Thought Piece

The first is the traditional type. The trade association for licensed insolvency practitioners is called R3; Rescue, Recover and Renewal. R3's classic turnaround story goes like this: the company has hit the wall and a team of specialists go in to sort out the mess. Their aims? To stop the company disappearing, recover what is viable for the long term and reinvigorate what remains after the sell offs and redundancies. Then they hand the business back to management. You could call this swashbuckling approach, Fire-Sale Turnaround.
The financial bubble of the the first part of this century has finally run its course and the recovery market is older and wiser. Look out, now, for more supply chain-related issues causing financial crisis. It's not so much "do or die" as "get back on track". We're calling this second type, the Repositioning Turnaround. "Every market becomes more sophisticated as it matures, the recovery market is no exception," says Richard Farr, a former director of Business Recovery at PricewaterhouseCoopers. "Banks need to lead the way in attempting to get into client 'situations' constructively. The overriding lesson from every type of turnaround is that business still isn't easy. However, it would be good to think that if you act sensibly you can, indeed, avoid making a crisis out of a drama.

Every management team has different strengths and weaknesses. One that's good at growing a business may not be as strong at knowing what to do when there's a down-turn in sales or pressure on margins. They may not even have the experience to see the problem coming. Outside help and a co-operative bank can make a difference in those situations.

That brings us to the role of the banks, so often the largest creditor and certainly the one with the most intimate knowledge of how a company is faring. We all love a stereotype and the heartless, faceless bank pulling the plug on sound businesses over a minor blip sits deep in the business consciousness. But not all banks fit this caricature. "We want to work with management of a business facing difficulties to help identify the issues and provide solutions to get them back on track," says a senior manager with a leading retail bank. "We can make the most impact when the problems are identified early. We are keen for management to be open with us."

Banks are not charities. But they do calculate the lifetime value of the customer and they understand the reputational risk to themselves of the slash and burn exercises they are sometimes accused of. Most solutions to business difficulties involve access to more funds and/or different products (hedging, leasing, factoring) and that all adds up to continued and profitable involvement for the bank.

A Repositioning Turnaround may mean divestment of a troublesome subsidiary. It may mean embarking on (yet another) cost-cutting exercise, including turning away revenue opportunities if they are not of a sufficiently high margin. It most certainly involves a first step of getting an impartial and pragmatic overview of what the problem actually is, from Turnaround Professionals who also know the kind of language with which to talk to banks. The moment you take this kind of decisive action, you're likely to discover that there's no crisis, no drama, only urgent action that must start now.

Banks are not charities. But they do calculate the lifetime value of the customer and they understand the reputational risk to themselves of the slash and burn exercises they are sometimes accused of.

That brings us to the role of the banks, so often the largest creditor and certainly the one with the most intimate knowledge of how a company is faring. We all love a stereotype and the heartless, faceless bank pulling the plug on sound businesses over a minor blip sits deep in the business consciousness. But not all banks fit this caricature. "We want to work with management of a business facing difficulties to help identify the issues and provide solutions to get them back on track," says a senior manager with a leading retail bank. "We can make the most impact when the problems are identified early. We are keen for management to be open with us."

Banks are not charities. But they do calculate the lifetime value of the customer and they understand the reputational risk to themselves of the slash and burn exercises they are sometimes accused of. Most solutions to business difficulties involve access to more funds and/or different products (hedging, leasing, factoring) and that all adds up to continued and profitable involvement for the bank.

A Repositioning Turnaround may mean divestment of a troublesome subsidiary. It may mean embarking on (yet another) cost-cutting exercise, including turning away revenue opportunities if they are not of a sufficiently high margin. It most certainly involves a first step of getting an impartial and pragmatic overview of what the problem actually is, from Turnaround Professionals who also know the kind of language with which to talk to banks. The moment you take this kind of decisive action, you're likely to discover that there's no crisis, no drama, only urgent action that must start now.

Peter Charles 2010