First Steps In Turning A Troubled Business
There are many external factors beyond management’s control which can put considerable strain on a business. In all cases, what is critical is not how they got into trouble, but how the business can redefine its strategic direction to mitigate further losses and maintain stakeholder confidence.
For a business to successfully realign itself, there are two phases management must undertake:
1. Conduct a strategic review
2. Implement a turnaround
The strategic review
A strategic review will determine the viability of the business, and, if viable, determine strategies to stabilise the business. Both steps are conducted in tandem, with phase 2 focused on stabilizing the business and ensuring long term sustainability (strategies for this often come out of the diagnostic review in phase 1).
Key issues which come out of phase 1 often revolve around problems with management effectiveness, operational viability, communication with the businesses’ key stakeholders and adequacy of short term funding.
This does not necessarily mean that radical change is needed in all of these areas. What it does mean is that the business may have to get itself in a new headspace so that it does not continue to repeat past behaviour which may have contributed to its financial woes.
Turnaround: first steps
Once the findings of phase 1 have been identified, they need to be documented into an achievable workplan and agreed upon by the management team. The workplan allows current issues to be addressed by management, solutions to be determined by all functional managers and ensures that management is accountable.
The above steps may sound good in theory. It’s much harder to make it work in real life. Often a business rescue project like this cannot get off the ground unless a qualified and experienced external advisor steps in to provide an outside view on the issues affecting the business.
This is where the turnaround specialist comes in. Make sure you get someone with the right accreditation, not just any accountant or financial advisor who has labeled themselves an expert (the Turnaround Management Association is a good place to start – http://www.turnaround.org.au/).
A turnaround specialist has the necessary skills to ensure that initiatives are understood and agreed to, and performance is monitored. For key stakeholders to buy into this process, it is crucial that a credible plan is agreed upon, put in place and communicated to all parties involved. A follow up meeting timetable should then be set down so outcomes can be reviewed.
I will, in my next blog, talk more on the strategic review process and how to undertake a turnaround, as there are many more tips and hints to relay in relation to these phases.
Kevin Higgins is a senior executive at Vantage Performance, one of Australia’s leading turnaround management and profit improvement firms – solving complex problems for businesses experiencing major change.