There are important problems that result from delays to a turnaround process being commenced ie if there isn’t early intervention to address relevant issues.

1. Reduces options available

A company can quickly progresses from underperformance to a cash and funding crisis.

Over suc period the turnaround options for a company steadily decrease, for example:

  • A company will have less cash to fund the costs of a turnaround process.
  • Equity investors will become less interested or require a greater return to put new money into a business as the risks for the business have exponentially increased.
  • Debt providers will be unwilling to advance further funds in a crisis situation as they see too much risk of an insolvency and that money never being repaid.

2. Loss of control

Who leads a turnaround process is driven by the financial circumstances of the corporation ie the worse it is the more likely that it is creditor (financier) led and not debtor (company) led.

As a company approaches crisis levels, the control of the situation migrates from the company/management to debt providers as they will become the only source of funding and such financing will become conditional on their terms.

A creditor led process means that the company and its directors have lost overall control of the turnaround/restructuring process.

Control with debt providers means that the turnaround and restructuring process becomes focussed on reduction in the debt and risks of the financier ie not on restoring value and growth for the company.