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Turnaround management - an
overview
Part 1 - Turnaround – an overview
- contents
Meaning
The importance of business skills
Managers are critical in a crisis
What to do in times of difficulty
Obtaining support for a turnaround
Understanding your options
Conditions necessary for a successful
turnaround
Turnaround Process.
Turnaround - meaning
“A turnaround is to produce a noticeable
and endurable improvement in
performance, to turnaround the trend of
results from down to up, from not good
enough to clearly better, from
underachieving to acceptable, to losing
to winning”
- Stanley J. Goodman
The importance of business skills
A goldfish
An Ostrich
A rabbit in the headlights
A headless chicken
What to do in times of difficulty
Spot the signs as early as possible
Face up to the need to deal with the
problem
Get help
Remain alert
Obtaining support for a
turnaround
From shareholders
From management consultants
From governments
From banks
Insolvency practitioners
Understanding your options
Fix the business
Sell the business
Shut down the business
----- contd….
Understanding your options
Action Voluntary Adminis- Administrative Liqui-
arrangement tration receivership dation
What is? Own By court to To sell charged To windup
run assets
Who is in Directors IP IP IP
charge?
Use in Agreement To protect To sell the coy Cease
rescues to settle or sell the free of creditors trading –
coy close.
Dis- Long time Expensive Requires a
advantage floating charge
to be in place
For sole/part Individual Can also be NA Bank-
voluntary granted ruptcy
arrangement over
partnership
Conditions necessary for a
successful turnaround
Decline
Regrowth
Crisis management
Stabilisation
Priorities in each phase of a
turnaround
Situation Crisis Stabilisation: Regrowth:
management: Preparation for Long-term
short-term relaunch sustainable
survival competitive
advantage
Financial To solve Put finance in Manage the
immediate place for future working capital
financial crisis re-growth
People Retrench Get right By retaining
management and recruiting
for re-growth right people
Marketing Slim down Prepare for Drive growth of
product / relaunch of turnover and
market growth profits.
products
Turnaround Process
Recognising the need for a turnaround
Surviving in the short term
Deciding what to do
Doing it
Keeping on succeeding
Turnaround process *(source:
http://www.emeraldinsight.com/fig/0510200307006.png)
Part 2 – Recongise the need for
fast turnaround - contents
A) Spotting the warning signs of business
failure:
Why business fail
Types of business failure
Normal business failure
Avoiding Failure
The symptoms of normal failure
Checking your business‟s health to spot the
warning sings
Take an “A” score test (Attached separately)
Topic 2 – Recongise the need for
fast turnaround – contents
(contd…)
B) Understanding why Business fail:
Causes of normal failure
Five Key areas
How serious your problems
Why Business fail?
Recognise the following complementary
truth:
1) All businesses are fundamentally
same
2) All businesses are fundamentally
different.
- Common factor – is “NO CASH” due to a)
lack of profit, b) excess illiquid assets c)
too much growth.
Types of business failure
1) The start up that never starts:
- The business model is wrong;
- The business is undercapitalised
- Lack of reserves
- the business is in high growth industry, but
fails to survive the „shake out‟.
- lack of determination from the entrepreneur
------- contd…
Types of business failure
(Contd…)
2. The Catastrophic failure: - fire, flood,
fraud, government action.
3. Incremental failure over time:
Normal type of failure:
Normal Business Failure – the
decline curve
Avoiding failure
Recognise the symptoms of failure ;
Check your business‟s health to detect
the warning signs;
Recognise the causes of normal failure;
and
Judge how serious things are.
Avoiding failure- the symptoms of
normal failure
Poor Financial performance –
Under performance –
(a) Market share and reputation are being
lost;
(b) Stagnant or reduced turnover;
(c ) Stagnant or reduced profit
(d) Warning from bank / bank taking
security for its lending
Avoiding failure- the symptoms of
normal failure
Distress:
Increase of overdraft;
Failure to pay suppliers on time and loss of discount
facilities;
Forced to acquire asset on lease;
Decide to move into “Factoring” (Sale of accounts
receivables)
Crisis:
Unable to pay your credits;
People will start leaving;
Legal actions emerge
Checking your business‟s health
to spot the warning signals
Subjective judgments and objective
measures:
Accountant/bank manager‟s feedback
Credit score;
Z and H score
Health check against symptoms and
causes;
Subjective judgments and
objective measures:
Subjective judgments:
Does your business suffer from any of
the above symptoms;
Have a business health check (last part)
Seeking an external opinion –
Accountant & Bank managers.
Objective measures:
“Z” and “H” scores
B) Understanding why Business
fail:
Causes of failure:
The situation may appear highly
complex;
Short-term requirments must be
balanced against long-term requirements
The whole business needs moving
forward simultaneously;
The approach should be consistent
across all areas of the business.
The Five Key area
The business‟s management structure;
The strategy challenges (the big
problems that must be managed)
Lack of financial control;
Lack of operational control
One-off projects or special
circumstances that place a heavy
demand on the business‟s resources.
The business‟s management
structure
Autocrat style of management;
“Yes” man team;
Lack of skilled directors;
Unwilling to take external advices;
Fail to plan for succession;
View that there is “nothing we can do”
when everyone suffers in the industry.
Family business;
Strategy challenges
Failure to spot and adapt to changes;
High cost structure due to lack of
economy of scale of operation.
“All eggs in one basket” – investment /
customers / suppliers….
Lack of financial control
Information
Control
Management
Poor credit control
High stock level
Inappropriate funding
Over-gearing
Overtrading
Lack of operations control
Inefficient production can arise from a variety
of causes:
Is the factory poorly laid out?
Is the equipment obsolete?
Are the workers poorly trained?
Is the production organised in most
appropriate way?
Does the business manufacture wide range of
products?
One-off projects or special
circumstances
A premises move;
A big acquisition
Committing a business to a big
production contract;
Changing an accounting or computer
systems;
Developing and launching a new product
Generic turnaround strategies