What is a turnaround?

November 6, 2011

During the annual conference of the Turnaround Management Association (TMA) which was held the last week in October, I attended two sessions about “turnarounds” and was truly taken aback by what I heard.

An underlying theme, articulated by panelists in both sessions was, “We’ve been focusing on fixing the balance sheet.  Now we need to learn how to fix the income statement.”  Really?  What have these people been doing?  And does this explain why TMA sessions and publications in recent years have focused on “restructuring” instead of “turnarounds?”  (My article which was attached to my last blog post explores this topic.)

Fixing the balance sheet is relatively easy:  collecting receivables, reducing inventory, selling unneeded assets, renegotiating debt.  Fixing operations is generally more difficult and, in many respects, requires a different skill set.  For companies to survive over the longer term,  they need to have carefully conceived plans, the right people in place, and effective management control systems.  In addition, they must deliver their products and services in ways that are both cost-effective and customer-centric.   To me, ensuring that those pieces are in place is a vital role of the turnaround expert.  Evidently, not everyone agrees with my view.

To me, the word “turnaround” means fixing the balance sheet AND fixing operations.  What does it mean to you?

5 Responses to “What is a turnaround?”

  1. January 4, 2012

    To me both the balance sheet and the operation itself need to be fixed for a turnaround practitioner to legitimately say that a turnaround has taken place. How many times does one see a decent balance sheet without a sustainable operation? More often than many would care to admit.

    What the turnaround expert must ask themselves is how do I deliver the most value? To me the answer is if my turnaround efforts result in a sustainable business with a solid balance sheet I have done my job. Anything less means I have delivered only part of the package.

  2. January 4, 2012

    Tony: you are right. Forgive the TMA people, they are accountants, junior level attornies. I dropped out of TMA almost 20 years ago because it was beig populated by people who think financial engineering is some sort of data processing game.

    Truth: you cannot financially engineer an operation losing cash. Can’t be sustainably done. Turnarounds: cash, cash, cash. That is an income statement issue. You might take your remarks to TMA?? Chas.

  3. January 13, 2012

    Thank you Renee for your perspective that fixing the balance sheet AND operations is frequently required. I recognize however that there is pressure on the Turnaround Specialist to deliver results very quickly. That’s why my company offers support for the turnaround specialist by addressing the operational fixes that most drive bottom line and top line results in parallel with an in support of the Turnaroun Specialists activities. Essentially, collaboration between financial and operational specialists makes sense to us. Tactical Lean Operations people and sometimes some IT specialist can make alot happen very quickly in support of the turnaround.

  4. February 5, 2012

    This is so true. Often people stop at the question, “How do we stop the bleeding?” Without long term operations re-engineering and a true income generating plan put into place, the wound will only open again.

  5. February 17, 2012

    Controlling the cash is always the first step, but unless the business model can be fixed or re-worked all you are doing is postponing (or dragging out) the inevitable failure of the company. For that reason, the income statement has to be the focus of the turnaround. The balance sheet can offer ways to raise cash to fund the company, but it is the development of a profitable and sustainable business model that ultimately determines the success or failure of the company.

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