avoid qualitative and/or subjective opinions as much as possible. A
total of 20 successful and 15 unsuccessful turnaround cases have been examined.
Successful turnarounds were defined as companies that regained viability following a
restructuring process, unsuccessful turnarounds as companies that eventually ended up in
bankruptcy. The results of the case study research were compared to the outcomes of the
interviews and surveys. On the basis thereof the success and failures of (Dutch)
turnaround practice were defined. Specifically for this paper, the overall research results
have been compared to largely cited international research by (among others): Argenti
(1976), Bibeault (1982), Slatter & Lovett (1999), as well as DiNapoli et al. (1991/1999),
Zimmerman (1991) and Schmeisser & Eichhorn (2006).
15
This particularly resulted in

13
Non-response is a known problem with postal surveys. Since all surveys are processed anonymously, no
details are known about those who have not responded.
14
During the study it proved to be impossible to find all required information in the dossiers. One of the
causes concerns the moment at which the bank/advisor becomes involved in the company, as well as the
specific instructions it/he has been given in that respect.
15
See J. Argenti, Corporate Collapse: The Causes and Symptoms, McGraw-Hill, London, 1976, Bibeault
1982, S. Slatter & D. Lovett, Corporate Turnaround: Managing Companies in Distress, Penguin Books,
London, 1999, D. DiNapoli et al., Workouts & Turnarounds: The Handbook of Restructuring and Investing
in Distressed Companies, Business One Irwin, Homewood, 1991, DiNapoli et al. 1999, F.M. Zimmerman,
The Turnaround Experience: Real-world Lessons in Revitalizing Corporations, McGraw-Hill, New York,
6
the framework to be presented in § 6 and § 7. The evidence from the research project will
be presented in the following § 4 and § 5.

4. Causes of decline and measures taken

First, the most important causes of corporate decline will be shown (§ 4.1). Thereafter,
the most popular (business and financial restructuring) measures within Dutch turnaround
processes will be discussed (§ 4.2).

4.1 Causes of corporate decline

Regarding the causes of financial difficulties, it can be concluded that the problems
mainly relate to poor management—i.e. inadequate reaction of management on both
internal weaknesses and strengths of the company, even as external threats and
opportunities—and excessive cost structures (fixed and variable costs), as well as the
presence of inadequate management information systems (MIS) within the company (as a
result of which important early warning signals of imminent decline are missed by
management). The results, particularly those regarding poor management correspond to
foreign studies by, among others, the Association of Business Recovery Professionals
(R3) in the United Kingdom, the aforementioned literature, as well as the European
Federation of Accountants (FEE); the latter also identifies a dire need for adequate
management of the company on the basis of financial information, and this confirms the
identified causes in the field of (poor) management information.
16
The popular beliefs to
the contrary notwithstanding, economic circumstances are often not the (major) cause of
the problem, at least in The Netherlands. It frequently seems to be an excuse rather than a
real root cause.

4.2 Turnaround measures

With regard to business restructuring, it can be concluded that appointing specialised
turnaround consultants, taking measures to improve the (operational) efficiency of the
company, and improving the management information system are some of the most
important recovery measures. This is in line with the causes identified above. Financial
restructuring is aimed mainly at deferring repayments and proposing workout agreements
with remission. In addition, companies often look for an injection of risk-bearing capital
in order to improve the balance-sheet ratios and to generate additional liquidity.
Furthermore, during a turnaround route Dutch banks are often prepared to provide
additional risk-avoiding capital (debt) in order to improve the chances of success. The
results with regard to business (and financial) restructuring also correspond with the

1991 and W. Schmeisser & R. Eichhorn, Turnaround and Management: The Bank as Partner and Affected
Creditor of Corporate Clients in Situations of Terminal Decline and Potential Business Insolvency, Rainer
Hampp Verlag, München und Mering, 2006.
16
See Avoiding Business Failure, A Guide for SMEs, European Federation of Accountants, 2004, p. 7 ff.
available at www.fee.be, 9th Survey of Business Recovery in the UK , 2000, p. 13-21 available at
www.r3.org.uk and the aforementioned research in footnote 15 for more supportive evidence in this
respect, see also H.A. Davis & W.W. Sihler, Financial Turnarounds: Preserving Enterprise Value,
Prentice Hall PTR, Upper Saddle River, NJ, 2002, p. 27 ff.
7
results of foreign studies. For instance, the study by R3 showed that cost reduction, debt
restructuring, raising new equity, and negotiating with banks, as well as improved
financial controls and a change of management—including the appointment of
consultants—are measures frequently taken in British turnaround situations. A study by
Franks and Sussman is also in line with this.
17
They concluded, for instance, that
management changes, asset sales, new finance and guarantees given by management are
some of the popular measures. They also conclude that these measures generally affect
the willingness of banks to help out the company in a positive manner. It is remarkable
however that the factors regarding adjustments of the company’s strategy and marketing
tactics have only been identified to a (relatively) minor extent. This is all the more
remarkable since the poor state of affairs is often caused by lack of insight—as a result of
poor management—into the market and the existing (and potential) needs of (current and
potential) clients. This conclusion is also in conformity with for instance the studies by
R3 and Franks and Sussman.
18
Moreover, none of the 35 dossiers studied contained well
documented turnaround business plans nor showed a structured approach towards the
turnaround process (and the previously mentioned four phases).

