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A wealth of resources for anyone involved in corporate rescue and recovery, as well as an overview of the industry and predictions about future trends in turnaround.

About TMA UK

What is Turnaround? - A Professional Overview Introduction

Turnaround specialists are a relatively new breed in the international business world, but in this era of rapid, painful change, their service has become more and more in demand. Increasing competition, fast-changing technology and shifting financial markets have created a climate when no business can take economic stability for granted.

Downsizing has taken a toll on corporations. The accelerated pace of change has turned once-successful CEOs into sometimes hesitant managers no longer able to provide strong leadership to their struggling business.

While downsizing has reduced employment costs and improved economic health, it has also lead companies to delayer their senior management teams leaving a core of senior talent which is supplemented with senior independent executive talent on an as and when needed basis. Twenty years ago companies carefully groomed managers to assume positions of top management. Today can find themselves short of the executive talent that might have diagnosed difficulties ahead.

Changes in the lender liability laws (in the United States), changes in interest rates and cultural differences elsewhere have also increased the need for turnaround management. Banks cannot forcibly take control of client companies in serious financial peril. Today the courts view this action as equity participation forcing banks to stay clear of direct involvement with corporate management. Therefore a whole industry has evolved which is dedicated to dealing with organisations in trouble. Turnaround practitioners provide expertise over a broad spectrum from recovery, cash-flow and financing through to the actual turnaround of an ailing concern.

The people who work within the organisation during the period of Turnaround are called Turnaround Specialists, Company Doctors, Interim Managers, Business Rescue or Change Consultants. They replace a company's CEO temporarily taking over the decision-making process of the organisation to guide it back toward profitability and safety.

Advantages of a turnaround professional

The turnaround specialist enters a company with a fresh eye, knowledge and skills and enjoys complete objectivity. This professional is able to spot problems and create new solutions that may not be visible to company insiders simply because the latter are too close to the subject.

The turnaround manager has no political agenda or other obligations to colour the decision-making process, allowing him or her to take the unpopular yet necessary steps for survival from corporate insolvency, liquidation, cvs, company administration or receivership.

Experience within a particular industry may mean little when a company is facing bankruptcy and the loss of millions in revenue. A turnaround specialist brings experience in crisis situations. Like a paramedic, the talent lies in making critical decisions quickly in order for the patient to have the best chance at recovery.

Operating in the eye of the storm, the turnaround specialist must deal equitably with angry creditors, scared employees, wary customers and a nervous board of directors. With the highest stakes on the table, clearly this is no assignment for the faint-hearted.

Signs of a Troubled Business

A company may require the services of a turnaround specialist for many reasons. Here are the most common signs of trouble. In most cases a business will display more than one of these signs:

Market lag

Changes in the marketplace have bypassed a company, leaving it with sagging sales and lost market share. For some, the deficiency is technology; their equipment has become obsolete. For others, the problem lies in sales and marketing; their products or services slide into obsolescence because the company hasn't kept pace with the needs of the marketplace.

Lack of operating controls

Managing a company without adequate reporting mechanisms is a bit like flying an airplane without an instrument control panel. If management is making decisions on old or inaccurate information, the company can easily head in the wrong direction.

Over diversification

Today many businesses feel the pressure to diversify in order to reduce risk. However, too much diversification may cause them to spread themselves too thin. As a result, they become even more vulnerable to the competition.

Explosive growth

Companies are sometimes tempted to add value by engineering a growth spurt. However, a company cannot expand its way out of trouble. Growth often carries a very high price tag and leveraging a company to such a degree means that management must operate with little or no margin for error.

Family vs. business matters

Sibling rivalry has ruined many privately held companies. Deciding which relative or which of their offspring should run the business after retirement or death can be one of the most difficult challenges a privately held business owner can face. If the decision is based on emotion (love or guilt) rather than sound business judgment, trouble can soon follow. Divorce can also shatter a business, leaving it in fragments. Nepotism can cause bright, skilful managers who aren't part of the inner circle to take their talents elsewhere.

