Business Turnaround: why common sense and a proper business plan are the best tools to have in your armoury

30th April 2018


Statistically, more than half of Britain's small businesses collapse through lack of cash. The UK Insolvency Service sites 65 common reasons why businesses fail, but in my experience there are just two interrelated factors that lead to the success, or failure of a business.


The obvious culprit is cash flow problems. But the real source of all ills is the lack of a real (or sometimes any) business plan and system of control. 


If you’re not convinced, here are seven different, yet common, reasons why businesses fail.  But they all have the same cause and solution:


  • Business started for the wrong reasons to try and make money quickly 
  • Poor management, or lack of management 
  • Lack of capital 
  • Poor location
  • Over reliance on one or two big customers
  • Over-expansion
  • No clear marketing or growth plan 

Have you noticed?  The above problems are all caused by poor cash flow management and/or the lack of a real plan and system of control. 

Don’t bury your head in the sand


There’s a well-known saying which is a lesson for most areas of human behaviour; “If you do the same thing that you have always done, you will always get the same result.”  This applies in business too, but it’s also if you do the same thing that you have always done, it is likely that the future results will be worse than before. Businesses must be willing to learn from mistakes and adapt to survive.


For example, lack of support from interested parties (banks, other lenders and major creditors) is one of the commonly cited reasons for problems. But more often than not, the absence of a robust plan affects an organisation’s ability to innovate in the face of challenge, affecting its willingness to change and ultimately, its cash flow.  In fact, the references to lack of support from the bank, when explored further, usually uncover a situation where the business has pretty much lost control to the bank or lender having failed to take proactive action early on. 


A significant number of businesses choose to only produce annual statutory accounts, causing a significant delay in the ability to spot problems. Poor-performing areas of the business, long term debtors, supply restrictions or financial losses may not come to light for months after the year-end. These problems, coupled with a request for funding or overdraft extension, may be greeted with a less than enthusiastic response from the bank. Or more drastically; lack of an offer of a workable solution.

It is partly for this reason that we encourage businesses to take a more proactive approach to managing finances, starting with comprehensive management accounts which provide a regular snapshot of business performance, enabling you to address any issues promptly before they escalate.


The road to recovery


We live in what can only be described as challenging and uncertain times for business. For those looking to start on their road to recovery, there are various types of “turnaround specialist” claiming to be able to help businesses regain control. A note to the wise. Despite the mystery and myth of business turnaround specialists, it is not a dark art. 


Based on our experience here are the simple facts:


Businesses are successful because they have a good product, a real plan, a system of control and improvement and control of their cash.

Businesses fail because even though they may have a good product, they do not have a robust plan, have no real system of control and improvement and they do not have control of their cash.

Businesses achieve a successful turnaround because they eventually recognise the position that they find themselves in, take appropriate action to introduce a real and robust plan, a system of control and improvement (no matter how simple) and gain control of their cash before it is too late. This is where experienced advisors such as HB&O can add real value - by working in partnership with you to assess your position and agree the right course of action to get you back on track.


A successful plan


A real plan is not only about one area of the business, or one person’s responsibility. All parts of the business have a plan and the ability to deliver it. 


Successful plans include;


  • Recognition of where you stand - strengths, weaknesses, opportunities, threats, what needs protecting;
  • Good product/service combined with a marketing plan to deliver the appropriate sales;
  • Good knowledge of key suppliers and a good supply plan and agreements;
  • Operational and delivery plan - recognising and controlling key drivers in the business;
  • Appropriate recognition of team development, management and leadership;
  • A budget which includes the key performance indicators relevant to the business;
  • Appropriate financial plan recognising the requirements for long term investment and finance as well as working capital management and short term cash flow.

Once a business facing financial difficulty recognises the above and how an experienced adviser can help (even with the creative stuff), the key priority has to be regaining good cash flow.  

Sometimes a formal insolvency route of administration or receivership will be required to allow the business to be put back on track. But often, a common sense plan will enable a business to right itself without the need for this. 


Examples of strategies we have advised on include;


  • A thirteen week rolling cash-flow dealing with immediate and short term cash flow issues, identifying and managing the pressure points. 
  •  A marketing and sales pipeline made into a simple and realistic plan of hot leads and conversions to sales. Who are they, where are we with the contract progression (which also recognises the price and profits for the contract) and control of this sales lead flow and reporting.
  •  A medium and long term plan of what the business needs to develop, following on from recognition of the business strengths, what are the real unique selling points that the business offers and how these areas should be further exploited for the benefit of the business.

A word of caution


We are not saying that business turnarounds are easy. Nor that they can always be done with a positive outcome. Sometimes the business has left the position too long. Or the market in which they trade has shifted significantly and the business has not changed to reflect that. 

However in many situations businesses that are failing, or are hitting a rough time can be helped and turned around by practical and common sense measures. Working in partnership with clients, we encourage the business owner to recognise the issue, take a step back and consider what is happening. With the right support, they need to take control of the situation and not revert to doing the same thing over and over again. 


I think it is fair to say that not all accountants and advisers are the same. Some of the areas outlined above define how a good professional adviser can add real value and support to a business. The right choice of adviser will help a business get back on its feet and achieve the success that it first set out to.

To find out more about how we support businesses in crisis, please contact me.