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• 07 Oct

  Business Turnaround Guide

  Turning around a company that is struggling can be difficult and many people benefit from experienced support. This is our free business turnaround guide with information about business rescue. It pulls together some of the resources on our site for businesses that are struggling and need to come up with a turnaround plan to rescue their business.

  DISCUSS YOUR FUNDING ISSUES

  Insolvency Warning

  

  Firstly, a WARNING about trading whilst insolvent. Insolvency is when a business is unable to pay its debts when they fall due. There are stiff penalties for directors or business owners that continue to trade on whilst insolvent. If you are in an insolvent position you should consult a licenced Insolvency Practitioner.

  Company Financing

  FundInvoice LLP is a business finance brokerage that may be able to help companies find the financing that could form part of a turnaround plan. In some circumstances, there may be other alternatives to help your company avoid becoming insolvent. This guide is our ideas about how we would approach turning our business around if the need should arise. It is not advice.

  Business Problems

  Most businesses have problems at some point, some may need turnaround help. It may be that your sales volumes have declined or that overheads are rising. Perhaps your creditor demands are piling up or your debtors are paying more slowly. There are many reasons why a business can get into trouble, but in most cases, the business can be rescued if you take early action. The key is to take early action, rather than allow the decline to continue.

  You may need to take immediate action to ensure that your business survives the financial crisis whilst planning longer-term measures to turn your business around.

  Business Turnaround And Company Rescue

  The remainder of this guide is for those who are seeking to create a business turnaround plan for their organisation. The objective of the rescue plan is to take a struggling business and set out on a path that will put it back on its feet.

  Business Turnaround Guide

  You may feel able to construct such a plan yourself using this guide, or you may choose to turn to a turnaround specialist that deals with the rescue of struggling businesses. Below are some useful pointers about our thoughts on how to turn around a business.

  Assessing The Situation

  The first step is to assess and understand your current position, and the reasons why your business is struggling. This will help you identify the possible solutions that should form part of your plan. It may be very obvious e.g. you have lost a customer, or it could be a combination of factors.

  Steps To Understand Your Current Situation

  The following video explains how to understand your current situation, get to the root cause of your issues and start to pull together the elements that will drive the plan to improve your situation (there is a video further down that covers the planning process):

  These are some of the steps that you can take to understand your current situation, writing it all out is a good way of producing a comprehensive analysis:

  • Review your financial accounts - review both your statutory financial accounts and your management accounts. You can use our notes on how to understand financial accounts. Is your business profitable? (income exceeds expenses) Is it liquid? (short-term assets exceed short-term liabilities). These are important indicators of the overall viability of the business.
    
    
  • Go through your cash flow - your cash flow projections (you or your accountant can produce them if you don't have any) will show you if you should have enough cash to meet your obligations and where the cash flow problems are going to be. If there are shortages, your forecasts should identify how much of a gap you have to plug it may be possible with some type of short-term borrowing.
    
    
  • Understand your overheads - are your outgoings causing your problems? In some cases, it can be obvious e.g. an expensive lease on your premises, or reliance on an expensive short-term loan. It may be possible to restructure these types of costs. For example, a longer-term lease could reduce your monthly payments, or the loan may be able to be spread over a longer term, lowering the repayments.
    
    
  • What is your creditor position? Are you under pressure from suppliers or HMRC? Is it realistic that you could bring your creditors up to date, or perhaps restructure some arrangements? Or is the situation overwhelming?
    
    
  • Analyse your debtor book - are your customers paying on time? Are you overly reliant upon one or a small number of debtors that delay your payments? How does the size of your sales compare in terms of revenue and margin?
    
    
  • Assess your product/service offering - is there sufficient demand for the products or services that you offer? Do you need more customers or perhaps it's the type of customers that you deal with that are causing problems? For example, are you suffering bad debts by dealing with uncreditworthy customers - or are they all slow payers?
    
    
  • Staff situation - do you have enough of the right staff? Or perhaps you have too many employees that are causing a cash drain each month?
    
    
  • Other issues - are there other areas that are the problem? For example, legal or legislative requirements that are causing your costs to rise. This category could include a wide range of other factors that might be affecting your business.

  Once you have a detailed and comprehensive understanding of the issues that are affecting your business, the next step is to produce a plan of the actions that you are going to take to put your business back on track.

  How To Write A Turnaround Plan

  Brainstorm Ideas

  It is good practice to gather together some or all of the stakeholders in your business, to brainstorm ideas to solve the problems that you are facing. This is a similar process to that followed by most turnaround specialists. It is also a good idea to involve your key stakeholders (these may be shareholders, Directors or even key members of staff) throughout the process. you will need them to buy into any plan to be able to implement it.

