Turnaround
A successful turnaround restores the company's financial stability, secures its survival and wins back competitiveness for the long term.
A successful turnaround restores the company's financial stability, secures its survival and wins back competitiveness for the long term.
A turnaround means securing the survival of the company and winning back the freedom to act that has been lost.
In a turnaround, time pressure, liquidity requirements and the interests of various stakeholders define the room for action. That makes it all the more important to set priorities clearly, to follow decisions through and to focus on securing and stabilising the company.
We know the demands that turnaround situations place on companies, management and shareholders. Together we create orientation, bring the relevant fields of action together and steer the process consistently towards one goal: restoring the company's ability to face the future.
Those who understand the underlying mechanisms, regulatory requirements and decision processes can shape the turnaround actively and keep the company able to act.
A turnaround concept in line with the IDW S6 standard provides the basis for a well founded judgement on whether a company can continue and can be turned around. It analyses the financial situation, assesses whether the business model has a future and derives the measures needed to restore competitiveness and earning power for the long term.
What is decisive, however, is not the concept alone but consistent delivery. Clear priorities, strong delivery discipline, transparent steering and close alignment with lenders and stakeholders create the conditions for coming through the turnaround successfully 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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