What is a business turnaround? (With tips and examples)
By Indeed Editorial Team
Published 14 November 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Turnarounds help organisations stay relevant in their industry and continue operating at a high standard. Management staff regularly rethink their business strategies and implement turnaround principles to improve performance. Learning what a turnaround is may help your organisation overcome declining periods and succeed. In this article, we discuss what a business turnaround is and how to conduct one, alongside some tips and examples.
What is a business turnaround?
A business turnaround is a management-led process stabilising an organisation after a period of low income or poor performance. The process involves implementing strategic steps to restore an organisation's profitability and prevent insolvency or liquidation. A turnaround helps an organisation assess and solve strategic, operational and financial problems and return to its former viability.
Business owners or managers usually lead turnarounds focusing on improving cash flow, management, revenue and productivity levels. They undergo the process in the early stages of decline, financial distress or poor performance. Managers generate the funds necessary to conduct a turnaround through internal means.
How to conduct a turnaround
There are certain steps to follow to conduct a successful turnaround. Following these steps may help your organisation improve its performance and finances, allowing it to refocus on business objectives. Steps on how to conduct a turnaround include:
1. Assess the situation
Conduct an assessment of the current state of the organisation to determine what strategies to develop and implement. Analyse the current position of the organisation in comparison with its market and competitors. Make sure you investigate every area of the organisation to identify any problems. Identify, measure and evaluate key performance indicators to make data-backed inferences about the current state of the organisation.
2. Determine the source of the problem
Once you've identified all problems, start determining their causes. This ensures you focus on the right area of the organisation and base your turnaround principles on clear evidence. Some usual reasons behind problems include:
products and services
marketing and sales
process and systems
3. Set shared goals
Create shared goals for all employees, managers and other stakeholders to work towards. Shared goals give company members something to rally around and commit to, allowing them to provide input and solutions on how to meet these goals. Foster a collaborative environment where all team members feel comfortable expressing what they think is best for the organisation and create a sense of shared responsibility. Setting goals also clarifies what direction the organisation is moving in and why.
4. Establish a turnaround plan
Develop a turnaround plan that solves the issues you've identified and supports financial stability and operational performance. Present this plan to stakeholders for approval, showing them that you've thought through the process. Include the sales plan, staff reductions, core business values and cost-saving actions within the document. Include a cash budget and monthly financial projections to work towards. Establish new key performance indicators to measure success at each milestone or task completion.
5. Communicate the plan
Communicate the plan and ensure everyone understands, commits to and supports it. Bring all employees together and concisely explain the problem before outlining your plan. This ensures they understand the reason for the change and support the turnaround process. Emphasise the importance of commitment and loyalty to the plan for it to succeed.
6. Stabilise the organisation
Have a stable foundation and positive cash balance when implementing turnaround changes. Implement asset reduction techniques, strict cash controls and improve inventory management to stabilise the organisation. Take care of the organisation's debts first before funnelling money into new initiatives.
7. Improve profitability
Focus on improving the organisation's profitability to demonstrate to stakeholders that your turnaround efforts are successful. Use data analysis to optimise your processes and strategies while focusing on increasing profit margins. Increase profit margins by reducing variable costs and improving productivity. Improving profitability is a continuous process that depends on constant analysis of the organisation and its finances. Periodically study sales and cost figures to discover new ways of increasing profits each term or year. Other ways to improve profitability include increasing product prices, adding new products to the line or dropping unprofitable products.
8. Increase sales
Aim to increase sales without spending more money on new advertising campaigns. Consider raising the prices of certain products or services to generate more income from your organisation's existing customer base. This allows you to draw on customers who've already established an interest in the brand. Generate new consumer leads and convert more of them into customers. Achieve this by creating buyer personas based on your ideal customers and communicating a unique value proposition to leads. Improve customer service to encourage more customers to return to the organisation and prompt them to recommend its products to others.
9. Stay consistent
Turnarounds are continuous processes that depend on consistency and constant monitoring. Continually track key performance metrics long after the organisation has returned to profitability. Track and monitor operations and evaluate their various elements. Implement new turnaround techniques as the business changes or adapts to new markets or opportunities.
Tips for conducting turnarounds
Here are four tips to consider when conducting a turnaround:
A successful turnaround depends on an objective analysis of the organisation and its positioning. Avoid underestimating problems to prevent big changes or difficult discussions with stakeholders or clients. Base your decisions on facts and data analysis to remain objective in your research.
Remain adaptable to change
Since a turnaround is a continuous process, remaining adaptable is necessary to respond quickly to new changes or developments. Sometimes a turnaround strategy doesn't work, requiring teams to reconvene and start again on the implementation process. Remaining adaptable prevents you from spending too much on ill-fitting strategies by allowing you to change courses immediately.
Take corrective action if you notice old habits or problems resurfacing. Turnarounds are lengthy processes, causing some employees to lose faith in the process and hindering productivity. Remind teams of the reasons for the change to ensure they stay committed to the cause. Intervening old habits or negative thoughts early requires management to stay involved in the process and communicate openly with employees.
Communicate honestly with leadership, employees, stakeholders and clients regarding the current state of business operations and what's required. This makes it easier to develop and implement strategies as everyone understands the situation and is willing to contribute to the process. Remaining transparent also creates a positive working environment that motivates employees to further the business.
Examples of turnarounds
Here are some examples of turnarounds:
Organisations often consider implementing turnaround strategies due to poor communication or ineffective management. For instance, a construction company undergoes a structural change in which newly promoted personnel struggle to manage labourers and project direction. This results from insufficient training or resources on how to lead teams and direct large-scale projects. The company provides in-house training to bridge skills gaps and continually evaluate the performance of new management members. They provide honest feedback to management and address structural deficiencies where necessary.
Improving the customer base
A customer base refers to the group of people who repeatedly buy an organisation's products or services. An organisation may experience a decline because they're losing customers due to brand controversy, new competition, market gaps or other factors.
For instance, an interior design company loses customers after some negative reviews regarding a new furniture product. The company apologises to the customers and issues compensation as an exchange or credit note. The company focuses on improving its product and creating a new marketing strategy to communicate the product changes. Through good customer service, listening to customers and creating engaging marketing content, the business attracts new customers and keeps existing ones.
An organisation may experience financial downturns due to underestimating funds or cost overruns. For instance, a fleet management company spends money expanding its operations without anticipating the need to service vehicles and perform repairs. The company re-evaluates its finances and develops a plan to devise funds as necessary. They achieve this by scaling down operations by limiting the number of vehicles per fleet. Some other ways to re-evaluate budgets and generate more funds are to withdraw money from new ventures that aren't generating income and reallocate money from ineffective advertising campaigns.
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