Distress Management & Turnaround

Distress Management & Turnaround

by anil

“When you find yourself in a hole, stop digging.”-Will Rogers

Sad as it may sound, the health of a business is not guaranteed forever. Every business during the course of its existence will experience some level of discomfort, if not managed will lead to severe distress. This can happen to small firms or large corporates.

This is a period characterized by harsh business conditions reflected in low sales, low morale, low cash, low market share, low innovation, loss of customers, etc. Some recover from this and bounce back stronger than before, and some don’t.

There are many factors responsible for distress; those that are self inflicted like; a major project failure, insufficient managerial capacity or poor financial control are generally termed internal forces.

While those that are not self inflicted like; government intervention, economic recessions, the presence of low-cost competitors, or natural disasters are termed external forces.

The continuous survival and success of a business greatly depends on managing these forces internally and externally. Neglecting them can spell doom for any business regardless of size!

Distress or Bankruptcy is a severe matter. Business bankruptcy for a certain company is an absolute affirmation of its inability to endure current operations given its current debt obligations.

Bankruptcy is a curse???

No, bankruptcy is not a curse. Bankruptcy may appear if strategy goes wrong.  This can happen to small firms or large corporates. It is commonly observed among the SMEs that during the transition to growth stage from start-up, the chances of appearance of distress is quite high due to the wrong approach, hiring wrong advisors, or poor financial control, etc. However, factors need not always be internal. Distress may be due to intense competition, high-interest rates and drastic changes in the marketplace. The prolonged economic downturn may force firms to undergo distress.

Undeniable facts

  • Distress causes pain and tribulation to business owners and families.
  • In distress, simple solution evades attention and makes problem compounded.
  • The situation may aggravate if proper guidance is NOT available at right time.

We have listed some of the symptoms of the appearance of distress situation in your business. These indicate that the things are not normal and require an altogether different approach to solve the challenge. SYMPTOMS OF DISTRESS

If you’ve recognised some symptoms, please don’t ignore them.

Can we predict Bankruptcy:    YES

If bankruptcy could be expected with affordable precision ahead of time, entrepreneurs could better secure their business and could take action to reduce risk and loss of business and perhaps even avoid the bankruptcy itself. Therefore, it will be useful if we can predict the firms which are vulnerable to bankruptcy.

We have enclosed a link which gives the most applied method of predicting the bankruptcy which can be applied by you if you make help of an accountant Will Your Company be Bankrupt by next year

How to respond to distress?

One should not feel shy to admit the distress and seek remedies than looking for shortcuts. Commonly observed responses or shortcuts  among SMEs in distress

These responses or recourse to shortcuts are more emotional than financially prudent. People commonly indulge in raising debt to manage the crisis. It should be remembered that increasing debt when in distress does not take anywhere else than aggravating the problem.

The distress situation demands more calm and measured response to the challenge.

Obvious Questions is: Can we turnaround ? Yes.

“Turn around can be experienced in any situation.”

Turnaround is an active process involving new skills blended with historical expertise. It requires innovation, stamina, integrity, discipline, prudence, and sacrifice.

What are the typical strategies of turnaround

Behavioural changes- A precursor for turnaround

Too often, businesses attempt to survive without modifying their behavior—an approach which most always ends in tragedy. One need to appreciate that the present distress is the outcome of wrong approaches, strategies and advisors. To turnaround, one need to move away from the clutches of these blockades and look at a fresh set of solutions and advisors.

Sometimes, companies delay too long waiting for a clearer picture of what should be done—another disaster. Occasionally, too much change is introduced too soon—a tactic which brings more confusion than progress.

Those firms which approach the turnaround process more systematically can achieve better results. Superior methods can save the firm. Inferior methods, employed at critical times, can destroy it.

It is better to seek experts support than taking the matter onto oneself for successful turnaround.