It’s generally recognised that more businesses fail coming out of recession than do during the recession period itself so given the ravages of the last couple of years how do those struggling businesses set about turning around their fortunes.

Recognition of the problem is of course key. Too many organisations opt for the “head in the sand approach” and when they do finally recognise the size of the problem it is often too late. However once the problem is recognised the process can start with stabilising the situation, then planning for the future and finally implementing the plan.

Stabilisation requires an absolute focus on cash, even at the short term detriment of profitability. Understand the current cash position and build a rolling thirteen week cash flow model to foresee and manage the “pinch points”.

As part of the stabilisation process minimise cash going out and maximise receipts. Hardly rocket science but it can often involve deeply unpopular measures such as withdrawing spending authorities from certain individuals. This results in immediate savings with the smaller “authorised” core accepting responsibility for firmly controlling spending and brings culture change with requests for non essential purchases will no longer be made as it is recognised they will be refused.

Liquidating stock, sometimes below cost, may not seem to make sense but now is a time for cash to be sat in the bank, not on the shelf in the stockroom.

The stabilisation phase requires absolute attention to tactical matters, i.e. issues that can be influenced in the short term; the larger strategic issues have to be put to one side whilst cash movement is brought back under control.

Once successfully stabilised, attention can change to phase two; planning for the future. Now the strategic issues can be considered. These will involve consideration of the validity of the product/service offering, geographical spread of customer base, routes to market and financial structure of the business.

With planning completed the new agreed direction has to be communicated throughout the organisation. Now begins execution of the plan. Try not to implement everything at once but make sure targets are clearly identifiable and measurable.

Throughout the entire process clear, strong and fair leadership is essential.

Successful turnarounds are rewarding but there is no magic bullet. The hard work has to be put in at initial phase. Without stabilisation the organisation will not survive to see phases two and three.

This article originally appeared in the May 2010 edition of Wiltshire Business.

Update from Swindon Accountants Morris Owen