By the end of last year, we had clear warning signs of looming economic difficulties not only in Canada but globally.
These included many factors such as: rising interest rates, declining house prices, rampant inflation, heavy loads of personal and sovereign debt, and a war in Europe.
As our new year begins many economists predict that Canada will be in for a moderate recession in 2023. The Economist magazine posits that a Global recession is inevitable, which could hit Canada very hard.
Recently Prime Minister Trudeau asserted that Canadians would be in for a” tough year.”
Previously I have written about issues to help small business strengthen their position in good times and provide resilience facing adversity. Published in SME, these articles include such topics as: Performance Management, Leadership, and the Family Dynamic.
Today many businesses are already facing difficulty or distress and the issue concerning their expectations of recovery is particularly resonant.
All businesses should be viewed as present on a continuum with both Health and Distress on opposite ends. A healthy business will enjoy such things as profitability, growth, liquidity, and access to capital.
Distress may include such things as operating losses, poor liquidity, high employee turnover, and creditor pressure or collections. At its extreme it is fatal.
A company’s position on the continuum is not static, neither Health nor even serious Distress is permanent.
Over time all businesses will move along this continuum. It is crucial for any business to act quickly at the first sign of trouble.
An early decline is much easier to address than it will be later. As early decline becomes actual distress; resources of all sorts become diminished including access to capital, customer problems develop as will a loss of clients, morale problems develop along with increased employee turnover, threats will also develop from creditors.
Increasingly this situation becomes a downward spiral which is much harder to fix. Left unchecked it will result in the insolvency of the organization.
Running a company as a custodial manager is already difficult and as distress increases management faces a daunting task. Additional management resources are required.
So are different management skills, because the skill sets in managing an attempt at recovery are somewhat different than custodial management.
There is hope even for companies that are a long way towards disaster. For those businesses now in despair it is worth having an understanding about the criteria or parameters for success.
These are management, capital, and a profitable core product.
Management
This is the most important of the three parameters.
Additional management resources are necessary in a turnaround. Distress places huge additional demands from a number of operational areas and stakeholders. Existing management is occupied full time “putting out brush fires”. This leaves little time to deal with operational issues such as quality financial information, marketing, searching for capital and human resource issues, among many others.
Existing management also may lack experience and some of the skills necessary as a turnaround manager.
Capital
Reorganization and restoring financial performance will take some time. Additional resources will be necessary to make changes and improvements which will likely have depth and scope throughout the organization.
A core product
Ultimately success will be driven by the sale of a core product that will yield profits. It is possible that an existing product is lacking profitability and can be improved. How-ever it is important that the path to profitability, driven by the core can be seen.
If these three parameters are met then a successful turnaround is likely. Without them it is not