5. Success and failure factors in turnaround practice

“[…] The buck stops with management, or the bucks stop altogether […]”
19
Dominic DiNapoli, 1999

On the basis of the case studies of successful reorganisations, an examination was made
of the factors that determine the success of a rescue operation. They are listed below:

— active attitude by management and shareholders with regard to the turnaround;
— involvement of important interested parties (financiers) in the reorganisation
process;
— adequate and speedy reorganisation of the business operations (preferably with
the help of turnaround consultants);
— transparency (towards financiers) with regard to the financial situation and the
intended turnaround measures;
20

— injection of risk-bearing capital (equity), (e.g., via a takeover).

It appears that turnarounds are especially successful when the company is able to
reorganise its business operations quickly and adequately and, thereby, to restore
profitability. However, this process must often go hand-in-hand with the introduction of
additional risk-bearing capital (as noted above, possibly by way of a takeover). In this
way, a foundation can be laid for the future since this positively restores the balance-
sheet ratios (relation between equity/debt). Involved creditors are generally prepared to

17
See J. Franks & O. Sussman, The Cycle of Corporate Distress, Rescue and Dissolution: A Study of Small
and Medium Size UK Companies, 2000, available at www.insolvency.gov.uk.
18
See Survey R3 2000, p. 21 and Franks & Sussman 2000, p. 2.
19
See DiNapoli et al. 1991, p. 12.
20
See also The Ostrich’s Guide to Business Survival, R3, 2002 available at www.r3.org.uk which confirms
this fact for the United Kingdom, and Slatter & Lovett 1999, p. 180 ff.
8
cooperate within a turnaround, provided that the focal point (in first instance) is the
deferment—rather than the remission—of payments (repayments). A good relationship
between the company and its primary stakeholders (usually, banks and/or primary
suppliers/vendors) appears to be vital. Turnaround routes only have a chance of success
when these interested parties can be convinced of the future viability of the company and
the abilities of management. A transparent approach to the problems—often with the help
of specialised advisors in the field of business restructuring, in combination with realistic
prognostications—are important in this respect. The case studies indicate, for example,
that Dutch banks are virtually always prepared to continue financing (not to withdraw
credit or levy execution) provided these conditions mentioned earlier are met, even
though the actions taken often lack an integrative turnaround approach.

By taking a closer look at bottlenecks in practice, interesting information can be found
concerning decisive failure factors of turnarounds. In addition, supportive evidence can
(most probably) be discovered as regards the defined success factors. Therefore, practical
bottlenecks—specifically found in the unsuccessful turnarounds—will be detailed below.

In the research sample, the main bottlenecks appeared to be for the most part in the field
of potential investors/takeover candidates who pull out at a late stage—frequently
following lengthy, yet unsuccessful, negotiations as well as due diligence research—and
an insufficient supply of information from the company to its stakeholders during and
about the progress of the turnaround process. Other major bottlenecks have been found in
relation thereto, indicating an (impending) breach of trust between the company and its
creditors. Striking examples are: financial results which structurally deviate from
prognostications, management failing to observe (restructuring) agreements (with
creditors) and, more generally, the (imminent) absence among the creditors of confidence
in management and/or viability of the company. It would further appear that strategic and
operational reorganisation measures often have insufficient effect so that a loss-making
situation continues to persist. In addition, it has been frequently noted that management
has ultimately proven not to be up to the task; as a result, the turnaround has failed.
Moreover and once again (see § 4.2), the studied dossiers of failed turnarounds neither
contained well documented turnaround business plans nor showed a structured approach
towards the turnaround process and the aforementioned four phases. The failure factors
which have been discovered in the course of the research can therefore be summed up as
follows:

— management and the shareholders have a passive attitude towards the turnaround;
— (as a result) insufficient and unsystematic strategic, operational and financial
measures are taken;
— the company is unable to provide sufficient insight into the actual financial
situation and prospects;
— the company is unable to find risk-bearing capital (e.g., in the form of a takeover)
(in time).

It is striking to see that the failure factors are in fact opposite and, consequently,
supportive to the success factors as found in the group of successful turnarounds.
9
Furthermore, the failure factors with regard to reorganisations tend to stem from the
execution rather than the process itself; the behaviour casu quo the approach of
management regarding the problems is foremost important both in successful and
unsuccessful turnaround routes.

