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Steps to turnaround

The Institute for Turnaround (IFT) is Europe’s leading body for accredited turnaround and transformation professionals. Christine Elliott, Chief Executive, raises the questions a business should ask itself when facing serious challenges – and reveals where to look for the answers.

Businesses don’t stand still – they either go forwards or backwards. This is why the thousands of companies trundling along as ‘zombies’ are in the danger zone. They cannot repay the principal on their debt, and tick over by using cash and selling assets to meet interest repayments. When HMRC decides to be less benign, interest rates increase, or order books start filling up, these businesses will reach a tipping point.

Although the recession has taught many business owners to be better at managing cashflow, it is far preferable to identify early warning signs. Some include lack of, or repeatedly late, management information, high overdraft usage, poor financial results and profit warning, banking covenants breached, and trade insurance pulled. If you have identified these issues, your bank may have already requested an independent business review (IBR).

What tactics can you use to redress the situation?

Step 1: Brutal honesty

Ditch the false optimism. Moving numbers around on a balance sheet will paper over the cracks, but it won’t hide fundamental problems, like a lack of cash.

Step 2: Survive

Every business needs to understand its cashflow. The best way to do this is by having an accurate, 13 week, rolling cashflow forecast. Over that time, overheads and sales should be relatively easy to predict. Updating the cash position every week means you have three months’ notice of what’s ahead.

Step 3: Raise the cash you need

There are many ways to generate cash, such as renegotiating contract terms or becoming more efficient at tracking and chasing debtors. Invoice discounting is a solution in some cases.

Step 4: Write a simple plan

The first priority is listening to what everyone in the team has to say. It is the people working in the business who know where something is wrong and have a good idea how to fix it. From this, write a new plan – which you should be able to summarise on one side of A4. Work out a handful of changes that will make a difference to how the company performs. Avoid placing blame and don’t make excuses.

Step 5: Sort out the leadership

The leadership skills needed for a business in distress can be different to those needed when things are going well. Tragically, some businesses can become paralysed by a sense of fear and failure and stop making decisions. Identify a few quick wins that start to make people feel better about the company and its prospects. Share positive feedback from customers. Celebrate a quality threshold met or a new order. Keep meetings short and focused. Action is a great antidote for hopelessness.

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John Carroll - Helping businesses achieve International success. Head of Product Management & International Business, Santander UK