  Objectives & Goals

  You should set out your objectives at the beginning of the plan e.g. is it to become cash-positive, or to boost sales above a particular level? Objectives should be measurable e.g. set the value of additional sales you need to achieve your goals. You may need the help of your accountants to model different scenarios. For example, if you can achieve an uplift in sales of £X per month, how does that affect your cash flow and your financials?

  Having targets to aim at means that you can track progress against those goals and targets as you go.

  Possible Actions

  The following video sets out a list of different ideas that you might be able to use, to rescue your company and turn your situation around:

  These are possible corrective actions and corporate turnaround strategies, that might form part of your rescue plan, depending upon your circumstances:

  • Cutting overheads, costs and expenses.
    
    
  • Finding new customers.
    
    
  • Increasing sales to existing customers. This may include producing and implementing an improved marketing plan.
    
    
  • Diversification of your product offerings.
    
    
  • Changing your current offerings. This might include streamlining the products or services that you currently offer. It may be that you need to focus on those products that are the most remunerative for your business, away from products that have a higher cost to deliver or serve.
    
    
  • Reducing staff numbers either via redundancies or natural wastage e.g. not replacing those who leave
    
    
  • Change the business management team.
    
    
  • Seek new finance or restructure current borrowings e.g. find cheaper financing alternatives or forms of finance that will reduce your monthly outgoings by restructuring the debt over a longer term. There are a number of ways that you can raise additional working capital for your organisation. You might seek investment instead of borrowing. You may need to renegotiate terms with your bank of financiers. Note that there are forms of finance, such as invoice finance, that are more readily available than others if you are having financial problems.
    
    
  • Change or enhance your pricing - a small increase in prices may not be noticed by customers but could generate additional income.
    
    
  • Implementing improved financial controls - producing regular performance statistics, tracking progress against budgets and cash flows or monitoring the cash that comes into your business. You may need to improve your credit control function in order to speed up the collection of accounts receivable.
    
    
  • Negotiate and agree on repayment plans with creditors or investors. If you have HMRC arrears for VAT, PAYE, NI or Corporation Tax you may be able to seek a TTP (Time To Pay) arrangement with HMRC.
    
    
  • Improve the management of your inventory or stock. This could include finding cheaper suppliers in order to boost margins or seeking discounts or additional credit terms from existing suppliers.
    
    
  • Improving cash flow - this could be by speeding up customer payments, arranging more supplier credit or taking out additional funding facilities. Business finance facilities can be hard to find if you are having financial problems but there are forms of finance such as factoring that can improve your cash flow forecast.
    
    Factoring can be available to businesses that have credit pressure, CCJs (County Court Judgements) that are already in an HMRC Time To Pay arrangement or a CVA (Creditors Voluntary Arrangement).
    
    
  • Seek external support - you may want to seek business rescue help from a business rescue or turnaround specialist.
    
    
  • Pre-pack - you may consult an insolvency practitioner and conclude that the only option is for the company to enter Administration and for you to buy the assets from the Administrators. You can then continue to trade as a Newco. This can require pre-pack finance to facilitate the purchase.

  Structure For Your Turnaround Plan

  These are some typical sections that you might include within your turnaround plan:

  1. Executive Summary - pulls together key points about your situation and your plan.
     
     
  2. Background - a summary of the background of the business that led to this point.
     
     
  3. Analysis Of Your Current Position - details of the current crisis.
     
     
  4. Your Objectives & Goals - your vision for the future together with goals and objectives against which you can measure progress.
     
     
  5. The Turnaround Plan. This is the plan of the actions that you are going to take, this should include details such as dates and who is going to complete which tasks. It may draw on the suggestions above and will address:

  • Cash flow and cash management.
  • Business management & staffing.
  • Product & service changes.
  • Sales and marketing plans.
  • Operational plans.
  • Financial projections, plans and any need for additional turnaround finance facilities/restructuring of current borrowing.

  Your plan should address both short-term measures to ensure your survival e.g. additional funding to get you through the current crisis and the medium to longer-term plan to solve the issues e.g. recruiting new customers.

  Depending upon your situation, you may need to provide your plan to financiers, or other parties (such as investors) so it needs to be well-prepared and thought through and you may want professional support in its production. 

  Avoiding Insolvency

  Government statistics about the number of insolvencies in the UK show the numbers are high, but we hope that in some cases Directors and business owners can avoid insolvency by creating and implementing a business turnaround plan, to rescue their company using some of these ideas.

  By Glenn Blackman