As indicated above, in the case studies but also in the surveys and interviews no
indications could be found
21
of structured patterns or common standard procedures of
turnaround execution. Surprisingly, it therefore seems that the business environment—at
least in the Netherlands—lacks a well thought framework or tool on how to plan and
execute a turnaround process. As the turnaround failure factors typically seem to stem
from this fact there must be—or at least, there should be—an urgent need for a more
systematic approach to turnaround processes. Insufficient concrete measures and lack of
information, as well as the impossibility of finding additional finance are in fact severe
symptoms of the inability to convince stakeholders such as customers, investors, banks,
suppliers/vendors to be (or keep on being) engaged with the company. Yet, in the
successful routes—and for us this is a definitive confirmation—at least the most common
bottlenecks can also be traced back to these factors (in those cases luckily not leading to
bankruptcy).
22
We therefore provide a framework for turnaround planning and execution
based on (mostly) anecdotic ideas in the literature and aiming to take away the failure
factors/bottlenecks as described above. To put it in other words, we believe the research
results importantly underline the ideas in existing turnaround literature, and vice versa.
First the concept of turnaround planning is presented (§ 6), then stakeholder management
as such is presented (§ 7).

6. Turnaround planning

A turnaround plan is described by us as follows.

An integrated business plan for an organisation
23
in financial difficulties that serves as a
fundament for a rescue operation aiming to restore the long–term viability. The plan
consists of a description of the current situation, as well as a detailed plan of attack—
including time scheme and prognostications—with regard to operational and financial
measures to be taken, on the basis of an in-depth analysis and review of the current vision
and strategy. It is a written plan and as a result thereof serves as an important means in
the communication and negotiating process with external stakeholders, especially
financiers.

The turnaround plan needs to be formulated in the so-called analysing phase as described
before (§ 2).

As was evidenced in the research project, in practice insufficient attention is often being
paid to performing and writing down diagnostic analysis in a consequent turnaround plan,

21
See Adriaanse 2005, p. 199 ff.
22
See e.g. Adriaanse 2005, p. 53.
23
Although in this paper we focus on companies the principles of turnaround management can and should
also apply for non-profit organisations and government agencies.
10
with all kinds of bottlenecks as a result. The most heard reasons by managers for not
doing so can be summarised as follows: taking too much time, too unpredictable but also
too dangerous. The latter one meaning that describing the deplored situation also means
proving—for instance to bankers—that the situation is in fact lamentable. Free
ammunition is thus provided to financiers for withdrawing credit lines immediately or
take other disciplinary measures towards the company. This way of thinking however
sounds and is in fact naïve. By thinking of the possibilities for a turnaround in a
structured manner and by writing a turnaround plan a very powerful means is created to
attack and solve the risen problems in a systematic and methodical way and thus as a
result in fact restoring the confidence of stakeholders instead of further deteriorating their
trust.
24
Therefore it is a crucial instrument to demonstrate the (potential) long-term
viability. On the other hand it also assists in establishing the possible idea of the company
not being able to become healthy again as result of which the liquidation casu quo
bankruptcy process can be started sooner, preventing more social and economic value to
be destroyed.

The main reasons for writing down a turnaround plan can be summoned in the following
terms: focus, compass, performance measurement, conviction and giving account
(derived from Slatter & Lovett 1999).
25


? Focus. By writing down a structured plan a clear picture is being drawn for the
responsible managers/entrepreneurs of the steps that need to be taken. Writing structures
the thoughts and as a result the appropriate direction will be outlined faster and better.
Developing a plan methodically forces management to create a company vision, to
formulate a long-term strategy and to seriously think about competitors and customers, as
well as product-assortment, qualities of management and the relationships with suppliers
and financiers. In that sense it functions as a catalyst for the change process and confronts
management with fundamental questions like ‘who are we, what do we do, what should
we do and how to get there where we should be?’

? Compass. Following the process of vision development and strategy formulation,
resulting in a clear(er) picture of the long-term goals, the turnaround plan starts serving as
a compass for the company casu quo entrepreneur to follow. As the financial pressure can
easily lead to loosing track of the long-term focus due to day-to-day problems the
turnaround plan provides concrete tasks, as well as a more conceptual framework to refer
to.

