Many businesses go through periods of uncertainty, whether it be issues with management, money, quality or anything else. During the struggle, you will likely see unfavourable effects on your enterprise, such as falling revenue, losses, low customer satisfaction and reduced market share. However, it does not need to mark the end.
Many companies have surged after an unsettled spell, including the likes of Apple and Starbucks. So, it is possible to get things back on track and enjoy future success – with the right support.
Turnaround finance is one tool available to businesses. As the name suggests, utilising it can help you to turnaround your enterprise and get on the road to recovery, with appropriate funding to cover it.
In this blog, we will be explaining what turnaround finance is and how it may help your business.
What is turnaround finance?
The term ‘turnaround finance’ covers a variety of funding options, each of which is aimed at helping enterprises to overcome problems, repair operational damage and get back on steady footing.
Examples of turnaround measures could include the restructuring of a firm, the introduction of new management or even the implementation of new technologies and processes. All of these need the appropriate funding to cover them. Equally, turnaround may involve the injection of increased working capital into a business via cashflow management solutions or finance.
When you work with a company offering turnaround finance services, they will first identify the issues within your operations and put together suitable remedies to solve the problems. A turnaround plan will then be created, detailing the actions to be taken to get your business into better shape and the funding required to allow it to do so.
Finance for a turnaround can be sought from many different avenues. While traditional bank loans are unlikely to accept applicants who are deemed to be struggling, there are investors and alternative lenders who are less risk-averse and more open to providing the required funds. Similarly, short-term cash flow solutions, such as invoice or sale and leaseback finance, will be available from numerous sources.
If you are pitching to an investor or lender for turnaround finance, you will need to make sure you have a solid business plan in place to convince them of your eligibility and the return on investment they will receive. Again, an advisor offering turnaround services will be able to support you with this.
The amount of money you receive for your turnaround will vary, depending on your level of risk, the issues in your business and the solutions identified. No two turnaround journeys are the same, so it is essential to understand your needs and utilise the support available to you to make sure you find a viable option.
Who should use turnaround finance?
Turnaround finance is available to any company which finds itself facing financial or operational difficulties. Signs to look for when considering your eligibility include reduced cashflow, loss of customers and sales, drops in revenue and profit, unhealthy balance sheets and fears of insolvency or closure. Turnaround finance may also be beneficial to those who have attempted and failed to access financial support elsewhere.
As we have already touched upon, it can be a challenge to find finance as a company undergoing struggles. Many commercial lenders tend to be focused on supporting growing enterprises or those overcoming minimal obstacles, rather than those requiring a complete turnaround. However, there are still appropriate sources who will be able to offer the assistance you need.
If you are seeking turnaround finance, you must be able to convince any potential lenders that you are capable of overcoming your current barriers. Therefore, turnaround finance works best for companies who have previously experienced profitability, prior to their issues, and who will be able to profit again with the right changes in place. Due to this, your core business model must be robust, and the turnaround strategy devised to fix your company will need to demonstrate the likelihood of onwards success.
If your business has never experienced profit or if the issue lays with your business model – such as if you are in a dying industry or no longer provide value to customers – it may be that you need to pivot your model.
Pros and cons
The most significant advantage of turnaround finance is the lifeline it can offer to once performing businesses who going through tough times. With the support it provides, enterprises are able to root out problems in their operations, implement curative measures and go on to enjoy longevity and profit for years to come.
The umbrella of turnaround finance also encompasses a broad range of potential challenges, allowing companies of different shapes and sizes to find support options. With more than 60% of businesses going bust in the first five years, this is a welcome remedy.
However, it is not suitable for everybody. The critical element of turnaround finance is that there must be the possibility of the enterprise returning to profitability so that lenders receive the appropriate levels of return on investment. Without this, businesses will need to seek other routes. In a generally risk-averse lending market, it can be hard to do so, meaning that only select companies will access the support they need.
Another potential downfall of turnaround finance is its reliance on finding the right solutions to issues. If the wrong strategy is put in place, or if a business slips back into old habits and does not follow the plan closely, they may find themselves back at square one. This could lead to worsening effects on their finances and other unsavoury consequences.
As a result, it is fundamental that a watertight turnaround strategy is put in place, with suitable leaders at the helm and buy-in across operations, as well as the additional support the company may need on their road to recovery. With this, the chances of success will be much higher.
Get advice
If you think you may be a candidate for turnaround finance, we can point you in the right direction.
Through our network, we have access to a number of turnaround funding sources. Our team of experts will also work with you to identify what the issues are, what solutions will work best and how to make your business plan stand out to potential investors.
To find out more or access our advice, please contact us today.