CRISIS STABILISATION IN A BUSINESS TURNAROUND

In most turnaround situations, crisis management will have to commence immediately. Substantially underperforming companies or business units typically suffer from a rapidly worsening cash position and lack of management control.

In many situations companies are in free fall; senior management are paralysed in the face of an apparently hopeless situation and the business faces the very real prospect of running out of cash in the very short term.

The turnaround manager or whoever has effective management control as the time must move rapidly to take control of the situation and commence aggressive cash management.

The objectives of crisis stabilisation are:

• To conserve cash in the short term and thereby provide a window of opportunity within which to develop a turnaround plan and agree a financial restructuring.

• To rebuild stakeholder confidence by demonstrating that senior management have taken control of the situation.

• To begin to reintroduce predictability in the operation.

The approach requires very strong top-down control. The turnaround manager moves quickly to impose a very tight set of controls for the entire organisation. Devolving authority to spend money, incur credit or commit the business in any way is removed. Short-term cash generation becomes a priority.

A critical element is to rebuild predictability in the business, and the generation of rolling short-term forecasts becomes a key management tool. The process of forecasting the short-term cash position, communicating the information to stakeholders on a regular basis, and then achieving the forecasts is crucial in rebuilding their confidence. Crisis management requires robust leadership; in most cases the turnaround manager is forcing a radical mindset change in the organisation.

The other key element is launching a series of cash generation strategies. Working capital is reduced by liquidating surplus stock, improving debt collection and stretching creditor payments. All capital expenditure, except the most essential, is put on hold. Sometimes there is an opportunity to increase short-term revenues by price increases, but this the exception rather than the rule.

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