? Performance measurement. In the plan detailed quantitative and qualitative goals as
well as operational measures are formulated. As a result the staff involved exactly knows
the road to be followed and if necessary it also provides fast iterative insight for

24
See among others G.W. Newton, Corporate Bankruptcy. Tools, Strategies, and Alternatives, John Wiley
& Sons, Hoboken, 2003, p. 11, H.F. Owsley & P.S. Kaufman, Distressed Investment Banking. To the Abyss
and Back, Beard Books, Washington D.C., 2005, p. 38 and R.S. Sloma, The Turnaround Manager’s
Handbook, Beard Books, Washington D.C., 2000, p. 141 and 189, as well as R.B. Carter & H. van Auken,
‘Small Firm Bankruptcy’, Journal of Small Business Management, 2006, p. 509.
25
See among others Slatter & Lovett 1999, p. 193-213.
11
redirection. By formulating solid parameters—for instance with regard to (segmented)
sales, gross and net margins, solvency, return on equity and liquidity—it is fairly easy to
measure whether the actions taken are really helpful in the improvement process of
financial performance. If the progression of certain parameters lags behind, the causes
thereof within the company can be traced back fast and precise.

? Conviction and giving account. Specifically with regard to the failure factors of
turnarounds it was frequently evidenced that a well-documented strategy was missing.
Therefore it could not serve as a means par excellence to communicate with the
financiers of the company—which is a major opportunity missed. A plan—naturally
accompanied by oral explanations/meetings and on a confidential basis—can bring
necessary objectivity in a turbulent situation as tasks and responsibilities are written
down. It is also important hereby to notice that external parties—for instance bankers
working for Intensive Care Departments
26
or regular credit managers—also need (parts
of) documented plans to convince and give account to people casu quo institutions in
their own organisations about (planned) decisions to stay or not to stay aboard the
turnaround process of the company. After all, one should remember that this specific
decision is often interlinked to an ex ante developed general policy within banks and
companies with regard to accounts receivable risk management, as well as internal
decision structures via certain layers of control. Deviations if necessary from often
somewhat rigid internal procedures then need to be managed extremely well for
example—as an important one—by using the turnaround plan as a steering mechanism
with regard to the risk assessment. Hence, the turnaround plan is also an important
document in so-called stakeholder management (see further § 7).

In our opinion, a turnaround plan consists of the following 10 elements together serving
as a framework for turnaround planning.

Framework for business planning in turnaround situation
1 Company profile
2 Analysis of external environment
3 Turnaround strategy
4 Strategic intent
5 Operational analysis
6 Operational action plan
7 Financial prognostications
8 Time scheme
9 Risk analysis

26
The moment a company is in financial difficulties or is in danger of being so, it is often placed under a
so-called Intensive Care Department (also called a Debt Recovery unit, Workout department
or Rescue unit). Such a department, set up at most Dutch banks at the end of the seventies, is responsible
for handling so-called problem loans (also called: nonperforming loans). Here the bank focuses
on securing provided credit facilities, but it actually also concerns the support/monitoring of the company
during restructuring and revitalising. For more information see among others Adriaanse 2005, p. 27-29,
Schmeisser & Eichhorn 2006, p. 16 ff., R. Elsas & J.P. Krahnen, ‘Universal Banks and Relationships with
Firms’, CFS Working Paper, 2003, S.G. Moyer, Distressed Debt Analysis: Strategies for Speculative
Investors, J. Ross Publishing, Boca Raton, p. 59 ff. and D. Barton et al., Dangerous Markets. Managing in
Financial Crises, John Wiley & Sons, Hoboken, 2003, p. 196.
12
10 Summary

The idea of this framework is based on the success factors of turnarounds discussed
earlier on, as well as the frequently found causes of financial distress and bottlenecks
casu quo failure factors in turnaround practice, to be summarised here as: lack of vision
and strategy, as well as not enough steering on financial information in the process of
value recovery, insufficiently severe reorganisation measures, lacking attention to market
developments, unsatisfactory supply of information to external stakeholders and
inadequate preciseness with regard to operational goals to be achieved. Next to that, the
framework is based on general elements and criteria frequently found in turnaround
literature (see for instance Slatter & Lovett 1999; see also the footnote at the bottom of
this page for more specific references).
27


Below each element of the turnaround framework is described, together they should serve
as a reference guide for company management and its stakeholders in times of financial
distress. It should be noted however that the process of value recovery in itself is an
iterative process. Due to time pressure and uncertainty, as well as often limited resources
and constantly changing circumstances, the outcome will never be exactly what was
expected (as is also often the case with regard to start-up business plans
28
). Changing the
plan and adjusting to new circumstances therefore is a substantial part of the recovery
process. The following section should be read bearing this in mind. Besides that, it is
important as well to notice that the size of a company importantly influences the amount
of content and detail of the various elements. Finally, for the development and execution
of the plan most of the time it is also necessary to bring in external turnaround expertise,
as was also noted earlier.
29


(1) Company profile

In the first part of the turnaround plan a description of the company needs to be
presented. The (external) reader must get a good impression of the history of the
company, as well as recent developments. Also a clear picture must be drawn of the
goods and/or services the company tries to earn money with. In short, the business model
must be sharply outlined. A description of the management structure—including key
personnel—must also be provided, as well as the current strategy (which has lead to the

