If your company isn’t generating enough revenue to break even, executives are taking less than a full salary, or the business is behind on its bills, then a solid turnaround strategy is necessary to remain solvent.
A turnaround strategy is a series of actions a company can take to recover from a serious performance decline. But it’s not as simple as cutting costs and paying off debts. A successful strategy requires substantial financial, operational and, sometimes, cultural adjustments by leaders who are willing to embrace the change.
Why isn’t your turnaround strategy working?
Companies in distress tend to rely on their current executives to drive successful business turnaround. While this is initially less expensive than paying for outsourced turnaround leadership, the existing team may not necessarily be equipped to save the struggling business.
There are several common pitfalls that internal teams often face while trying to turn a business around:
Lack of turnaround experience
Current leadership may not have experience identifying struggling areas of the business and coming up with a successful transformation plan. When a company is quickly facing insolvency, it’s often more expedient to outsource business turnaround to experts rather than wait for the current team to learn the fundamentals.
Tenured business executives often have biases that prevent them from taking difficult measures to save a business. For example, a full-time executive may be hesitant to sell off insolvent portions of the company or replace underperforming senior managers due to a personal history with these people or entities. Business turnaround often means drastic business measures, and those are best done by an unbiased party.
Failure to adapt to changing market conditions
Competitive pressure, changing market conditions and changes to consumer demand all make it necessary for businesses to continuously adapt their products. Executives from a company in distress likely haven’t prioritized research and development and product adaptation, so they may not be equipped to revolutionize the product during a business turnaround.
Outsourced financial leadership can help drive change and business transformation
Thankfully, when a company outsources its turnaround strategy, many of these barriers are eliminated. A tenured fractional CFO with turnaround experience will be able to quickly evaluate company performance, identify key areas of improvement and come up with a long-term strategy for growth, all without any of the biases or commitments to the status quo that an in-house turnaround management team might have.
Once a business outsources its turnaround strategy, it can expect swift action from outsourced leadership in four stages:
- Reviewing: The outsourced expert(s) will audit and identify the underlying problems with the business, as well as its chance of survival.
- Restructuring: The turnaround team will create an achievable recovery plan, which will include measures to eliminate outstanding debt, reduce operating costs, enhance company products and pricing and more.
- Implementing: Once the plan has been created and communicated, the turnaround team will take all necessary measures to execute the plan and produce positive cash flow. This is often the most shocking part for internal employees, because it can include drastic measures like eliminating company departments, slashing budgets and other significant changes.
- Stabilizing: Once the business has a positive cash flow, the turnaround strategy will likely shift to optimizing the remaining business operations. The company will likely see increased emphasis on operational efficiency across the business, with the ultimate goal of increasing profitability and return on investment (ROI) in the long-term.
Throughout the endeavor, the right outsourced leadership will clearly articulate the company’s direction and the rationale for the changes they are making. This expert(s)’s job is to boost company morale and convey a sense of confidence to stakeholders that the decisions being made are best for the business.
When done correctly, an outsourced turnaround strategy can eliminate a business’s debt obligations, create more efficient processes, reimagine a company’s product, and, most importantly, ensure that a business is financially solvent.
Case study: a company embraces change, increases value for eventual sale
What can a successful turnaround look like for your business?
Consider EST Group, a reseller of computer products and technology consulting firm, which saw a meaningful reduction in net profits while struggling to determine the constraints they were facing. Facing insolvency, the company turned to Paro, who matched EST Group with a fractional CFO with 30 years of turnaround experience.
In order to portray the gravity of their situation, the CFO had to be honest and forthright. But most importantly, he needed buy-in from EST Group to make fundamental changes. He immediately helped the firm understand that their budgets and goals weren’t beneficial—i.e., the consulting group wasn’t driving toward sustainable goals. EST Group promptly went through a reorganization and sold the consulting firm, reducing costs and eliminating underperforming parts of the business.
But the value-add didn’t stop there—transforming the business meant making a future-focused impact. The CFO worked with EST Group for 18 months to build a roadmap for the future that involved annual budgeting, streamlining processes and creating informative KPI reporting. With such strategic leadership, clarity swept across the team, allowing them to turn around their performance, gain more value and ultimately led to the company’s successful sale.
Learn what’s working for your business…and what’s not
If your turnaround strategy isn’t producing the results you need, it may be time to get an outside and honest perspective to identify the processes and strategies that need to change.
Paro offers experienced turnaround strategy solutions that can preserve your business value and stabilize your finances and operations. Paro’s fractional CFO’s can help your business understand what’s working, what’s not, and what actions you can take to get the results you need. Request a consultation to get started on the next phase of your company’s growth.