Operating without a business plan

Surprisingly, a number of growing companies operate without a business plan. Armed with 15 or 20 years in the business, management tries to operate by the seat of its pants. Their plan may change overnight because it is based on their own "feel" for the market. In other cases the business plan exists in everyone's head rather than in writing. The result is that plans are carried out according to individual interpretation.

Ineffective management style

The president and founder of a company may be unable to delegate authority. No decision, big or small, can be made without his blessing. As a result, the rest of the management staff is without solid experience or any feeling of ownership. If the president suddenly dies or becomes incapacitated, the whole company is in danger of collapse.

The precarious customer base

Few businesses have the luxury of determining the exact proportions of their customer base. Nonetheless, some companies do put too many eggs in one basket. If a manufacturer selling to large retail chains has two customers who represent 60 percent of the business, the company is obviously vulnerable. The loss of just one customer could put hundreds out of work and send the business into bankruptcy.

Overrunning the people capacity

If a business is a success at £5 million a year, it could become a dismal failure at £10 million a year The reason is that the personnel may not be able to work successfully at the new level. For example, managing engineering operations for a company with two plants is very different from managing it for a 12-plant company. The same challenge applies to others in key positions in marketing, sales, operations and manufacturing. A company can overrun its ability to manage.

Poor lender relationships

Some companies develop an adversary relationship with their financial lending institution leading to financial difficulties and cashflow problems. Fearing that their loan or loans may be in jeopardy, they attempt to hide financial information from the bank. Phone calls are not returned. Reports stop being filed. Since money is the lifeblood of almost any business, bank debts and this kind of lender relationship only leads to more trouble.

Steps in a Turnaround

Step 1: changing the leadership

Most CEOs or company chairmen do not relinquish power easily. Their egos tell them they can still pull the company out of its nose-dive. For some, denial sets in and they refuse to believe such a downturn is really happening to their company. To stop the bleeding and set a new course for the business, a change in leadership is required. The turnaround specialist is usually selected and hired by the board of directors, but others such as bankers and corporate advisors may also be involved. As an outsider rather than a corporate insider, the turnaround specialist enters the company carrying no political baggage. This affords the new chief executive with a special advantage for the task ahead.

Step 2: checking the vital signs

Before turnaround specialists make any major changes they must:

Determine the crucial problems and develop an action plan.

This means the first days are spent gathering information and measuring the scope and depth of the company's ills.

Key questions to be answered are:

  • Just how sick is the company?
  • Is financial CPR required or a milder form of treatment?

In the meantime, there are various groups that must be dealt with. The first is creditors who may have been kept in the dark and are angry. Employees are confused and very scared. Yet another group consists of customers who are wary about the future of the firm. The turnaround specialist must be open and frank with all of these audiences.

Once the major problems are spotted and identified, a game plan can be formulated. The plan must then be sold to all key parties inside and outside the company, including the board of directors, management team, and employees. Confidence must also be instilled in the bankers, major creditors, and vendors.

Step 3: developing a survival plan

If the company is in critical condition, the action plan is simple but drastic.

Emergency surgery is performed to stop the haemorrhaging. One possibility may be a temporary freeze on all accounts payable. The goal is to halt the bleeding within 30 days for large companies, or ten days to two weeks for smaller companies. At this time emotions run high; employees are being laid off or whole departments are eliminated. The skilled turnaround leader makes these cuts swiftly. Cash flow is the life-blood of the business and to keep it flowing, it may be necessary to unload a losing division or business unit to avoid cashflow problems. Often the turnaround specialist will apply some quick, corrective surgery in restructuring and recovery before placing it on the market. If the unit fails to become attractive to a buyer in a given time frame, liquidation occurs. In a typical turnaround the new company emerges from the operating table, a smaller organization but no longer losing cash.

Step 4: surviving the crisis

In many ways surviving is the most difficult step of all. Eliminating losses is one thing, but achieving an acceptable return on the firm's investment is quite another.

Once the haemorrhaging is over, the losing divisions sold off, and the administrative costs are cut, one crucial issue remains: Are the anticipated revenues enough to keep the company's doors open?

