Understanding What a Turnaround Strategy Is

Having a successful business requires constant work and planning; but sometimes situations can happen that catch even the most well-prepared entrepreneur off guard. A turnaround strategy is an action plan that can give struggling business owners the guidance and direction they need to revitalize their company. Understanding its Purpose When a company starts to experience problems, such as declining profit, and increased debt; there has to be an intervention to return the company back to a profitable state. If no action is taken, the company will undoubtedly fail. When management starts restructuring the business to correct its decline, they are probably using a turnaround strategy. This is an in-depth plan, designed to not only save the business, but make it financially sound as well. There are also companies that have consultants and teams that specialize in the different aspects of turnaround management. Why a Business Fails There are numerous factors that could be identified as the cause for a businesss demise. Maybe an inexperienced entrepreneur underestimated the cost of operations, or tried to grow the business too fast. Perhaps poor management of finances led to a shortage in capital. Corrupt management, inefficient leadership, and the failure to plan for the worst-case event, can often turn a growing company upside down. Being unprepared for an economic downturn may be a factor. Business experts agree that typically, the underlying cause(s) of failure are already in motion, long before the visible signs are present. Recognizing the Signs There are always signs, or indicators, when a company is doing poorly. The first, and most obvious, would be in the finances. If your profits are declining and your debt is rising, this could be your red flag, indicating that something is wrong. As a business owner, are you avoiding calls that could be a bill collector? Have you lost customers because of poor service or delivery issues? High turnovers in management or employees can also be a sign of potential decline. The attitude and behavior of the employees can tell you a lot about what is happening inside the company. Taking Action The size of the business and the stage of distress i ts in will determine some of the actions that may need to be taken. If management is proactive and acts immediately, the company may only require a turnaround strategy consultant to help them get back on track. A company in spiraling decline may require a complete restructuring turnaround strategy. At this point, hiring a turnaround management service may be the only way to salvage the business. Their team can assess every aspect of the business and tell you what actions need to be taken. They can also be responsible for cutting operations or personnel. Business owners need to know there are options for saving a failing business. A turnaround strategy can help to guide them through the steps of rebuilding and revitalizing their business, in all aspects. This gives struggling entrepreneurs an option to save their business; instead of throwing up their hands and succumbing to complete liquidation and bankruptcy. Turnaround Strategy Objectives for Saving a Business Operating a business that is in a state of decline can test the skills of even the best businessman (or woman). Using a turnaround strategy plan as a guide can assure that no step is missed in the process of rebuilding your business. The turnaround strategy objectives give clear guidance that is broken down into easy to follow stages. Managing the Strategy

Turnaround strategy objectives can vary depending on the company, its state of distress and the owners overall goal. Typically, the ultimate objective is to return the company to a state of normal. This would include becoming more profitable and solvent. Managing the turnaround is the first step, and this is acquired through leadership. Without proper leadership and a supportive and dedicated team, the turnaround wont get far. Keeping or reg aining support from shareholders is achieved through communication and consultation. Strict management is required to maintain focus; for instance, managing the turnaround strategy as a project will accomplish this. Stabilizing for Survival Immediate stabilization of the business is required to guarantee even a short-term future. This is achieved through generating, managing and conserving cash flow. Cash management is gained from introducing a cash management system, centralizing that management, and rationing the availability of cash. Re-budget - suspend discretionary spending, and place strict controls on sales and purchase orders, pricing and sales contracts. Work on generating cash by disposing of unneeded assets, reduce your working capital and consider utilizing cost reduction options and short-term financing. Gaining Funds A business that has been in decline for any amount of time will usually need to regain capital and/or acquire funding. Management of the turnaround includes restructuring of finances. Distressed companies may have any number of financial problems facing them, and may also require additional money to return them to solid ground. Locating funding is often the most difficult part of the turnaround. Focus on internal funding first; options like reducing your working capital, selling assets, or appealing to shareholders. Utilize every avenue before resorting to outside funding. The distressed company can consider finance loans or private equity funding. Fixing the Distress The last objective is certainly not the least, but very often, it is the most overlooked or ignored. Fixing operational, organizational, and strategic components of the business is crucial to its turnaround success. This may require changes in management and leadership; reorganizing staff and improving skills, or improving on service and delivery. Construct a new business mission statement and vision that reflects the companys new direction. Remember to create a long-term strategy for the success of the company. Creating and following a turnaround strategy is like making a new business plan. It takes you back to the basics of evaluating each aspect of your business and the industry it serves. It helps to identify areas that are weak and gives solid resolutions to restructuring your organization. Working a turnaround strategy greatly improves the chances of your businesses ability to recover.

urnaround strategy Which stage does your company belong? There are three stages of a turnaround strategy: I Pre-turnaround II Period of Crisis III Period of Recovery

The first stage is the period just before the profitability begins to decline. The company is still considered profitable at this point, but losing ground. The second period is known as the period of crisis. At this point the company needs to turnaround. This stage is marked by a decline in profits (even negatives), a fall in market share and the company's poor cash situation. The third stage is the period of recovery or the turning point. This is the stage where serious action is taken to turnaround the company. Important decisions like scaling back production or returning to an aggressive growth stage are taken. At this point, the company's strategy is clear. The company can choose to rely on a centralised and low cost system and continue profitably. Alternatively, it might decide to combine these benefits with a growth strategy. This is the longest period and may last for years. Steps in turnaround strategy

Changing the leadership: A change in leadership ensures that those techniques, which resulted in the companys failure, are not used. The new leader has to motivate employees, listen to their views and delegate powers. Redefining strategic focus: This involves re-evaluating the company's business and deciding which ones to change and which to retain. Diversified companies need to review their portfolio on the basis of long-term profitability and growth prospects. Selling or divesting unnecessary assets: Sometimes, although the assets are profitable, they must be liquidated to contribute to the strategic focus. The cash received from the sale of such assets should be used to repay debts. Self-sustaining businesses are ideal candidates to do so. Improving Profitability: To do this the company has to take drastic steps like:1. Assigning profit responsibility to individual divisions 2. Tightening finance controls and reducing unnecessary overheads. 3. Laying off workers wherever necessary 4. Investing in labour saving equipment 5. Building a new inventory management system and manage debt efficiently through negotiating long-term loans.

Making careful acquisitions: The company must be careful while making acquisitions. It should be in an area related to its core business enabling the company to quickly rebuild or replace its weak divisions.