The two-stage model
| Stage | Aim | Typical actions |
|---|---|---|
| Retrenchment | Stop the decline | Cost reduction, asset reduction, or both; stabilise cash |
| Recovery | Rebuild performance | Refocus on core business, repricing, new products or markets, growth investment |
Whether a firm needs cost cuts, asset sales or both depends on the severity and cause of the decline.
Causes of decline in the literature
Internal
Poor management, weak financial control, high cost structure, unfocused diversification.
External
Market shifts, new competition, regulation, customer power.
Financial
Over-leverage, working capital strain, weak cash management.
Mixed
Most real cases combine several, with one that started the slide.
Turnaround as change management
A turnaround is a change effort under pressure. It needs a clear story for staff, visible early results, a leader who owns it and a scoreboard everyone can see. Resistance usually comes from uncertainty, so honest and frequent communication matters more than perfect plans.
Business under pressure? Let a CFO read your numbers.
A senior CFO reads them with you and tells you what is really going on. No cost, no obligation.
The practical gap
Frameworks tell you the categories of cause. They do not tell you which applies to you. That is what the numbers are for: margin, cash cycle, mix and cost trends point to the category, and further tests find the cause. See the numbers-first method.
CFOAvatar complements every turnaround
A human CFO sees your business at the review. Problems do not wait for the meeting. CFOAvatar is connected to your accounting data and checks your numbers every day, so the scoreboard in a turnaround is always current. Ask it what an owner in trouble would ask:
What owners say after the numbers started talking
You have planned to set goals along with me and have been proactive in ensuring that we reach milestones as planned. In the event you depended on me for my inputs or consent, you have been prompt and caring in ensuring that we do not waste time.
They have facilitated us in putting both process and financial systems in place as well as take some very difficult but required decisions. We are indeed pleased to record our appreciation of their individualized, friendly and timely support in our activities during the course of their association.
Before CFOSurge came into the picture, our business lacked financial discipline. Once their team started overseeing our finances, everything fell into place. There was accountability and when you know someone is keeping track, you ensure things get done properly. It’s been three years and the systems they put in place are still working well. Our business is in a much better position today.
Quoted word for word from our clients. Read more client words →
Questions owners ask us
What is turnaround strategy in strategic management?
A strategy to reverse sustained decline in a firm's performance, commonly through retrenchment followed by recovery.
What are the stages of turnaround strategy?
Retrenchment (cut costs and assets to stop the decline) and recovery (rebuild profit and growth), in the widely used two-stage model (Robbins and Pearce, 1992).
What is turnaround change management?
Leading the organisation through the changes a turnaround requires: communication, ownership, early wins and a visible scoreboard.
How does theory help a real business?
It names the categories of cause and response. A business still needs its own data to know which applies.