Turnaround Strategies for Distressed Businesses

Despite the difficult economic climate, many businesses have weathered the economic storm and survived to tell the tale. Over the recent years, Pilot’s Restructuring division has assisted businesses of all sizes to stay afloat or mitigate losses.

What are the warning signs?

In our experience the key to a successful turnaround is decisive action. It is crucial for businesses to address their problems at an early stage before things start to spiral out of control.

We recommend reviewing the following areas within the business to ensure a successful turnaround:

  • Current cash flow;
  • Lender and creditor relationships;
  • The management team; and
  • Existing business structure.

Cash is king

Businesses do not fail because of lack of profitability – they fail because they run out of cash. It is critical in any business turnaround to manage short-term funding requirements.
Strategies for consideration include:

  • Tightening credit management;
  • Seeking additional equity investment from shareholders or connected parties;
  • Sale of non-core assets (including stock) to generate cash; and
  • Preparing comprehensive cashflow forecasts.

A problem shared is a problem halved

Proactive communication with lenders and creditors may give the business some much needed headroom. Steps to be considered could include:

  • Review of bank loan covenants; and
  • Arranging suitable phasing of supplier payments.

Appoint interim management

Depending on the size and structure of the business, management may want to consider the appointment of an interim manager. This could help identify where the business is deficit and where individuals with relevant expertise and skillsets can come on board.

At Pilot, we have been brought in by clients as turnaround managers. Our appointment gives confidence to lenders, creditors, staff and management that the challenges faced in the business are being addressed in a meaningful way.

Operational restructuring

Operational restructuring can identify new opportunities or create a suitable environment in which the business can successfully move forward.

Strategies for consideration include:

  • Preparation and implementation of a comprehensive business plan;
  • Sale or wind-down of distressed or noncore segments of the business; and
  • Negotiation with company lenders and possibly seeking alternative sources of finance.

Blue skies ahead

The key to a successful turnaround is for management to recognise that they have a problem and that they need to take independent and objective advice.

For more information about turnaround strategies contact Bradley Hellen or Cameron Woodcroft from our Restructuring team on (07) 3023 1300 or info@pilotpartners.com.au.