Business Turnaround or Business Restructuring Services – which is for you?

A straight-talking guide to the differences between business restructuring and turnaround, including how the two services work and key scenarios in which each can help restore your firm’s operations to profitable levels. Whether you’re facing a winding up petition or simply want to improve your financial standing over the course of this fiscal year, SFP offer a range of recovery solutions for distressed businesses whatever their situation.

When a business becomes distressed, it can be difficult to discern whether restructuring or turnaround is appropriate. The key is to take steps as early as possible, as likely there will be more options available. The later directors leave it, the less likely turnaround will be possible and restructuring may be the only viable option. Whatever happens, SFP can undertake a review to determine the most suitable route for your firm.

Business Turnaround

1. What does a turnaround entail?

Business turnaround strategies focus on aiming to help struggling firms plan for their short- or long-term financial recovery, rather than considering formal insolvency processes such as a CVA or administration to ensure its survival and / or the successful sale of its assets.

Investopedia defines business turnaround as involving “the financial recovery of a company that has been performing poorly for an extended time”, whereby the business must “acknowledge and identify its problems” to “develop and implement a problem-saving strategy”.

The events which lead a firm’s directors to initiate a turnaround are, as with business restructuring, frequently wide-ranging. Often, some of the key indicators of a distressed firm in need of help include reducing revenues, an inability to pay creditors, lay-offs, salary cuts, poor customer retention or poor reviews, staff absenteeism, statutory reform and / or a decline in stock price. Should any of these circumstances sound familiar to your business, then it’s vital that you take action to resolve them before it is too late.

2. How does the business turnaround process work?

The turnaround process can be summarized in four key stages:

Recognise that there are problems (however vague, as the turnaround expert will pinpoint the issues)
Engage a turnaround firm to conduct a review
Identify problems and agree a strategy to address the issues
Implement the turnaround process

You can read a sample business review published by SFP here, wherein we determine those areas in which the example company is making profit and those where it is underperforming, as well as other specific areas such as “giving generous credit terms” to certain partners which “had a detrimental impact on cash flow”.

3. Case scenarios

Here are some examples of how turnaround services can aid your business’ recovery:

Regarding the fictional case of ABC Limited mentioned above, having recognised issues such as overly lenient credit terms and a high amount of outstanding VAT overdue, the SFP team provided a range of recommendations for how ABC could resolve its cashflow problems. These included a time to pay arrangement with HMRC, developing a new credit control system, updating their electronic records to reflect management accounts and producing integrated forecasts to monitor against actual records.
For those businesses which struggle with managing their sales ledger, there are many options that can help the company take control of its ledger in order to ease cash flow. At times this can lead to commercial financing options such as invoice finance in order to release immediate cash from the company’s sales ledger.

Business Restructuring

1. What does restructuring mean?

If turnaround is not an option because a company’s problems are too severe, all is not lost: restructuring can still enable the company and/or its business to survive. The term ‘restructuring’ refers to a range of formal insolvency processes aimed at helping businesses in significant distress – whether they’re struggling to fulfil the terms of a CVA, facing the prospect of administration or undergoing other crises – to resolve the situation, with the outcome varying depending on the business’ circumstances and ultimate ambitions.

At times, no matter how vigorously a business attempts to maintain its viability, there are often instances when the firm in question stands a scarce chance of survival unless it seeks the potential benefit of formal, restructuring intervention. It’s at this point that several main options come into play; should the directors consider filing for administration, propose a company voluntary arrangement (CVA) or simply liquidate?

The outcomes of these different restructuring strategies can vary considerably: where a successfully concluded CVA will result in the limited company’s survival, the administration process can lead to the survival of the business following a transfer of the business and assets to an alternative entity (if it has been determined that the company itself cannot be saved). Liquidation, meanwhile, often signifies cessation of trade, involving the selling of assets to repay creditors with the eventual aim of the company’s wholesale dissolution.

Investopedia adds that the restructuring process has a range of different purposes and desired outcomes, but where possible, its broadest aim is to achieve “smoother, more economically sound business operations” and – provided the company survives in some capacity – “greater efficiency in production”.

2. How does the business restructuring process work?

The first step most companies usually take in restructuring will be to seek independent professional advice from a restructuring specialist which may result in them undertaking an independent business review, wherein they will assess that business’ current financial situation and ongoing viability. This review will allow both parties to more fully understand the position and options and help plan an appropriate restructure.

The means by which the business in question would achieve their goals frequently vary, significantly depending on the extent of their current difficulties. SFP’s experienced and professional staff will always provide the necessary guidance

3. Case scenarios

Here are a few examples of how SFP’s restructuring services have helped businesses to date:

After manufacturing firm Tilon Composites Ltd’ launch of a new product failed to meet its projected revenue targets, the business experienced a “major slowdown in sales” and “significant creditor pressure” in mid-late 2017. Tilon’s directors sought SFP’s advice. The directors subsequently decided to place Tilon into administration. The existing management were able to propose an acceptable offer to purchase the business and assets through a new entity, resulting in 22 employees being transferred to the new company and therefore saving their jobs.
Construction business Chester Building Services Ltd entered into a company voluntary arrangement in 2017 amidst mounting HMRC arrears, only to fall further into its plight as they struggled to maintain the CVA’s terms. Rather than allowing the situation to worsen further, Chester Building Services worked with SFP to sell its business and assets to CBS Client Services Ltd later that year.
After amassing significant levels of debt to its creditors, Select Security had a winding up petition presented against it earlier this year and subsequently went into administration. Its directors had approached SFP and our restructuring team successfully sold the business and its assets, saving a significant number of jobs at Select in the process.

Find out more

Be sure to find out more about our business restructuring and turnaround services. These pages will provide further information on the distinctions between both and how SFP Group can assist in your business’ recovery. Above all, get in touch today and one of our expert consultants will gladly discuss your firm’s present situation and help to ascertain the most suitable solution for its problems.