Turnaround

If you are an 80s kid and read the title of this article you probably have a song running through your head at this moment. However, turnaround in business is not a desperate love song. Turnaround refers to the organization’s financial recovery after going through a very poor performance. Business turnaround is the processes that are needed to bring about necessary changes to solve business operational, strategic, and financial problems. It is a management-led reversal process that helps a struggling business get back to profitability and stability. It is not a desperate love song, rather a business in desperate need to make a change. (Gulati et al., 2017; Hans, n.d.)

When companies are in a turnaround situation there are performance measures that are critical for success. The company needs to look outside of itself and broaden its perspective to help with setting goals. One of the first benchmarking measures that needs to be looked at is the financial benchmark. Financial benchmarking involves running a financial analysis and then comparing the results with other successful competitors in order to assess a company’s overall competitiveness, efficiency and productivity. Essentially you would look at the best practices of your successful competitors and compare the results with your company. This measurement will help the company know how the profitability is recovering. (Financial Benchmarking – What Is Financial Benchmarking?, n.d.; Gulati et al., 2017)

A second measurement to review would be your proximity to bankruptcy. The company needs to evaluate how close it is to bankruptcy and develop processes to get further away from that point. There are key ratios that can be used to provide warnings of bankruptcy early in evaluation such as the debt/equity ratio or the leverage ratio. These ratios help companies measure their ability to meet financial obligations. (Gulati et al., 2017; Investopedia, 2021)

The next measurement that a company can review is the slack resources. When reviewing slack resources the company reviews the resources that are in excess of what is needed for a firm to meet it’s current obligations. Looking for these excess resources will help the company figure out where they have a cushion so they can lean on it and remain operative in the market. (de Jong et al., 2020; Gulati et al., 2017)

Lastly, a company needs to turn to it’s stakeholders and seek their opinions. Stakeholders include shareholders, financiers, key suppliers, employees, customers and anyone else with a large financial or personal investment in the company. The company needs to seek advice on turning the situation around so the company can be more competitive in the market and start heading more towards profit and sustainability. It is important to keep the stakeholders informed of situations and processes to keep them on board. Understand what is important to them and help them to understand what is important for the company. (Birch, 2020; Gulati et al., 2017)

In any turnaround situation, a company needs to look at performance measures which are, financial benchmark to evaluate profitability, its proximity to bankruptcy, financial slack with the company, and stakeholders’ opinion. When looking at these measures a company may be able to turn a sad love song into a happy one.

Resources

Birch, A. (2020, March 27). Secrets and Stages of Turnaround Management. Vantage Performance. https://www.vantageperformance.com.au/5-secrets-3-stages-turnaround-management/

de Jong, A., Zacharias, N. A., & Nijssen, E. J. (2020). How young companies can effectively manage their slack resources over time to ensure sales growth: the contingent role of value-based selling. Journal of the Academy of Marketing Science, 49(2), 304–326. https://doi.org/10.1007/s11747-020-00746-y

Financial benchmarking – What is financial benchmarking? (n.d.). Debitoor. Retrieved September 14, 2021, from https://debitoor.com/dictionary/financial-benchmarking

Gulati, R., Mayo, A., & Nohria, N. (2017). MindTap – Cengage Learning. Cengage.Com. https://ng.cengage.com/static/nb/ui/evo/index.html?deploymentId=557615113112872025758405199&eISBN=9781305643673&nbId=2485825&snapshotId=2485825&dockAppUid=16&

Hans. (n.d.). Turnaround Meaning in Business – The Business Sniper. Business Sniper. Retrieved September 14, 2021, from https://thebusinesssniper.com/turnaround-meaning/

Investopedia. (2021, June 27). Financial Ratios to Spot Companies Headed for Bankruptcy. https://www.investopedia.com/articles/active-trading/081315/financial-ratios-spot-companies-headed-bankruptcy.asp

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