27
We (for the most part) follow the categorical approaches of Slatter & Lovett 1999, p. 194-195, Owsley &
Kaufman 2005, p. 35-55, M. Blatz et al., Corporate Restructuring. Finance in Times of Crisis, Springer,
Berlin/Heidelberg, 2006, p. 7 and 70-71, C. Pate & H. Platt, The Phoenix Effect, 9 revitalizing strategies no
business can do without, John Wiley & Sons, New York, 2002, p. 11-16, Davis & Sihler, p. 45-67, S.
Chatterji & P. Hedges, Loan workouts and debt for equity swaps, A framework for successful corporate
rescues, John Wiley & Sons, New York, 2001, p. 119-133, R.S. Paul & K. Coghlan, ‘Lender services: let
the lender beware!’ in: DiNapoli et al. 1999, p. 192-195, DiNapoli et al. 1991, p. 61 ff., Zimmerman 1991,
p. 208 ff., E.F. Finkin, Successful Corporate Turnarounds, Praeger Publishers, New York, 1988, p. 171 ff.,
Schmeisser & Eichhorn 2006, p. 80 ff. and H. Platt, Principles of Corporate Renewal, The University of
Michigan Press, Michigan, 2001, p. 265 ff.
28
See e.g. Sahlam et al., The Entrepreneurial Venture, Harvard Business School Press, Boston, 1999, p.
170 ff.
29
This proves to be a decisive success factor for company rescue operations. See e.g. Adriaanse 2005, p. 66
and DiNapoli et al. 1999, p. 13-14.
13
deteriorated state of affairs). By doing so, the causes of decline will undoubtedly become
clear and with that the main reasons for the change of strategy to be proposed. The
description of the causes beholds an important reference point for the eventual acceptance
of the measures to be taken.

(2) Analysis of external environment

As a result of a process of strategy formulation
30
that needs to take place in the analysing
phase this paragraph details necessary information on current and future developments in
the market(s) the company operates in. A description of the industry sector, as well as the
competitive forces therein with regard to substitute products, bargaining power of
customers and suppliers, new (possible) market entrants and fierceness of current
competition must be given in this section (see also Porter 1979
31
). Next to that, a detailed
depiction must be provided on the most important (groups of) customers, as well as the
most important suppliers of the company (including the current status). Also, more
general technological and macro-economical developments need to be taken into
account—insofar relevant for the company’s imminent future. Most important concerning
this section is to find out and show that the market the company is operating in, or will be
operating in, is one with promising perspectives.

(3) Turnaround strategy

This section should contain an in-depth account on the sales growth to be strived for, as
well as the retrenchments to be achieved. By doing this the mismatch between sales and
costs (cash in versus cash out) will be restored and with that the profit generating power
(value creation) will be renewed. The following subjects should be described. First of all
the most important products and services for the current and long-term future—including
the reasons for the specific choices. This should be based on the found causes of decline
as described earlier (see Company profile). Next, a detailed reasoning must be provided
on the unique features of the company (to be established) compared to its competitors. In
the execution of the turnaround process of the company this character—its unique selling
points—will be the centre of attention. Also, precise answers must be found for questions
like ‘what are the specific needs the products and/or services fulfil for its customers?’ and
‘in what way should they be positioned in the market?’. In addition, potential (groups of)
customers should be summed up, of course again with an explanation of the choices
made. With regard to the retrenchment policy in this section it is shown how the company
will try to pursue the goals set. Then it is also important to state in what specific way the
most important potential cutbacks will be realised. As a result these get priority in the
concrete action plans based on this analysis.


30
See among others M.E. Porter., ‘What is strategy?’, Harvard Business Review, 1996, p. 61-68, J.G.
Wissema, De kunst van strategisch ondernemerschap, Stenfert Kroese, Groningen/Houten, 2001, p. 29, G.
Johnson et al., Exploring Corporate Strategy, Pearson Education/FT Prentice Hall, Essex, 2005, p. 6-34
and 523-526, as well as R.G. Dyson & F.A. O’Brien, Strategic Development: methods and models, John
Wiley & Sons, Chichester, 1998, p. 39.
31
M.E. Porter, ‘How competitive forces shape strategy’, Harvard Business Review, 1979, p. 137-145.
14


(4) Strategic intent

Following the detailed analysis of the future strategy in this section the so-called strategic
intent should be presented (which is a logical result of the preceding examination). With
that the intention of the company is detailed regarding aspects as in what way the
company wants to be renowned for in the market (in a positive way), how management
would like the customers to talk about the company, what the new internal culture will
be, as well as the vision of management on (the development of) technology, possible
alliances with other companies, human resource management and in general the best way
for the company to be managed (including a description of the new organisational chart
and positions of key personnel). With this declaration of intent it is made obvious—both
for internal and external stakeholders—that there is a wind of change about to take place
within the company and with that the new entrepreneurial mission is in fact established.

