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Turnaround - Key Issues Q and A

» Posted on: 17 September 2010
» Posted by: Andrew Livesey
» Service area: Business Support and Restructuring

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Unless you have been marooned on a desert island for the last 2 years or so you will be all too aware of the fact that we are in the midst of a recession with substantial cuts anticipated in public sector expenditure which threatens to derail a fragile recovery. With many UK companies facing a myriad of challenges which threaten their economic stability the demand for external advisors who are experienced in dealing with “turnaround” (or in other words delivering a business recovery plan) is at a premium.

What constitutes turnaround, the advantages of engaging a turnaround professional, who to talk to and when are some of the key issues examined in an article by Andrew Livesey Head of Corporate Recovery at Taylors.

Q. What are the most common signs of a company in trouble?
A. The company can find itself in trouble for many different reasons and in most cases more than one reason in combination. Commonly we come across the following issues:

Lack of Operating controls where management are “flying the business blind” because of old or inaccurate information. Ineffective management, either because the central figure cannot or will not delegate, or because of lack of experience in crisis management. Over ambitious growth which has leveraged the business to such a degree that management are operating with no margin for error. Poor lender relationships often arising out the above issues, so that the business is exposed in the climate in which lenders are looking to move away from “risk” business or at the very least to re-price the cost of their ongoing support.

Q. What is turnaround?
Basically it is a short term emergency business plan based on survival to identify whether there is a viable business, to identify key issues, to refocus management energies on addressing those issues and to set a new course for the business “controlling” the inevitable negotiations which will have to take place on the road to recovery.

Q. Why can a company not implement is own rescue plan?
There is no reason why a company cannot implement is own plan. In practice however it very often requires outside help. The trend to reducing management costs has led to many companies de-layering their senior management teams, leaving only a small core to be supplemented by external advisors where necessary. Very often the skill set is not present, or management unwilling, to focus on the key issues. Management inertia is one of the biggest inhibitors to delivering a rescue plan. Also if the company becomes insolvent because it is not paying all its obligations as they fall due, different legal constraints fall on the directors and the complexities of the regulatory frame work, the potential liabilities for delinquent directors, and the need for a catalyst for change within the business all lead to a situation where external advice is necessary.

Q. What does a turnaround professional do?
A. For a start form an objective view on the business. It is a common feature of the first meeting with a client that management are describing the business they want to have and not necessarily the business they actually have. The job of the turnaround professionals is to peel away the layers of the onion to help management achieve focus on what the key issues for the business really are. Thereafter, the role of the turnaround professional is developing the survival plan and keeping management focused on measuring achievement against their objectives. Very often a rescue package has to be delivered within very severe time constraints where there is simply not the resource for management to go it alone.

Q. In what ways does the turnaround specialist add value?
A. Turnaround is a bit like intensive care and most people will readily understand that in an intensive care situation you can significantly improve the chances of recovery by using the best doctor you can find. Helping management understand the reasons why the business is failing. Focusing on the time frame in which they operating. Stopping the haemorrhaging quickly. By setting a series of rolling objectives the professional can change the focus of leadership in the business and set a time frame in which key individuals have specific roles to fulfil.

Q. Will it go better for me with the bank if I use turnaround professional?
It is wholly understandable that if a bank is presented with a business in crisis, but no solution, it will look to work out is own position unless it has confidence in the management strategy. A lender will draw confidence from the fact that there is an objective view on the business and that management are guided by someone who has experiencing of delivering a successful business recovery plan. A key role of the business recovery professional is in managing the external relationships (which may be seriously damaged by that stage) with those third parties whose continued support is required.

Q. Is a turnaround professional the same as an insolvency practitioner?
Not necessarily. A turnaround strategy may involve, in the most extreme cases, the company or business going through some form of insolvency procedure. However, any insolvency procedure should be on the company’s own terms and an insolvency practitioner should be brought in to run that procedure as and when it is appropriate to do so.

Q. Who do I choose?
In reality there are a number of aspects to a business recovery plan. Some of these skills are accountancy based and are focused on cash flow and cost saving. Some of the skills are legal focused on legal regulation of the activities of the directors, protection strategies for the directors, and the application of the laws on insolvency and corporate government. In most situations in which we are involved we work alongside an individual whose skills are accountancy based and who has substantial experience in managing distressed business. In some cases it is a full time interim manager who displaces the existing management function. In others it is an advisor who works along side management on a project basis devoting as much of his time to the business recovery plan as is necessary to achieve the objective. Very often it is this type of professional who is most effective in assisting an SME business as his involvement on a regular but nonetheless not full time basis sets a time frame and agenda to which management work.

Q. If I need help where do I start?
The short answer is speak to us. We are happy to talk to you and once we have some basic information and an idea of what the issues are we will discuss with you a suitable individual whom we would recommend to talk to you. We would then adopt a joint approach with that individual in discussing the requirements of a business recovery plan. We have many successful assignments of this nature under our belt and we can help find the right individual for your requirements. We will remain on hand to help you through the legal mind field. We can provide reference if you wish!

Q. What if I need a refinance?
There is still finance available. As the market has contracted there are still organisations and individuals who are prepared to fund and/or invest in a recovery plan. However how and when they are approached is obviously fundamental in securing an offer of funding and if it is required this will be a key stage of the recovery plan to be negotiated.

Q. When should I start the process?
As soon as you recognise one of the signs that the business is suffering issues which are either beyond its capacity to control or are not likely to be overcome in the short term without changing the basis of operation. By the time you have identified that the business is at risk the clock is already ticking. It goes without saying that the more time there is to examine the issues and look at the alternatives the more robust the recovery plan will be. Many businesses leave it too late so that the company is fundamentally impaired and the chances of a restructure holed below the waterline. Best advice is to take advice at the earliest opportunity as it offers the greatest degree of protection to the directors of the business in the event of a corporate collapse.

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