Business Turnaround Definition
There have been many attempts to place a definition on ‘Business Turnaround‘. However, these are quickly becoming ‘out-of-date’ as the restructuring and turnaround profession advances in our modern disruptive world.
At TurnAbout AU, we have thought long and hard on the topic. The most accurate Business Turnaround definition we have arrived at is:
The immediate intervention and implementation of short timeframe strategies for the purpose of achieving the sustainable recovery of an underperforming, yet potentially viable, business model.
It wouldn’t be right for us not to try and incorporate ‘restructuring’ when attempting a business turnaround definition. The restructuring process is where a business converts a period of loss into one of profitability and success whilst stabilising its future. Therefore, when providing a definition for ‘business restructuring and turnaround’, we believe it is important to include the following:
Whether scenario planning or instigating measurable changes, the overarching principle with restructuring is to preserve, to the greatest extent possible, a company’s enterprise value whilst attempting to maximise returns to key creditors and minimise risks to all other stakeholders over a predetermined period of time.
The above takes into account ‘going concern’ value, protection of intellectual property and employee skillsets (talent) as they might be linked to other tangible or intangible assets – such that the viable business model is saved holistically. The concept being that the ‘whole’ is greater in value than the sum of it’s various parts and components.
Obviously, when utilising ‘restructuring and turnaround’ practices, we need to avoid rescuing business models that are not viable (for example, lacking in technological innovation for longer term survival). Such businesses are often described as ‘zombie’ companies and do not contribute to the economy. With the recent crises that have drastically impacted human behaviour and our economy (COVID-19, fires, floods, drought…), it is logical that this urgent need for businesses to be adaptive and agile will result in turnaround and restructuring becoming the new norm. Disruption has been suddenly and forcibly thrust upon the business community.
Corporate Turnaround has been defined as:
‘The implementation of a set of actions required to save an organisation from business failure and return it to operational normality and financial solvency. Turnaround requires leadership and can include corporate restructuring and redundancies, an investigation of the root causes of failure, and long term plans to revitalise the organisation.’
However, we much prefer our modernised definitions as they can be applied to sole traderships, as well as small and family businesses. Our definitions also fit closely with the fundamental concept and intended purpose of the ‘insolvency safe harbour‘ protection for directors from insolvent trading personal liability (s588GA – see our ‘safe harbour definition‘) – which provides breathing space for leaders (debtor in possession style) to take charge of the restructuring and turnaround strategies provided it results in a ‘better outcome’ for the company (creditors and/or shareholders).
Get in touch to learn more or discuss in further detail. Our objective is to rescue the value in small and family businesses.