(5) Operational analysis

In this paragraph the strengths and weaknesses of the company ought to be detailed—
based on a preceding SWOT-assessment.
32
Bearing the strategic intent in mind important
issues are formulated regarding the strong points of the company to be further exploited
and the weak spots to be taken away. If ignored or considered insufficiently, the strategic
goals can and will not be achieved as necessary competencies will simply not be present
when needed. For every vital part of the company an operational analysis should
therefore take place in this way in order to have the operational action plan—to be
described next—built up as a logical result hereof.

(6) Operational action plan

In this section the formulated strategic, operational and financial measures to be taken are
being operationalised. A detailed plan of attack is developed containing the proposed
measures in small, clear and quantifiable steps, segmented to the various parts of the
organisation in which specific actions should be taken. All of which is to be detailed in
concrete hands-on to-do lists (most preferably presented in the appendix of the plan).
Envisioned effects of every small step should also be included. Summarising, the purpose
of this operational action plan is to provide the organisation with specific tasks, as well as
a detailed reference guide for monitoring the progress of the turnaround process.

(7) Financial prognostications

With respect to the financial objectives, in this paragraph of the turnaround plan a
financial calculation of the expected effects of the strategic and operational actions is
given. This concerns balance-sheet projections, result forecasts (profit and loss accounts)
and forecasts of cash flow overviews (cash planning). Depending on the situation one can
choose to do this on a weekly, monthly or quarterly basis. The state of health of the

32
See among others Johnson et al. 2005, p. 102.
15
company, as well as the availability of financial information is leading in this assessment.
Financial data—which was particularly concluded in the failure factors—are crucial in
the convalescence process. The operational actions will therefore in first instance often be
mainly concerned with the rearrangement of the (financial) management information
systems.

It is pivotal that the assumptions made are verifiable, in the sense that a detailed and
verifiable relation ought to be demonstrated between the strategic and operational
measures/actions on the one hand and financial forecasts on the other. In short, section
(7) deals with the question in which way it can be demonstrated that profit/liquidity will
rise as a result of the measures/actions to be taken. As there is not just one right answer, it
is about the assumptions that seem to be realistic to all parties/stakeholders involved. A
so called hockey stick prognosis, wherein the loss is almost immediately bent into an
explosive profit increase—like the shape of the item—is not at all in place. The
possibility that this forecast does not come true is very high; a further decline of
confidence of financiers/stakeholders will be the result, as well as the chance on failure.

An important point of attention in the light of this part of the turnaround plans concerns
cash planning. Because of the urgent lack of cash—or the threat of it—the generation and
clever use of the (scarce) liquidities is a main activity of the turnaround.
33
Getting a clear
picture of the (expected) future cash flows is determining for the course of the process
and the aimed convalescence of confidence of the financiers. The company must map
receipt and expenditure clearly. In this way insight in the financial results of the
turnaround strategy arises and adaptations can be made timely and possible deviations
can be communicated. Credit suppliers will gladly want to have disposal of this
information—also called rolling forecasts. However, the main point is that
management/the entrepreneur himself will think more in terms of cash and will therefore
implement methods—including so-called what-if scenarios (scenario analysis)—and
conducts the company from this starting point (also in the long run). Moreover these
methods help pre-eminently in analysing the expected impact of strategic and operational
plans when they are converted into concrete actions. Cash planning thus is actually one of
the most important steering instruments in a turnaround situation.

By translating the turnaround strategy in financial forecasts in an above manner an
accurate picture of the need for financial restructuring is painted (see also § 2.2). Should
the need for this kind of restructuring be present the ideas to this end will be unfolded in
this section as well. Concrete proposals will be indicated, as well as the argumentation for
them—related to the operational measures to be taken—and the action plan for the
approach of the required parties. It is important to keep in mind that the reader of the plan
might be a possible addressee for a workout agreement. This party often only wants to
negotiate when the requested logically results from the reflected analysis and plans.
34



33
See also Slatter & Lovett 1999, p. 130 ff.
34
To illustrate, in the research project among credit managers (see § 3) about 78% of the respondents
indicated in general to be very poorly informed about the current state of affairs at the company in financial
distress. See Adriaanse 2005, p. 314.
16
(8) Time scheme

Time is a vital factor in a turnaround, as was also seen at the failure factors. Especially
for the financiers it will be crucial to have an indication of the pace in which the
improvements are going to be carried out, as well as the impact of the changes—in
positive and financial sense. Convalescence of faith will mainly be time dependent. The
turnaround plan must thus also contain a detailed timetable mentioning the mile stones
which are pursued, a timetable and a preference of the sequence of the steps to take—
within different units and layers of the company (if relevant)—as well as a (proposal for
a) timetable for reporting about the progress of the turnaround to the external parties
involved.

