What Is a Business Turnaround? (With Tips and Examples)

By Indeed Editorial Team

Published May 25, 2021

Most businesses implement strategies to maintain their viability within their industry. Occasionally, they need special techniques to reshape or revitalize their business. If your company is experiencing a period of decline, consider reexamining your strategies to find areas you can improve and turn the business around. In this article, we explain what business turnarounds are and provide a step-by-step guide to conducting a business turnaround with tips and examples.

What is a business turnaround?

A business turnaround is when a business recovers financially from a period of poor performance. Turnarounds represent renewed stability and profitability after a prolonged span of financial hardship, ineffective business strategies or mismanagement. A company may implement strategic steps to keep its businesses viable and prevent possible insolvency or liquidation. Well-executed management plans can help businesses recover and return to consistently positive performance.

Related: Business Management Skills: Definition and Examples

How to conduct a business turnaround

If the performance or finances of your business aren't at the standard you'd like them to be, here are some steps you can take to improve cash flow, restore financial stability and effect positive change:

1. Identify the problem

The first step in designing a successful business turnaround strategy is to determine the source of the problem. Poor business performance could result from inefficiencies in processes, management or resource allocation. By identifying the problem, you can decide where best to focus your time and energy.

Here are some common areas that can present challenges for businesses:

  • Resources or money

  • Management

  • Products and services

  • System processes

  • Marketing and sales

2. Cultivate shared goals

Commitment to a common goal is crucial to the success of your business turnaround strategy. During brainstorming and strategizing, team engagement can help foster a wide range of input and solution support. Cultivate a work environment of collaboration where team members can feel a sense of shared responsibility. This can ensure everyone's investment in making your strategy work.

3. Create a plan

If you've identified the problem and gathered the support of your strategy team, start working on a plan to return your business's viability. Focus on the key problem areas and identify solutions you can effectively implement to remove inefficiencies. Consider designing a document you can share with creditors that clearly outlines your intentions. Describe your updated business model, revised sales strategy or cost-saving techniques such as staff reductions that you plan to implement. Once you have a strategy in place that addresses the issues you're facing, you can start implementing your process.

4. Stabilize the business

A return to profitability depends on a firm foundation and the maintenance of a positive cash balance. Strict cash controls, asset reduction for increased cash generation and better inventory management can help you restore stability. Another key to establishing stable finances is negotiating and restructuring your debt obligations. Consider separating your creditors into two groups. The first are those critical to your business, like banks and suppliers. The second are those you deem replaceable or nonessential to your organization.

After stabilizing your cash flow, present your plan to your essential group of creditors in a realistic but optimistic way. Outline your plan for using your cash flow to reimburse them. Pay only what you can afford, and design payment plans that are sustainable in the long term. In your negotiations, be firm with your requirements in order to ensure your continued viability, and work to disengage with nonessential creditors.

5. Restore profitability

Generating a profit can be a positive sign that your turnaround efforts are successful. You can focus on increasing profit margins by reducing variable costs and increasing your productivity. Data analysis can help you optimize your strategies to focus on effective systems that drive sales. Consider studying your sales and cost figures to identify sales areas with poorer performance. Design strategies to either eliminate those ventures or increase their viability.

Related: What Is the Difference Between Revenue and Profit?

6. Increase sales

Try to generate more revenue from sales without investing in additional advertising. You can increase revenue in several ways:

  • Raise prices. Raise the prices of your individual products and services to generate more revenue from your existing customer base. It can be easier to sell to existing customers than new ones.

  • Convert more leads. Work on improving your success rate at engaging interested customers. Increased conversions often lead to increased sales.

  • Improve customer service. One way to increase sales is to provide a good customer experience. Customers may be more likely to return to you in the future and recommend your products or services to others.

  • Generate new leads. The last strategy is to attract new customers. Typically, lead generation is the most common way businesses increase sales, but marketing and advertising strategies can be expensive investments. Consider exhausting other techniques before investing in costly campaigns.

Related: How To Increase Sales in a Small Business (With Tips)

7. Stay consistent

A successful business turnaround continues even after establishing a return to profitability. Take the time to examine your operations and evaluate which elements of your turnaround strategy yield the best results. Continue to develop your strategy as you create new habits that support your long-term goals.

Related: 8 Tips for Creating Sales Strategies That Work

Tips for a business turnaround

Here are some tips you can follow to help execute a successful turnaround:

Be transparent

Try to communicate honestly and openly as you navigate important conversations with your leadership team, creditors and employees. Developing goals and implementing strategy can be easier when everyone understands the situation and their role in its solution. Taking responsibility can help you examine how you can improve as a company.

Be willing to start over

A good business turnaround requires adaptability, quick reaction times and thorough, objective analysis. If you find that something isn't working, it's okay to abandon and start again rather than spending valuable resources on an ill-fitting strategy. If your product or service is becoming less appealing or essential to your customers, come up with ideas to revitalize your offers. Moving on or away from ventures that aren't generating revenue can help businesses stay relevant in expanding industries.

Maintain your commitment to turning around

If you find old habits resurfacing, take corrective action swiftly. Businesses are often fragile during turnarounds, and it's important to identify and prevent negative developments before they become a challenge. Early intervention requires leadership teams who are adaptable and transparent about inefficient processes or developments that require attention.

What does a business turnaround look like?

Every business turnaround looks unique to that organization's needs, capabilities and reaction times. One company's successful turnaround strategy may be ill-suited for another organization. However, there are several common characteristics of successful business turnarounds. When businesses approach turnarounds with transparency, accountability and adaptability, they can often return from periods of prolonged decline.

Here are a few examples of how business turnarounds may look in the following situations:

Reevaluation of budgets

Sometimes, businesses experience downturns because of misallocated funds. For example, a relocation company may have spent all its capital on a line of moving vans but didn't anticipate needing to repair any vehicles. The company might choose to reevaluate its finances and devise a plan that facilitates a more effective distribution of resources. They can do this by selling some of the vans or by finding other areas where they can free up funds.

Depending on their specific circumstances, other companies may choose to reallocate ineffective advertising dollars, reduce budgets for nonessential categories such as business meals and upgraded travel, withdraw their money from ventures that aren't generating income or renegotiate with their creditors.

Recovery or improvement of customer base

Sometimes, businesses experience decline because they're losing customers. For example, a clothing company loses customers after a controversy surrounding one of its ads. In identifying the problem, the company may choose to issue an apology, invest in renewed public relations strategies or strive to be more inclusive in future campaigns.

To increase customers, a company may improve its product, enter more fierce competition with rivals or rethink its marketing strategy. With excellent customer support and exciting marketing content, businesses can keep their customers, attract new clients and even elevate themselves within the market.

Redefinition of management

Poor management can be a scenario that requires genuine reflection from a company. For instance, a manufacturing company is having production and employee issues after they promoted personnel to management without providing resources for them to lead their teams effectively. They may improve training, allow for more open feedback between managers and their teams or perform more frequent evaluations for new managers.

Companies that remain transparent with their employees and take steps to address structural deficiencies often fare better than those that reject structural change. This type of plan may involve restructuring and implementing managers who are innovative, realistic and adaptable. Honest communication with employees, leadership, creditors and stakeholders can be especially important during a turnaround.

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