‘Turnarounds’ involve injecting finance to save an insolvent or potentially insolvent business from insolvency and returning it to a stable financial and operational position.
This can also be applied to businesses which are underachieving and not realising their full potential, suffering from being undercapitalised or suffering temporary cashflow issues.
Effective Turnaround Finance is fundamentally important to a turnaround situation. However, turnarounds can rarely be completed by just injecting additional money. They are achieved through a combination of financial, crisis management, restructuring and insolvency skills and experience. For a successful turnaround, the following components need to be present:
- A potentially viable business
- New effective additional finance to fund the turnaround
- Removal of creditor pressure by debt rescheduling
- Adequate management motivated to handle the turnaround
- Professional Infrastructure to see the project through
Analysis of three key areas
We determine why the company is in crisis to assess if the trend can be reversed. We analyse three key areas:
The majority of turnaround finance initiatives result in informal restructuring. The restructure may:
- cause some job losses and lean arrangements with creditors
- involve closing some facilities to reduce overheads
- consolidating divisions to eliminate duplicate administrative functions
- call for the selling off of underperforming divisions of the company
- require the outsourcing of some functions to other parts of the world with less expensive labour rates
The key issue in (most) turnarounds is that the business must have viability. This means that there must be a clearly structured business plan to achieve commercial viability by generating immediate operating cash flows and positive EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation). Without this basic fundamental requirement it is likely that the turnaround will fail – regardless of how solidly the other components have been completed.
Unless viability can be demonstrated or proven it will be extremely unlikely that turnaround finance will be raised.
Of all issues involved in the turnaround, the most difficult is getting the company to recognise deficiencies in management. Weaker managers may need to be replaced and this issue is difficult for boards to be objective about. Many management teams won’t accept that they need help until the last moment – but the best help is the help administered early. The resulting action may have to be decisive and definite.
We provide rapid access to all forms of commercial finance, business services plus top quality professional advice.
Its never too late to talk about the subject of TURNAROUND. However, if you are an executive decision maker in your organisation and feel you would like to explore a few possibilitites, including anticipating future potentila problems – YOU ARE DOING THE RIGHT THING.
Ring our office for a confidential – no obligation discussion.
Telephone: 0116 2418789
Mobile: 0771 1747408 – Ashley Feroze
Mobile: 0771 0029061 – Lorna Hamilton