When Do You Need a Business Turnaround?
For most businesses, the signs that a turnaround is needed are obvious: cash problems with increasingly frequent infusions from the owners or other sources, a steady decline in operating performance with higher costs and lower sales, violation of bank contract covenants and threats from the bank to put you in workout. All of this leading to an unstable and declining revenue and profit picture with even the specter of bankruptcy becoming a possibility. Under these circumstances, it is clear that a robust, effective and proven turnaround approach is needed to save the business, and return it to profitability.
However, even in the absence of the above, there are cases where a business still needs a turnaround, but ownership may be tricked into believing that performance is fine. Growth can mask signs of a deteriorating business in many areas. Learn about "the success trap.” For example, profit may be growing in absolute terms, but declining as a percentage. If this decline is trending over a long enough period of time, this indicates that there are systemic issues that may eventually reverse and thrust the business into more serious problems.
Another area that may indicate that action is required is the existence of major risk points. If a business that is operating with solid results has major risk exposure due to extreme customer or vendor concentration, that business is one decision away from major problems and must undertake efforts on a priority basis to reduce risk and turn the business towards a more sustainable strategic and operating profile.
The need for a business turnaround can be found in numerous areas. It is imperative that owners and senior leadership continually review their business performance for the signs of business turnaround need, and be decisive in making the changes required.