Turnaround Overview

Turnaround is defined as the recovery of a company that is in a financial disarray because of it poor
performance over a prolonged period. To kick start the process of turnaround, a company must
acknowledge and identify the problem and implement a strategy to change the situation. This is
known as turnaround strategy. It should also include whether the company in disarray shows
enough potential to justify the effort. They must decide whether the company in question should be
liquidated, sold off, or worth the turnaround effort. The reasons a company fail are multiple but the
most common ones are
Failure to control costs
Failure to adapt the companys product to meet customer needs
Tough market conditions
Poor management
Over-trading
Failure to build a team that is compatible and has the skills to finance, produce, sell and
market
A company shows the following signs of financial distress if it is in the early stages of business failure
A significant shortage of cash with borrowings at or close to maximum
Suppliers starting to push for faster payments
Monthly account showing that the business is consistently losing money
Often these signs are symptoms of underlying operational or strategic problems within the business.
Unless these symptoms are quickly addressed the business may enter into a vicious circle of decline
ending in business failure and liquidation.
A realistic turnaround depends on having a business plan that can be implemented effectively. The
likelihood of developing a credible, post-restructuring business plan depends upon the ability of the
management to match the firms strategic posture with a realistic, competitive outlook concerning
the markets it serves and to persuade the firms organization to implement the turnaround plan
quickly. The plan should also be financially feasible one that can be service by the cash flows
generated from the firms operations.
The principle aim of any corporate turnaround is to remove the company quickly from any
immediate danger of going into liquidation, and to focus on activities and tasks that restore
corporate value. In order to achieve this, there are six broad stages that a company in a turnaround
situation will need to go through. These stages are depicted in the following flowchart.

Fig. Six Stages in Turnaround Strategy
Management
Change
Business Review
Business
Restructuring Plan
Implementation
Stabilization
EmbTheedding
the Change