In the field of corporate renewal two terms are used interchangeably, turnaround and restart. Often these are thought of as synonyms. Both are similar in the sense that they require a reversal of fortune.
The underlying concepts however are vastly different. A turnaround is a transformation tragically delayed. A restart is a resurrection. It is important for the business owner to recognize the implications of this distinction. If they do not any attempt at recovery may fail.
The turnaround is metamorphosis delayed and may require a wrenching and intense period of change. It will occur in an organization that still has life. A revenue stream still exists, and the company’s doors are not closed.
Clients still purchase its products or services. Suppliers continue to support the company in some manner. The company possesses an infrastructure that may include hard assets, personnel, an accounting function, MIS, distribution and marketing.
It also has some notion of future revenue potential and possible profits from this revenue.
A company in need of a restart requires a much more dramatic change, it actually needs resuscitation. This is the result of a catastrophic failure that has been caused by grievous error or misfortune. The effects of many errors may have piled up over time, or a few disastrous may have precipitated a rapid decline.
The doors of the organization may be shut. Infrastructure will certainly be impaired. Often, many legacy issues have accrued-representing a significant burden and challenge to revival.
In both of these situations, the same characteristics are required for corporate renewal. These are competent management, a viable core product or service, and sufficient capital to execute a reversal of fortune.
The probability of success however differs. We can assess this probability on the basis of two factors the difficulty of restoring health and the resources required to do so.
Both difficulty and required resources increase dramatically from turnaround to restart.
While one might expect it would be easy to identify the restart, not all cases are obvious. The key question is has it slid down a continuum, dramatically increasing the difficulty of recovery and necessary resources.
For example, a few years ago I was asked to take a quick look at a company. The client produced industrial and commercial windows and sold both to end users and contractors.
A simple liquidity review showed the aging of both Accounts Receivable (AR) and Accounts Payable (AP). Both of these were aging with an increase in accounts over 60 days.
Of special interest was the fact that most of the accounts on the A/R report were aging identically. The companies operating line had also been fully used for many months.
Although these receivables appeared to be from different entities, in fact they all originated from a single parent company. In total they represented about 85% of revenue. The parent company was in fact insolvent.
These facts had been concealed from the secured lender.
This was clearly a company facing catastrophic failure. A perfect example of possible restart. It that context I quickly evaluated the situation in light of the parameters necessary for success.
Management
This is the most important criteria for any turnaround or restart. The manager or CEO is the leader of any recovery, the architect of strategy and catalyst for change.
In this case management had clearly not been competent and had been deceptive to its stake-holders. The current condition of the company did not appeal to a new manager.
Core Product
The product produced by the company was viable in its market niche. The company was also capable of producing the product at an acceptable margin.
Financial Resources
A restart would have required enormous resources. This company needed to be completely revamped with new management in place. Huge operating losses and an eroded asset base impaired any ability to raise new capital.
Obtaining fresh capital was very unlikely and the decision was made to file for Bankruptcy.
The terms turnaround and business restart are often thought to be synonyms. Certainly they both lie within the purview of corporate renewal.
Both models require the same parameters for success: management, a viable core, and financial resources.
It is not always easy to differentiate between a turnaround and a restart. Before any attempt at renewal stakeholder must define the business model and determine whether or not it is possible to meet the parameters for success.
If this is not the case then the renewal process should not begin.
