Distress Management & Turnaround

“When you find yourself in a hole, stop digging.”-Will Rogers

Owning a small business can be a fulfilling and financially rewarding experience, but to be successful, you must know what to do before starting a business; what to do while the business is up and running; and, most importantly, what to do when the business runs into distress. 

Distress or Bankruptcy is a severe matter. Business bankruptcy for a certain company is an absolute affirmation of its inability to endure current operations given its debt obligations.

Bankruptcy is a curse…….?:

No, bankruptcy is not a curse. Bankruptcy may appear if the strategy goes wrong or drastic changes in the operating environment, policy changes, or even uncertain events like COVID-19 can cause distress.  This can happen to small firms or large corporates. It is commonly observed among SMEs that during the transition to the growth stage from start-up, the chances of distress are quite high due to the wrong approach, hiring the wrong advisors, poor financial control, etc. However, factors need not always be internal. Distress may be due to intense competition, high-interest rates and drastic changes in the marketplace. The prolonged economic downturn may force firms to undergo distress. 

Undeniable facts are……

➢ Distress causes pain and tribulation to business owners and families. 

➢ In distress, a simple solution evades attention and creates a compounded problem.

➢ The situation may aggravate if proper guidance is unavailable at the right time.

We have listed some symptoms of the appearance of distress in your business. These indicate that things are not normal and require an altogether different approach to solve the challenge. SYMPTOMS OF DISTRESS

If you’ve recognized some symptoms, please don’t ignore them.

Can we predict Bankruptcy:    YES

If bankruptcy could be expected with affordable precision ahead of time, entrepreneurs could better secure their business and could take action to reduce risk and loss of business and perhaps even avoid bankruptcy itself. Therefore, it will be useful if we can predict the firms vulnerable to bankruptcy.

We have enclosed a link that gives the most applied method of predicting bankruptcy which you can apply if you take the help of an accountant Will Your Company be Bankrupt by next year

How to respond to distress?

One should not feel shy to admit the distress and seek remedies than looking for shortcuts. Commonly observed responses or shortcuts among SMEs in distress.

These responses or recourse to shortcuts are more emotional than financially prudent. People commonly indulge in raising debt to manage the crisis. It should be remembered that increasing debt when in distress does not take anywhere else than the aggravating problems. 

The distress situation demands a more calm and measured response to the challenge. 

The obvious question is:…. Can we turn around?…………… Yes.

“Turn around can be experienced in any situation.” 

Turnaround is an active process involving new skills blended with historical expertise. It requires innovation, stamina, integrity, discipline, prudence, and sacrifice.

What are the typical strategies for turnaround

Behavioral changes- A precursor for turnaround:

Too often, businesses attempt to survive without modifying their behavior—an approach that almost always ends in tragedy. One must appreciate that the present distress results from wrong approaches, strategies, and advisors. To turn around, one needs to move away from the clutches of these blockades and look at a fresh set of solutions and advisors. 

Sometimes, companies wait too long for a clearer picture of what should be done—another disaster. Occasionally, too much change is introduced too soon—a tactic that brings more confusion than progress. 

Those firms which approach the turnaround process more systematically can achieve better results. Superior methods can save the firm. Inferior methods, employed at critical times, can destroy it. It is better to seek expert support than take the matter upon oneself for a successful turnaround.

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