Turnaround Management More Than a Buzzword? Turnaround Management Is Very Topical at the Moment with the Proposed Introduction of Voluntary Administration in New Zealand. but How Do We Make Turnaround Management a Reality, Rather Than Another Pleasant Euphemism for Insolvency?

By Sarginson, Alison | Journal of Banking and Financial Services, August-September 2004 | Go to article overview

Turnaround Management More Than a Buzzword? Turnaround Management Is Very Topical at the Moment with the Proposed Introduction of Voluntary Administration in New Zealand. but How Do We Make Turnaround Management a Reality, Rather Than Another Pleasant Euphemism for Insolvency?


Sarginson, Alison, Journal of Banking and Financial Services


What makes a successful business turnaround?

Business success is commonly measured by whether the return on assets meets or exceeds the weighted average cost of capital. For a business to be successful, its managers must have a clear and considered vision of where the business needs to be and this must be supported by the implementation of appropriate plans to achieve this vision. Key factors affecting business success include:

* An understanding of the market, particularly customers, competitors, and any environmental issues that affect the market;

* A good understanding of the business itself: strengths and weaknesses, core competencies, people, equipment and intellectual property resources in order to identify and capitalise on its competitive advantage;

* A focus on driving profitability by maximising sales prices and volumes, and minimising the direct cost of sales and overheads;

* Efficient balance sheet management by increasing the sales generated for every dollar of total net assets (working capital plus non-current assets) invested in the business; and

* A strong management team with access to timely, reliable and useful information with which effective decisions can be made that build a strong business model.

All of these elements are interrelated and must be given equal attention within the framework of a single, integrated plan. Otherwise, the real reasons for poor performance and failure can be overlooked.

For example, a common reason given for a business' underperformance is that it needs more sales. However, overhead costs may also be too high. In trying to increase sales, it is also important to consider the competitiveness of the market, the effectiveness of existing marketing and sales plans and, in particular, the competency of the salespeople employed to implement those plans.

What are the key determinants of whether a business can be successfully turned around?

There must be a sound economic reason for the business to exist

The existence of an economically viable core business is essential to stabilise the company and finance the turnaround. This is likely to involve shrinking the business back to those parts of the business that provide a positive cash flow.

The stabilisation of the business then provides some breathing space to work out how the company can differentiate itself in the market, in order to grow sales and profits again in a sustainable fashion. If a business expands its product and market portfolio too rapidly the business will lose control again and profits will be diminished. The 80/20 rule holds true for many businesses: 80 per cent of margin is achieved from 20 per cent of product lines or customers. Therefore, the focus needs to be on the core (and profitable) customers and product lines, avoiding excessive diversification.

Adequate bridging finance must be obtained to fund the business until it can generate its own positive cash flow again

Initially, cash flow is required to keep the business afloat, either through external sources such as lenders and creditors, or internal sources, such as profitable divisions of the business or the injection of additional capital by existing or new shareholders. The first step is to determine how much cash is needed. A robust, integrated 12-month financial model (incorporating a profit and loss, balance sheet and cash flow statements) and 13-week cash flow forecasts are all essential requirements in this process.

Any external or prudent internal financing sources will also want to see these forecasts supported by a credible restructuring plan that demonstrates why and how the business is going to be turned around. Such a plan should cover the strategic, operational and financial changes that are to be made to the business to underpin the forecast improvement in profitability and cash flows.

Motivation of management and staff

The stress of a failing business on management and staff can be very debilitating. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Turnaround Management More Than a Buzzword? Turnaround Management Is Very Topical at the Moment with the Proposed Introduction of Voluntary Administration in New Zealand. but How Do We Make Turnaround Management a Reality, Rather Than Another Pleasant Euphemism for Insolvency?
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.