Drawing on real experience, I outline a comprehensive five-stage approach that has proven successful in the turnaround of companies facing financial distress. This method addresses key issues from management challenges to strategic action plans, providing a practical roadmap for small business revival.

Bad Management or Bad Business

When a business faces financial distress, it is crucial to discern where the root of the problem lies. This shapes the approach for resolution and recovery.

• Experience and Bias: Assessing the influence of personal bias and experience on decision-making.
• Business Viability: Determining the fundamental viability of the business is a threshold question.
• Understanding Commercial Problems: Identifying patterns of risk and opportunity in commercial problems.
• Challenges of Management: Emphasising the importance of knowledge, understanding, insight, and leadership.

Solvency and Liquidity Issues

When a business faces challenges, maintaining solvency is paramount. Liquidity issues and dysfunctional agendas can quickly derail even the most robust recovery plans.

• Constraints: Recognising legal, operational, and political constraints that can derail a good plan.
• Employee Payments: Ensuring timely payment of staff to maintain morale and trust.
• Conflicting Agendas: Identifying and managing conflicting agendas and objectives within the business.

Diagnostic Review

A thorough diagnostic review allows us to identify strengths and areas for improvement, forming the basis of a strategic plan for recovery or winding down.

• Comprehensive Analysis: Conducting a thorough review of financial and non-financial history, trends, projections, competitors, and constraints.
• Management Interviews: Engaging with management to identify problems and potential solutions.
• Operational Improvement: Understanding why losses are occurring and identifying potential for operational improvements.
• Competitive Environment: Evaluating the business cycle and competitive issues.
• Organisational Structure: Reviewing management, organisational structure, business processes, and alignment.

Alternatives and Action Plans

Steps to determine strategy, risk and reward, consensus, cooperation and support.

• Developing Alternatives: Establishing and evaluating realistic options for action.
• Consensus Building: Negotiating support for the realignment of risk and reward.
• Management Selection: Choosing the right management team for different stages of the turnaround.
• Asset Value Maximisation: Maximising value from asset sales to support the turnaround strategy.

Lessons Based on Experience

Drawing from years of experience in managing insolvency cases, here are key lessons that can guide businesses through the complexities of financial distress and restructuring.

• Post-Restructure Viability: Ensuring the business is viable after the restructure.
• Practical Approach: Keeping solutions practical and simple, while taking people and technology along in the process.

David Levi is a Chartered Accountant who works almost exclusively with companies in financial distress or potential distress. DM him via LinkedIn or call him on 0418 602 466 for a confidential discussion. There is no fee for the call.