(9) Risk analysis

A turnaround plan is based on the hypothesis that the company (eventually) will be able
the make the desired positive turn. However, this forecast is based on expectations and
circumstances of which it is still the question whether these will be realised; there is a
risk that the strategic and financial forecasts will not come true. This can have negative
consequences for the external parties involved—in particular the financiers. Even more,
their current position in such a scenario possibly is better than the future position. A
natural inclination thus would be especially not to emphasise this aspect—which was in
fact found regularly at the examined failed cases as well—however, in the back of the
heads of the people involved it will always be an issue. It is therefore wise to lay the
cards on the table and to indicate as well what the possible downside of the turnaround
strategy is, and then describe a more negative (worst case) and a more positive (best
case) scenario with regard to the expected turnaround scenario. A so-called risk-reward
ratio can reinforce the risk analysis even further.
35
This concerns a (general) calculation
of the maximum loss for a financier when participating in the turnaround (should
bankruptcy still follow) versus the immediate withdrawal of the financier (with an instant
bankruptcy following in which the chance of incomplete payment is fairly present)
against the potential up-side which is expected when the turnaround succeeds (resulting
in higher repayments than in the case of bankruptcy). By outlining a realistic and
financial transparent picture the confidence on the one hand will increase, and the risk
assessment for the financier on the other hand will become more objective and clear. In
this way the chance on participation in the turnaround will paradoxically increase because
the risks simply become more transparent and as a result more manageable.
36


(10) Summary

It is not unimportant to include a summary of the turnaround strategy. This should be
done from the idea that not each external person concerned will (want to) read the
complete plan. It is thus of interest that all highlights are mentioned and that with the
reader a positive impression of the feasibility of the plan arises. Important aspects in the
summary concern: the aim of the turnaround, a short description of the company—at least

35
See also Chatterji & Hedges 2001, p. 143-144.
36
See in the same sense Adriaanse 2005, p. 82-84.
17
with regard to the relevant history and place in the market—peaks of the financial
forecasts, as well as a concise description of the proposed strategic, operational and
financial measures which underpin the positive though realistic expectations. Next to that
the (possible) additional financing requirements should be presented, accompanied by an
argumentation for the choices made in addressing certain stakeholders and the concrete
financing question posed to them.
37

By formulating the turnaround plan in the above manner and by dealing with the
turnaround process as such, complete justice is done to the most important success factors
of reorganisation routes—vice-versa the failure factors. It hands company management a
powerful instrument to demonstrate persuadingly the viability of the venture and to save
it from imminent down-fall.

7. Stakeholder management

Several times already the aspect of confidence has been mentioned. Value recovery—or
more widely, saving companies in financial distress—is mainly dependent on the
question whether relevant interested parties have, both internally and externally,
sufficient confidence in the viability of the company, as well as in management
responsible. Developing a turnaround plan, based on a vision and a process of strategy
formulation, is one of the key resources to build on this convalescence of trust, moreover
stakeholders must also be regularly contacted. Information and transparency are in that
sense the oxygen for the turnaround. This stems from the (logical) fact that when
important customers threaten to leave, suppliers refuse to supply (or only under very tight
conditions), credit suppliers threaten with denunciation of financing agreements or are
not prepared to supply additional financing, and/or key persons in the organisation
(threaten with) leave, the foundation of the company has in fact disappeared. Being in
contact however also means intervention. Consultation with financiers, suppliers,
customers and other interested parties means that the directors of the company need to
take up a vulnerable position and that criticism, insight and wishes of external parties
effectively must be considered. In practice this is not always easy for entrepreneurs and
their consultants, however it must not be forgotten that creditors are de facto co-owners
of the company in a turnaround situation—at least from an economic point of view—and
that they are therefore in a position where it also (and often in fact) depends on them
whether the venture remains its existence. The call for (more) control and insight into the
turnaround can be explained extremely well from this viewpoint and thus ought to be
taken seriously at all times. Besides that, it should also play a role that many external
interested parties have considerable knowledge concerning the market and—in particular
at banks—also concerning the question how “hard times” should be handled. In that
sense intervention from external parties can also be seen as a positive thing. Moreover,
none of the stakeholders involved will primarily want to force a bankruptcy. This call
will only arise when viability, at least the perception of it, is no longer present. Again,
looking back at the failure factors it is important for entrepreneurs to realise that taking
the concerns of creditors seriously—of which nature they might be—ultimately is
incredibly important for the question whether cooperation in the rescue operation is

37
See also Slatter & Lovett 1999, p. 194.
18
granted. Recent research of Couwenberg & De Jong, as well as of Van Amsterdam
explicitly confirms this proposition with respect to the role of Dutch banks at
turnarounds.
38


