Portfolio Management - Turnaround of distressed asset

Mastering Turnarounds: Reviving Enterprise Value through Strategic Restructuring

​

A turnaround is a strategic series of actions aimed at reversing a decline in enterprise value. This involves restructuring cash-generating processes and rebalancing the firm's operational and financial structure.

​

Key Steps to Achieve a Successful Turnaround

When a company underperforms, a structured approach is crucial to steer it back to profitability. The following steps outline the essential actions required for a successful turnaround:

1. Establish a Timeframe:

   • Assess the duration of available capital before bankruptcy becomes imminent.

2. Stop the Financial Bleeding:

   • Secure all company bank accounts and halt unnecessary payments to prevent further capital outflow.

3. Evaluate Short-term Cash Flow:

   • Analyze current cash flow to understand the financial requirements needed to sustain operations in the immediate term.

4. Identify Revenue Decline Factors:

   • Investigate each cost driver contributing to revenue decline, identifying trends and determining whether internal or external factors are at play.

5. Understand Stakeholder Rights:

   • Clarify the legal rights of stakeholders to reclaim liabilities from the organization.

6. Complete Initial Assessment and Gain Control:

   • Finalize the preliminary evaluation and assert control over management decisions.

7. Revise Management Team:

   • Where feasible, replace the existing management team to streamline the decision-making process.

8. Prioritize Cash Flow:

   • Emphasize the importance of cash, as cash flow is vital to the company’s survival and recovery.

9. Implement a New Strategy:

   • Execute a strategic plan focusing on short-term cash flow improvements and long-term recovery goals.

10. Plan for Transition:

    • Prepare for the turnover to a new operating team post-recovery, as a turnaround is inherently a temporary endeavor.

By adhering to these steps, companies can effectively navigate through periods of financial distress, stabilize operations, and pave the way for sustainable growth and profitability

by Gabriela Nowak, MBA