Be careful what you search for on the internet. I thought I would write about turnaround and I decided I would research it first. Four minutes and one Bonnie Tyler video later, and I am no further forward.
There are theories and cycles which can sometimes prove helpful. The turnaround cycle is a “U-shape” on a graph generally. The company is heading down the left hand arm of the “U” until turnaround measures are taken. The company then begins (usually not immediately) to stabilise at the bottom of the cycle before lifting out the other side.
The turnaround measures themselves vary from company to company. In a large group, the turnaround professional may construct an extensive plan with various steps involving different insolvency procedures.
Parts of the group may be sold or placed into a procedure for the benefit of the whole. It does not follow that simply because there is a connection between the group that the other group companies are liable for each other’s debts although this is a common misconception, especially between holding companies and their subsidiaries. This legal distinction can enable the turnaround professional to concentrate their efforts on a part of the business, rather than the whole.
Further finance can be required and this can prove difficult to source especially in tough times. The turnaround professional may look to try and extend facilities with the company’s current banker or look to asset finance or even a mezzanine financing solution.
However, you should not be blinded by science when it comes to turnaround. When you are faced with financial difficulty, it can be a hard task to see what the solution is as the situation can appear overwhelming. Asking one creditor for more time to pay may be, in itself, the beginning of the road to recovery. It need not be complex, especially if you can identify what the current problem is and where you want to get to.
Any solution should be tested and that means that the accounting systems of the company need to be fit for purpose so the directors have the information to make the right strategic decisions. If this is not the case, it needs to be so as quickly as possible.
John Cullen is a Partner at Menzies delivering business turnaround and insolvency services to SME businesses. For more information about our turnaround advisory services contact John by email at JCullen@menzies.co.uk or by calling +44 (0) 29 2044 7510