Continuing the discussion about our four practice areas, we will now turn our attention to Turnarounds and Workouts.

Turnarounds and Workouts refer to companies that are in trouble of going out of business.  Usually, this is a result of tight cash flow and the inability to pay bills.  There are problems with paying secured and unsecured creditors.  All lines of credit may or may not be completely tapped out.  In short, revenues are not sufficient to maintain the business.  The Turnaround and Workout is designed to bring the business back to solid revenue generation where long-term net profits are realized.

In “Navigating the Current Economy” both parts one and two, we discussed the reactions some business owners have in response to an economic downturn.  There is a tendency to react in a similar manner when our business begins a sustained downward turn.  These reactions are overreacting and the Ostrich Syndrome.  These two reactions can be just as detrimental to a business when internal problems begin to arise as with external problems.

Oftentimes, when things are going well, problems, issues, or inefficiencies within the business may not be noticeable.  This is because there is sufficient cash flow to negate these taxing practices.  However, if more strain is placed upon cash flow, such as sales falling enough or the expansion of operations or personnel, these inefficiencies and problems come to the fore.  The result is the symptoms of the real problems become very noticeable.

Believe it or not, many Turnarounds and Workouts are the direct result of a business trying to grow.  During the growth phase, the business outpaces the available capital.  In other words, the business grows too fast.

The Turnaround and Workout process is designed to identify and address the root causes of the distress.  This requires a full team approach.  The first step is to negotiate with all creditors, including banks, vendors, and credit card companies.  By pacifying the creditors, and stopping the flood of phone calls, the team, along with the business owner, is able to focus on more important matters, such as streamlining operations, increasing sales, and collecting accounts receivable.

One way to help prevent a business from becoming distressed is to develop a strategic plan, or a blueprint, for the business.  A strategic plan allows owners and management to consider the direction of the business and have a basis for decision making.  Through the development of a plan, management is able to consider a number of scenarios that the business may encounter without the pressure of having to make an immediate decision. 

Most of the time in business we must make decisions on the spot.  We do not have time to gather all the needed information or research.  By developing a strategic plan, much of this work is done ahead of time.  This is not to say that we will have all the answers and all the information we need every time.  But, we will, at least, have considered many possibilities and their potential outcome.  We will know the general direction we want to go.

A strategic plan will also provide us with guidance when we want to grow or expand the business.  It will help prevent us from becoming a Turnaround and Workout.

The next blog will focus on the final practice area of Technology Start Ups.