The growing business handbook : inspiration and advice ... - Sparkler

Managing setbacks and turnarounds
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operational issues that are critical to management, lenders and investors with a
priority to develop practical and appropriate commercial solutions for the benefit of
all stakeholder groups. This independent exercise will help provide management with
an insight into their business and draw out commercial opportunities, perhaps not
considered fully or overlooked when dealing with the day-to-day strains of running
the business.
A robust turnaround action plan should include the following key elements:
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identify areas of priority and critical path dependencies;
clearly allocate responsibilities and deadlines;
be challenging yet realistic;
be adequately resourced and supported internally;
identify key risks including contingency planning; and
include a dashboard to measure Key Performance Indicators to monitor
progress.
Developing an action plan is merely the start of the turnaround process – the challenge
is in delivering it successfully.
Practical steps
For a business experiencing a cash squeeze and considering working capital options,
a clear and concise turnaround action plan provides a very useful tool when
negotiating with lenders and other stakeholders. There are five key steps all businesses
can take to maximize the potential for a successful outcome when faced with a recent
setback:
1 Robust profit and cash flow projections need to be rooted in reality and stand
up to close scrutiny. Financial models should reflect achievable cash flows and
not simply reflect what the business feels its funders may wish to see,
regardless of whether or not this shows a potential cash need. Remember,
‘cash is king’ and this may demonstrate a harsh reality of the business’s true
position. Revenue assumptions should be realistic and based on sound
commercial expectations. Interest charges and loan repayments all too often
are given little prominence, while an element of contingency needs to be
included. This should be higher if existing bank borrowings are not fixed.
2 A clearly documented, practical and achievable strategy should help transition
the business from its current position to a stable position and beyond.
Ensuring that there is a management team and external professional support in
place to help deliver this is key. This may involve some difficult decisions, but
if the business is to progress beyond the inevitable economic upturn and
provide credibility and confidence to its lenders, it is crucial it has the right
leadership team.
3 Payment and sales terms should be reviewed and negotiated to ensure the
business is maximizing its cash cycle from purchasing through to sales.