As mentioned in yesterday’s post, recognizing that you have reached a point where a turnaround is necessary is critical to getting the most out of the effort to reposition the company. By holding out for a better day, the executive team simply prolongs the agony as the business continues to deteriorate. An inability to assess the situation accurately can render the team “unhelpable.” Lifeguards are instructed not to try to rescue a drowning man who is still flailing about in the water and attempting to save himself. Likewise, a savvy turnaround artist will not step into a company until he or she is assured that the executive team is convinced of the trouble and unable to get out of it without outside help. More importantly, the team must want to be helped and willing to accept help. Further, the business must be capable of being saved, and the team must have the ability to make the necessary changes.
Bringing in Help
Unfortunately, the warnings of bankers, attorneys, creditors and accountants are too often ignored. With bankruptcy lurking around the corner, however, the team may finally concede and call in a competent adviser–a strategic thinker with experience in assisting companies survive and prosper. In addition to possessing the right mindset and skills, the adviser can provide needed credibility so vital to stakeholders’ acceptance of the turnaround plan.
Anyone brought into the company will need the full cooperation–and honesty–of management and key staff during the recovery. Efforts to paint too rosy a picture of the situation will undermine the adviser’s ability to turn the business around. For example, hoping that an industry networking event will suddenly generate enough new prospects to overcome a current cash crisis is another form of avoiding the real issues. Similarly, increasing the stream of revenues alone may make the company appear more profitable for a season, but only internal changes can prepare one to withstand business cycles. An effective turnaround adviser can help create and implement these changes.
Implementing the Turnaround Plan
While decline must be reversed quickly to create the positive cash flow needed to fund operations, turnarounds cannot be accomplished overnight; it took a while to get here, and will take a while to get out. Six months of intensive restructuring is usually necessary to return the business to positive cash flow. A complete turnaround can be accomplished within eighteen months if all goes according to plan.
Having decided to begin the process of turning the business around, the executive team should be prepared to gather extensive information for analysis. After analysis, meaningful tactical and strategic plans will be developed for immediate implementation. Be careful not to confuse tactics and strategies. Tactics are methods employed in the short-term (six months or less) to reverse decline; they are specifically targeted at crisis-oriented problems. Strategies, on the other hand, are longer in time and scope. Strategies are aimed towards growth goals and objectives.
A turnaround plan is gleaned from information gathered in the financial, marketing, and operations fact-finding process. Like every good plan, it has four main purposes:
- to provide a standard reference for organizational focus
- to establish priorities for allocation of capital resources and management effort
- to identify and quantify objectives (one to three year focus) to encourage and monitor performance
- to set timetables and goals (three to five year horizon) for achieving objectives
There are two primary areas of information to be gathered for planning and analysis in a turnaround: the internal and the external environments.