Why?

In the current economic climate many businesses are facing severe pressure on their operations. A typical sequence of events for a failing business is as follows:

  • a business makes a poor investment choice, or takes on an excess amount of debt, or does not predict a downturn in its business activity
  • it therefore finds itself struggling to meet supplier payments on time and has no available cash to invest in future business development
  • due to the lack of free cash the business enters a distressed stage and may face losing a major customer or default on bank payments
  • the loss of a key customer, or a default on payments to the bank, triggers a crisis stage where there is extreme creditor pressure and the loss of key suppliers
  • the loss of key suppliers means that the business can no longer generate positive cash flow and it rapidly falls into insolvency and ultimately fails

If the warning signs are detected early enough and clear, immediate and decisive action is taken then the above sequence of events can be stopped and the business can be turned around to restore value to the stakeholders: 

  • crisis management by experienced independent professionals can assist management in the identification of critical issues and and the development of a plan to keep the company trading through its distress
  • one of the reasons that management is often unable to reverse the downward trajectory is that dealing with the emergency issues relating to banks and suppliers consumes all of their available time and they are unable to focus on managing the business
  • once the immediate crisis has been recognised and short term remedial action taken to stabilise the business, the turnaround team can formulate a strategy with management to put the company on the road to long term recovery
  • at this point it is essential that the business continues to execute tight operational and financial controls in order to continue the financial recovery

In our view two key factors greatly enhance the prospects of successful recovery:  early recognition of the problem, and the use of experienced external support.

Authors

Design and technical implementation:
Eksit oglaĊĦevalska agencija d.o.o.
www.eksit.si

Eksit oglaĊĦevalska agencija d.o.o.