Each turnaround requires different solutions and each trajectory is different but based on years of experience in turnarounds and a study on underperforming companies we performed last year we were able to identify 4 success factors to restore the profitability of your business.
Fresh Cash is King
During the last couple of months, the majority of companies has been focussing on cash management. Some traditional initiatives include strict working capital management (both to suppliers and customers), leveraging government support, (economic unemployment, subventions, etc.) and postponing debt repayment in consultation with bankers.
Our experience clearly indicates that these initiatives are often not sufficient to implement a fundamental reorientation of the company. 85% of turnarounds require an additional cash injection. A well-founded financial plan is essential to get a clear view on the company’s financial needs.
It’s all about value creating activities
When defining a strategy, it is fundamental to take a step back and focus on value creation. Ask yourself the question: ‘which activities, channels, products, clients, regions, ... are currently creating value for your company, both in terms of turnover, margin, EBITDA and cash flow. Be sure to consider the latest trends, as well any fundamental changes COVID-19 might have caused in the sector you are operating in. Saying goodbye to elements that no longer fit your strategy is tough, but they are an essential part of every turnaround.
In addition, to further developing those value creating activities, we want to underline the importance of ambition. If your initial objective is ‘damage control’, be sure that you will merely reach an underperforming EBITDA. Ambition is key to ensure the effectiveness of your turnaround plan. A plan without ambition will not bring about any fundamental change.
Build a successful team
A new strategy calls for a new set of skills. In most successful turnaround plans we see a radical change in executive committee. In more than 80% of turnarounds, 25% of the executive committee is replaced. In 60% of turnarounds, we even see more than 75% of the executive committee being replaced. It is safe to say that most turnarounds require a brand-new skillset, a fresh perspective on business operations, and above all an energizing wind of change through the company.
Creating a momentum and setting the pace are determining factors of a successful turnaround. This momentum can not only be created by a strong management involvement but also by the energy that arises from a new vision and strategy. Having a plan with well-defined deadlines, responsibilities and objectives is an absolute must.
The COVID-19 pandemic has a significant impact on business worldwide and is forcing some companies to make a fundamental reorientation. Having a clear long-term strategy with a strong emphasis on value creating activities is an essential part of a successful turnaround. In addition, we cannot stress the importance enough of having a team in place with the right skillset and the willingness to go above and beyond.