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When Business is faced with extreme challenges,businesses may hire a turnaround specialist to help them get back on track. Here’s what you need to know.
Turnaround Management is when businesses hire a turnaround specialist to assist them by either consulting in a short term contract or acting as an interim CFO/CEO while a company goes through the motions of a turnaround.
One of the biggest benefits of hiring a turnaround expert is objectivity; he or she will bring a fresh set of eyes and perspective that an employee can’t provide. With this objectivism, the specialist can make unpopular recommendations and decisions that, while difficult, are in the best interest of the company.
A company that has hit a temporary rough patch due primarily to extenuating circumstances, such as a broad economic downturn or an industry slowdown, may get by with hiring the turnaround specialist as a consultant. This is much less disruptive than bringing in a turnaround specialist. But if the problems are deep, such as a bankruptcy or a failed merger or ownership transition, it may be the only way to save the company.
While industry experience is one factor when considering potential turnaround specialists, experts say it’s usually less important than the specialist’s experience in dealing with real-world crisis situations. Other factors to consider when bringing in a turnaround specialist include the following:
- Length of engagement: Set predetermined starting and stopping points so the engagement doesn’t become open-ended. A consulting engagement may run several weeks or months, while a turnaround Specialists term is dependent on the situation and tailored to the current business structure. Some businesses may need 3 months others can need 2 years.
- Compensation: Discuss the fee structure upfront and make sure both parties are comfortable with it, whether it’s a performance-based fee, a flat fee for the engagement, an hourly rate, or something else – this needs to be discussed clearly on engagement with the board.
Whether hired as a consultant or an interim CEO, the turnaround specialist’s first step is usually a top-to-bottom viability assessment of the business to determine its prospects for survival. This process can take anywhere from a few hours to a couple of weeks and tends to be as much intuition and “art” as it is science.
Assuming the specialist determines the business is still viable, the next steps are usually a detailed analysis of the company’s financials and in-depth interviews with key personnel. He or she will likely want to spend hours interviewing executives, managers, and board members, asking about big-picture strategy, goals, and overall direction.
Based on the feedback, the specialist will prepare a plan of action that details his or her recommendations and milestones for reaching performance benchmarks. The specialist will be held accountable to this plan, which also serves as the road map for the turnaround. Measure the company’s progress toward reaching the benchmarks at predetermined intervals agreed to by your board and the specialist before the engagement begins.
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