According to Investopedia, a turnaround refers to steady, positive movement experienced after a significant period of performance decline.
There will always be distressed businesses that need saving in our competitive, ever-changing economy, which is exactly what a turnaround is intended to do.
Yet, there are many misconceptions about turnaround management and the good that it can do for a company.
Here are some common myths about the turnaround management process, busted.
Myth #1 | A successful turnaround does not have to take years.
A successful turnaround does not happen overnight. It requires time and patience.
It took Apple over 15 years to become the company it is today.
Often, a hurried turnaround is bound to fail instead of creating sustainable, positive long-term results.
While the immediate goal of a turnaround is to prevent a business from going into liquidation, the changes put into place as a result of a turnaround strategy should help a business accomplish long-term growth and success.
Myth #2 | Company turnaround always means downsizing and layoffs.
Not all company issues are internal.
Some organizations need a retrenchment strategy, a recovery strategy or both.
Retrenchment strategies deal with internal causes like operations to reduce cost, while recovery strategies focus on external causes, like a company’s competition.
If the company is facing external issues like competitors, market demand, economy or supply prices, it’s usually not necessary to downsize.
Sometimes, all a company needs is a new direction.
Myth #3 | A company is doomed once it declares bankruptcy.
Declaring bankruptcy is a way to protect your business from creditors, renegotiate repayment of debts and get a new start.
In fact, filing bankruptcy may be the best decision for a company’s future.
The debt relief offered by bankruptcy may be the first steps on a path that leads to future success.
Myth #4 | Businesses only fail because of financial problems.
Businesses fail for all sorts of reasons, not just due because of financial problems (although money does typically play a role).
Some of the most common reasons for business failure include:
- Remaining static
- Bad customer service
- Placing profit over people
- Lack of transparency
Myth #5 | A turnaround means the company is doomed.
Quite the opposite – a turnaround gives a company a great chance at survival.
Think of it as a proactive measure that a firm can take when it is showing the early signs of financial distress, as outlined by the Chartered Institute of Professional Financial Management (CIPFM):
- Borrowing near to the maximum level available and a significant shortage of cash
- Suppliers make demands for payments to be made faster
- A business is consistently losing money each month
Myth #6 | Turnaround management can help any company succeed.
Not all businesses can be saved.
A company worth the time and energy for a successful turnaround must have at least three basic components:
- Strong Roots: A business with a good history and reliable employees has a greater chance of surviving than one without. However, even companies with these requirements don’t always succeed. Sometimes the problem lies elsewhere.
- Short-term Financing: Funding is one of the most important aspects of a successful turnaround. According to the 2015/2016 Global Entrepreneurship Report, over half of all businesses fail due to lack of funding. A business needs to have enough cash flow to finance a turnaround and get back on its feet, meaning that companies should seek help before they hit zero.
- Savvy: Finally, no business can bounce back without the necessary skills, knowledge and resources it takes to run a successful business. Companies need to have access to all of these in order to survive.
Myth #7 | Turnaround management takes the power away from the company’s leaders.
During a business turnaround, an insolvency practitioner will work alongside a firm to arrive at a solution that reflects the needs of the businesses concerned, with the business still having authority over any changes.
While insolvency practitioners can help find new management to drive the business forward, they can also work with the existing management team to formulate a new plan for the business.
Completing a successful turnaround takes a lot of time, patience, hard work and, most importantly, money.
Hiring a collection agency to collect on unpaid accounts is a great way to increase cash flow and help fund a turnaround.
Since collection agencies specialize in credit management, they can provide valuable advice and support to make sure your company stays profitable.
If your company is struggling with unpaid accounts, give us a call and we’ll see how we can help.