If companies get into a crisis, they should analyze its reasons. The aim is to restore liquidity and increase profitability.
Most companies do not want to know about the crisis and turnaround. If it went well for years, there could be a bad year or two. But it quickly turns into three or more years. Many turnaround situations arise. It is, therefore, often difficult to tell when it is available. The leading internal indicators:
- Sales and EBIT stagnate or decrease over two or more years
- Changes in markets (products or regions) are recognized late or not at all
- Loss of orders for core products or core services
- Loss of critical accounts
- High production costs in the benchmark
- Changes to customer requirements without the company responding appropriately, such as service, delivery times, costs, or customer complaints
- Unmotivated, frustrated, or poorly trained employees
- High performers leave the company
Possible External Reasons for Turnaround Situations
There are also several external indicators from which turnaround situations can arise with high probability:
- Macroeconomic factors such as the economy, inflation, or interest rate developments
- Mergers or acquisitions of companies
- Removal of company parts (carve-out)
- Takeover or sale by private equity providers
Experience shows that there is usually no single trigger. Turnaround situations typically arise from a combination of factors that reinforce each other in the worst case. Such problems are recognized late mainly because management does not want to acknowledge the situation. Or cannot see because the controlling is insufficiently developing. Then the analysis of the current situation only provides insufficient information or relevant data too late.
Basic Goals of a Turnaround
Those facing such a starting position as a manager have often not done their homework beforehand. Turnaround situations are often associated with a change at the management level. Anyone who takes on such a mandate as a manager should closely examine his task and the general conditions because a turnaround can only succeed if the appropriate freedom of action.
The primary goals for the turnaround are clear and straightforward: it is about restoring liquidity, increasing profitability, uncovering the most critical problems and shortcomings, and quickly identifying possible improvements. It is only in the second step that long-term viability is ensured.
Capture the Market Potential and Actual Customer Shares
To grow in a consolidated manner, it is also essential to grasp the real market potential and basic customer shares right from the start. If there are real opportunities here, the prerequisites for a turnaround are not insufficient. Requirements:
- The supervisory board, banks, owners, trade unions, and employees grant the responsible manager extensive decision-making freedom for the next six to twelve months.
- The company has sufficient residual mass to cover the first six months.
The analysis of significant external and internal factors helps first to get a first overview. It’s about getting a quick overview. A lengthy, complete investigation is not required. There may be time for this when the company is back on track.
Analysis of External Factors in the Turnaround
Finances
Overview of the company’s financial position (creditworthiness, exchange rate development)
Market
- Market assessment
- Market slump (how much?)
- Rising pressure on prices and performance (impact on customers?)
- Change in the competitive situation (why?)
- Fall in demand (causes?)
- Technological change (effects?)
- Development of key accounts
Operations
- Problems with delivery dates
- High purchase prices Analysis of internal factors in the turnaround Finances
- liquidity
- Equity ratio
- Interest charge
- Forms of financing
- Material cost analysis
- Larger private withdrawals
Management
- Expertise in core processes and strategic decisions (wrong strategy, handling critical information)
- Leadership style
Operations
- Quality (how many problems cause extra effort?)
- Process analysis
- Bad investments
- Inventory analysis
- Lead times
Staff
- Loss of relevant employees
- High personnel costs
- Salary model
- Suspected embezzlement
Distribution
- Pricing policy
- Order structure
Ensuring peak performance in a factory is crucial, and we have some great tips to help achieve it! Firstly, it’s essential to regularly check throughput times and thoroughly inspect the factory to identify any areas for improvement. Assessing processes and evaluating the age and maintenance of machines is also key, as is maintaining a clean working environment and complying with regulations.
To stay on top of the order structure, we recommend having open discussions with the sales department, current customers, and even competitors. Addressing any issues that arise promptly is critical, and we’re here to help you take the necessary steps to neutralize, avoid, tackle, or protect against them. Ignoring problems can be harmful to your growth and restructuring efforts, but we’re confident that with our thoughtful approach, we can help you achieve optimal factory performance and success.
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