Communication concerning the progress and thinking in interests are the basic conditions
for success. What moves the concerning bank(s) and/or suppliers? Why in fact is the
involved house bank being so critical of the company? Why does the most important
supplier or customer doubt the continuation of the relation? Those are essential questions
to be answered in a turnaround. Also central in that is the reliability and foreseeability of
the process. The less surprises during the turnaround, the bigger the chance on trust. With
that it should not be forgotten, as discussed before, that the delegates of the group of
creditors in fact have to give account to their supporters/bosses and in principle always
will pursue their own interest at first—this means, the interest of their company and the
continuity of it. That is their real frame of reference. The interests of the company in
financial distress are in that sense always secondary, as annoying this might be for the
entrepreneur/managers and consultants involved. Planning the process of stakeholder
management, as well as the discussion meetings keeping that in mind is thus vital. The
chairman of such meetings—in larger companies usually an external consultant, yet in
(Dutch) SME situations regularly the so-called house accountant—should therefore not
primarily pursue the individual interest of the company (as difficult that might be in
certain situations) but he/she must represent the common interest of all parties, somehow
acting as a mediator. This requires a person who is able to look at the situation from
several viewpoints, on the other hand also someone who can seriously deal with conflict
situations. In fact, recent research has shown that having knowledge of techniques of
mediation and negotiation can contribute to solutions in a positive manner in such
(turnaround) situations.
39


By performing active stakeholder management in combination with structured turnaround
planning, company management can really create trust and with that time to solve the
risen problems. As a result, the chances on real sustainable viability and with that
turnaround success increase automatically.

8. Concluding remarks

“[…] There are many avenues available for the savvy debtor to pursue […]”
40
Howard H. Stevenson & Michael J. Roberts, 1999


38
See O. Couwenberg & A. de Jong, ‘De ‘black box’ van de stille reorganisatie geopend’,
Ondernemingsrecht 2005, p. 397-403 and A.M. van Amsterdam, Insolventie in economisch perspectief,
Boom Juridische uitgevers, Den Haag, 2004, p. 247-274.
39
On mediation with regard to companies in financial distress see among others E.I. Katz et al., ABI Guide
to Bankruptcy Mediation, American Bankruptcy Institute, Alexandria, 2005, p. 1-54, United States
Bankruptcy Court for the Central District of California, Adoption of mediation program for bankruptcy
cases and adversary proceedings, second amended general order, 1999 and V. Finch, ‘The Recasting of
Insolvency Law’, The Modern Law Review, 2005, p. 733-735.
40
See H.H. Stevenson & M.J. Roberts, ‘Bankruptcy: A Debtor’s Perspective’, in: Sahlman et al., p. 459-
477.
19
A company is not a person, a plant or an animal and therefore will never be able to live.
This semantic observation possibly seems insipid however it touches the core of the
problems involving imminent insolvency. An entrepreneurial venture does not live and
has no natural legitimacy, unless the parties concerned—shareholders/the entrepreneur(s),
management team, suppliers, banks/creditors, customers and employees—have the
feeling that their nexus of contracts must be maintained.
41
However, they only seriously
want this when this is of use to all of them. A company thus can only survive when it
constitutes added value for all participants. As long as that is the case the inclination
exists to maintain the organisation. By not breaching the cooperation—in this case not
settling by means of filing for bankruptcy—the stakeholders show that cooperating is
useful. Reasoning the other way around, when it is in fact decided that liquidation must
take place, the ones who made the decision—for example a bank who withdraws a major
credit line and some creditors simultaneously requesting for bankruptcy—no longer see
the point of it and the viability of the company has—as a consequence—disappeared with
that. The cooperation has been cancelled and the end is near at hand.

An entrepreneur who wants to prevent the above scenario therefore must remain showing
the usefulness of keeping the contracts together in a period of financial difficulties. The
only way to do this is on the one hand to devote oneself to the creation of a structured and
methodical process of value recovery—by means of a vision and strategy, expressed in a
detailed but pragmatic turnaround plan—and on the other hand by engaging in active
stakeholder management. This gives the company the best chance to become able to exist
independently again, make money and with that to prove her true viability. Out of cash +
out of credit = out of business.
42
Viability therefore only arises by means of activities that
create value and trust. In times of financial difficulties the entrepreneur thus must be
primarily focused at proving this legitimacy by the effective realisation of the necessary
turnaround. In short, defending instead of flight, to recall the words of Machiavelli once
more. With the presented research results—in particular the success and failure factors—
and the there-upon based framework for turnaround planning we hope to have made a
substantial contribution to the important debate concerning business planning for
entrepreneurship in heavy weather. Nevertheless, further research on for example the
effectiveness and validity of the presented turnaround approach is absolutely necessary,
as well as more in-depth research on the (evident current lack of) acceptance of structured
turnaround planning and stakeholder management in the business community.

41
See in the same sense J. Kilpi, The Ethics of Bankruptcy, Routledge, London, 1998, p. 185.
42
See DiNapoli et al. 1999, p. 13.
20

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