90 Second Lesson: Is a Business Turnaround Still Possible?

How to Know When It’s Too Late for a Distressed Company

[Editors’ Note: This lesson is part of our irregular series in which we answer readers’ questions. If you have a question, submit it to [email protected] and we will try to answer it.]

Question

Depending on the extent of a company’s financial and management woes, a business turnaround may not always be possible. Bill H., a business consultant in NYC, asks: “How do I determine if a distressed business I am being asked to help is just too far gone to save?”

Answer

Firstly, if a business is in a downward spiral, it may be best for the company to work with corporate distress professionals who are experts in bankruptcy, restructuring, and bankruptcy alternatives.

As a consultant, you can first ask these questions:

• Does the business have a way to fund its immediate critical obligations, such as payroll? If not, any business turnaround may be over before the effort even starts.
• Does the organization’s current strategy, or at least some significant portion of it, seem appropriate and logical? If not, what will it take to change it? In studying this question, one must be careful to differentiate between the strategy itself and the effectiveness of its implementation.
• How committed to the company’s survival are its various constituencies? Some of them, such as lenders, will no doubt be more important than others. All, however, can have an impact.
• Where is the business in its downward spiral? Warning signs become easier to spot (and harder to ignore) as they become more severe. However, the difficulties that need to be overcome also become more pronounced with the passage of time.

By asking these questions and consulting the right professional teams, you can better determine if a business turnaround is possible.

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[Editors’ Note: To learn more about this and related topics, you may want to attend the following webinar: Help, My Business is In Trouble! This is an updated version of an article originally published on February 15, 2019.

This 90 Second Lesson is based, in substantial part, in material reprinted from Commercial Bankruptcy Litigation 2d and Strategic Alternatives for and Against Distressed Businesses, with permission of Thomson Reuters. For more information about these publications, please visit www.legalsolutions.com.]

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