What is the long-term outlook? Of particular concern is the state of the core business of the company. If the core business is irretrievably damaged, then the outlook could be bleak. The turnaround specialist must decide if the remaining corporation is capable of long-term survival. If it is, the company must now concentrate on sustained profitability and the smooth operation of existing facilities.

During the turnaround, the product mix may have changed, requiring the company to do some repositioning. Core products may have been neglected and require immediate attention to remain competitive. In the new, leaner company some facilities might be closed simply because they are no longer needed. The company may even withdraw from certain markets or move its products into a different niche. Survival, not tradition, determines the new shape of the business.

Step 5: returning to profitability

In the final step of the turnaround, the company slowly returns to normal. This time period is the longest, lasting from ten to fifteen years for larger companies. While earlier steps concentrated on correcting problems, this one focuses on internal and external development. For example, new marketing initiatives are encouraged to broaden the business base and to increase market penetration.

To facilitate revenue growth, new products are carefully added and customer service improved. Financially, the shift is from cash flow concerns to a strong balance sheet and return on investment.

This final step cannot be successful without a psychological and cultural shift as well. Rebuilding momentum and morale can almost be as important as rebuilding the ROA. It means a rebirth of the corporate culture and transforming the negative attitudes to positive, confident ones as the company maps out a pathway for the future.

Judging the Success or Failure of a Turnaround

Of course, not all turnarounds succeed in the manner outlined here. A company may put a quick end to its disastrous losses but never quite attain an acceptable return position. When this occurs, the decision may be made to sell the business to a company better able to produce an acceptable return on the funds invested. In a sense, this is not failure at all. The company may very well thrive and reach new heights under a different ownership. Here, the turnaround manager can play a key role in identifying prospective purchasers and then negotiating a successful sale.

Ironically, some companies never reach Step Five because of too much success in the earlier steps. The turnaround becomes so successful it generates attention and the company becomes a target of a takeover bid. Again, this must not be viewed as a failure. The company was saved and continues to perform well with stronger sales than ever before.

Choosing A Turnaround Professional

For a troubled company no decision may be more critical than hiring a turnaround manager. Yet, with all the pressures and distractions taking place within the company, this decision comes at the worst possible time.

Questions to consider

  • What length of time is expected for the services of a turnaround specialist?
  • Can the company pay the turnaround specialists fees?
  • Will the turnaround manager bring in other specialists?
  • Will the rest of the management team be able to work with the candidate?
  • What exactly is expected of the turnaround specialist?
  • Are the goals in writing?
  • What are the chances of success in turning around the company?
  • Is the company willing to let an outsider liquidate or sell key units of the business if necessary?

Key factors In making the right choice

Background

Experience is the most important credential. MBA degrees and CPA designations count for little if the turnaround manager has not been proved in the heat of battle. Ask for a proven track record. The candidate should be able to produce a portfolio of success stories and satisfied clients.

Reputation

No turnaround manager can expect to succeed without quickly gaining the confidence of creditors as well as accessing new sources of credit. Check the candidate's reputation with leading bankers, lawyers, accountants, financial advisors, factors, and trade creditors. The manager's reputation here is critical.

Fee Structure

Make sure the fee structure of the turnaround specialist is clear and fair. A company should make sure it can afford such a service or else it may be trading one set of problems for another. Find out if there is an incentive or performance arrangement in the contract.

Ethics and Professionalism

Membership in the Turnaround Management Association helps to indicate the degree of professionalism and honesty of a candidate. TMA holds members to a strict code of ethics and encourages certification by the equivalent of the Association of Certified Turnaround Professionals in the United States or the Society of Turnaround Managers in the United Kingdom. All members listed in this directory have signed a statement acknowledging the TMA Code of Ethics. The Certified Turnaround Professional (CTP) designation indicates that a turnaround specialist has successfully completed stringent requirements for certification and has been judged an honourable professional by his or her peers.

TMA UK and turnaround

It is in finding turnaround professionals, both individuals and companies, to help struggling businesses, that TMA UK can be so useful, with it's knowledgeable and experienced membership, easily identified through the powerful online search facility.