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What is a turnaround? What is a restructuring?

Turnarounds address declining or negative profits and stagnating sales. Restructurings address cash flow issues or even insolvency and bankruptcy.

With the business environment becoming so volatile and unpredictable, an increasing number of companies must take dramatic actions to generate impact rapidly--or risk going out of business. Typically, business problems unfold in three phases, and each phase requires a unique action.

Strategic Crisis.

During the first phase—a strategic crisis—the company is no longer able to compete effectively. Sales numbers may be stable, or even growing, yet profitability has begun to decline. Very often, management has tried a new strategy, or several, without success. In some cases, management may not recognize the scope of the problem.

Profit Crisis.

If the company does not change its course, the second stage is a profit crisis. In a profit crisis, sales are stagnating or declining, while profit margins turn markedly negative. At this point, the company starts burning through cash reserves and needs to launch a turnaround.

Liquidity Crisis.

Failure to do so—and continuing to burn cash—leads to a liquidity crisis. In a liquidity crisis, the company faces the fact that it may soon a lack the financial resources it needs to keep operating. At this point, the management team typically loses the ability to make changes on its own. Various stakeholders, such as banks and other debt holders, will demand a say in trying to restructure the company.

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