Turnaround
A successful turnaround restores the company's financial stability, secures its survival, and regains long-term competitiveness.
A successful turnaround restores the company's financial stability, secures its survival, and regains long-term competitiveness.
A turnaround means securing the survival of the company and winning back the freedom to act that has been lost.
In a restructuring, the framework for action is defined by time pressure, liquidity requirements, and, above all, the interests of various stakeholders. This makes it all the more important to set clear priorities, implement decisions consistently, and focus exclusively on securing and stabilising the company.
We understand the demands that restructuring situations place on companies, management, and shareholders. Together, we provide direction, bundle the relevant areas of action, and steer the process consistently toward the goal of restoring the company's future viability.
Understanding the underlying mechanisms, regulatory requirements, and decision-making processes allows you to actively shape the turnaround process and secure the company's ability to act.
An IDW S6 restructuring concept provides the foundation for a sound assessment of a company's viability and ability to restructure. It analyzes the economic situation, evaluates the future viability of the business model, and derives the measures necessary to sustainably restore competitiveness and profitability.
However, it is not the concept alone that is decisive, but its consistent implementation. Clear priorities, high implementation discipline, transparent management, and close professional coordination with lenders and stakeholders create the conditions for successfully managing the turnaround and putting the company back on a stable course.
Experience with difficult situations is an important element of the turnaround process.
The bank meeting is a central instrument through which the lending banks (or the bank syndicate) organise their communication with the company. Here the company reports on the state of the turnaround measures while the syndicate banks are informed in parallel and in identical terms. A tight schedule and clear reporting requirements make particular demands on the company and its advisers, because the supply of credit has to be maintained and secured.
The bank meeting is a central instrument through which the lending banks or the bank syndicate organise their communication with the company. Here the company reports on the state of the turnaround measures while the syndicate banks are informed in parallel and in identical terms. A tight schedule and clear reporting requirements make particular demands on the company and its advisers, because the supply of credit has to be maintained and secured.
Covenants are contractual undertakings in the loan agreement that oblige the borrower to keep to certain financial ratios or to take or refrain from certain actions, in order to reduce the risk for the lending banks. This instrument is largely unknown across the broader mid market and confronts a company in turnaround with a further challenge, because it calls for the balance sheet and the profit and loss account to be steered actively and deliberately.
Companies need fresh money for their turnaround. When additional funds are required, banks bring the shareholders in. Alongside private collateral from the shareholders, an active contribution to the financing is usually expected. In many turnaround situations the bank is only involved once the shareholders have put all their assets into the company and can contribute nothing further. That should be avoided at all costs so as not to put the turnaround at risk.
Accounting assumes that the company will continue its business as long as there is no legal or factual reason against it. In a crisis this going concern assumption cannot be taken for granted. Insolvency or over indebtedness prevent annual accounts from being drawn up on a going concern basis. The turnaround concept, which includes corporate planning, is one building block for accounting in a crisis.
A turnaround situation calls for particular knowledge and skills that are not acquired in normal operations.
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