Looking at a business turnaround, there are two different types, each with its own different strategies that can help to turnaround a struggling business? You can never assume that there is only one right answer or strategy to a particular problem. Each business has its own unique set of problems as each business has its own distinctive ‘recipe’ for the way it runs and operates. It is dangerous to believe that what worked for a similar business will work for yours.
By understanding what a business turnaround really is and the different options available makes it easier to chose the right one for your business.
Business Turnaround Definition:
Business turnaround is an informal management-led reversal process to prevent a financially struggling or poorly performing business from insolvency and liquidation by returning it back to profitability, and restructuring debt using an out-of-court debt negotiation process that’s outside the legal framework.
What Is A Business Turnaround?
Business turnaround is the processes needed to bring about those changes necessary to solve a business operational, strategic and financial problems that will restore the struggling business to its former financial health and viability.
The process is normally driven by the business owner(s) with the focus on improving management, profitability, cash flow, productivity and revenue. The business turnaround process is normally used in the early stages of business decline, poor performance and financial distress.
Funds are generated internally to insure the business has sufficient cash to see it through the next few months while a business turnaround plan is implemented.
Business Turnaround Types
The three main terms interchangeably used for business turnaround types are:
- Change Management
- Turnaround Management
- Risk Management
They all meaning the same thing when it comes to SMEs and for the purpose of this article, and to keep things simple as possible I will define “business turnaround types” into two main groups.
Business Turnaround vs Business Rescue: The Difference?
With a Business Turnaround:
The process is owner-led
Objective is to save the business by returning it back to profitability
It’s an Informal out-of-court debt restructuring and negotiation process that’s outside the legal framework.
With a Business Rescue:
The process is creditor-led, where creditors respond to breach of payment agreements
Objective is financial restructuring and debt reduction under The Companies Act.
Followed by formal legislated proceedings
It is dangerous to believe that what worked for a similar business will work for yours.
Never assume that there is only one right answer or strategy to their particular problem. Each business will have its own unique set of problems that will have to be dealt with individually; as each business has its own distinctive ‘recipe’ for the way it runs and operates.
To determine which one will be suited for your situation. You may need to do a business performance analysis that includes an insolvency and viability tests. If you find that any of the above tests are positive for your current business situation, it is vital that you take action as soon as possible to address the insolvent position by speaking to a professional.