Q. I have run businesses throughout my life and have been asked by a company going through some hard times to help turn things around. I fancy the challenge, but have never done a turnaround before. Could you provide some advice on when a company is beyond help and when it is best to just walk away?
Colin Mills writes:

When businesses are going through tough periods they usually show a number of tell tale signs. These signs often include falling profits and sales, increased debt, a lack of cash, declining market share, weak strategy and management fear. If the business you are thinking of joining is showing these symptoms, you are in turnaround territory.

Turnarounds usually consist of four phases: emergency, analysis, stabilisation and growth.

Emergency: If there is immediate pressure by creditors and funders on cash, you need to be taking emergency action. This is all about managing cashflow in the short term, and making sure there is more money coming in than going out.

Analysis: This involves going through the business from top to bottom to find out what’s wrong. It will pay to get an experienced finance professional on board to help manage short-term cash pressures and assist in reviewing the business.

Stabilisation and growth: This requires fundamental decisions on management, product and market re-positioning, sales and distribution channels. You may also consider better systems for financial control and reporting and even re-financing the business.

With respect to when to walk away, there are three basic financial tests here: Cash – can the company pay its debts when they fall due?; Balance sheet – are there more liabilities than assets (negative equity)?; Legal action – unsatisfied CCJ, where a creditor may petition to wind up the company. If any of the above are the case, it doesn’t necessarily mean the company is insolvent, but you should get some expert advice quickly.

Colin Mills is the founder and managing director of the FD Centre, the leading provider of part-time finance directors, available to growing businesses. www.thefdcentre.co.uk