In the Horicont Method, we distinguish between two important concepts relating to turnaround management and restructuring:
Available resources no longer allow the business to grow or develop and it is difficult to maintain day-to-day operations. There is no immediate threat, however, to the financial future of the business. With a business facing a challenging situation, clear decisions are needed and consistent steps need to be taken to avoid a crisis. The reasons and triggering factors for difficult situations are manifold. Yet the features listed below are common among many businesses facing challenging times:
- Sales drop by a two-digit figure
- Appreciable decrease in contribution margins
- Continuous decrease in capital and/or the equity ratio
- Poorer creditworthiness and a lower rating by credit rating associations and credit insurance companies
- The business can either not obtain free financing or only under more stringent terms and against collateral
- Existing credit lines are only extended or upgraded under more stringent terms and against collateral
- For the first time, cash flow bottlenecks are encountered in daily business operations and the liquidity level drops
- Suppliers take action to reduce their risk
In challenging situations and business crises, never forget the human factor. The main task in turnaround management is to mediate between the figures, i.e. the ‘hard facts’, and the emotional responses shown by those affected and involved.
Georg Nigl, MAS, MMBA, CMC
The business is caught up in a full-fledged crisis. There is an immediate threat to the business’s survival and thus to the livelihood of the individuals involved.To safeguard survival, and the individuals’ livelihoods, it is necessary to make and consistently implement clear decisions, as when facing challenging situations. Yet the main difference to a challenging situation is that the business, caught up in a downward spiral, no longer has time on its side. As in the case of challenging situations, there are a number of common features marking full-fledged crises:
- Creditors threaten to cut or cut off current funding
- Goods are supplied only against advance payment
- Available cash barely covers current operations – the business repeatedly fails to meet certain payment obligations or any at all
- Drastic capital drain, with the balance sheet consequently showing liabilities exceeding assets
- Key customers crumble away
- Important employees leave the company on short notice
Seeing yourself through a challenging situation or business crisis requires above-average dedication, resolve and the will to make the necessary changes. The package of measures listed below, based on the Horicont Method, should be regarded as guidelines which are then customised to meet the requirements of each individual case – which is how we help you:
- First priority: maintaining solvency
- Decisions are based on reliable figures from the accounting department. Where no reliable and valid figures are available, the initial task of turnaround management will be to compile such meaningful accounting figures. Reliable figures are essential, both for taking decisions and for negotiating with creditors and banks.
- The goal in a business crisis is to identify a balance between liquidity and profitability that ensures the future of the business. In keeping with that goal, efforts in the acute stage will be confined to maintaining liquidity while achieving at least positive contribution margins.
- Limit the scope to the core business, core competence and to selling products that make a strong contribution to the margin. Ballast has to be cast off, i.e. unprofitable holdings or subsidiaries.
- Never forget the human factor. Get those affected involved and so gain a valuable contribution from employees and partners within the company’s environment for the success of the turnaround.