DIAGNOSING THE PROSPECTS OF BUSINESS RECOVERY

There are many reasons behind the decline or stagnation of a business. The most common relate to a lack of adequate resources . Inadequate resources can be in the form of management or finance as well as the capacity to produce sufficient goods or services. Of course, there are other factors which condemn the business to either a swift or a slow death.

BEST PRACTICE to halting decline and creating turnaround in the business is to start with a full diagnosis of the problems before taking remedial action.

The process of diagnosis should cover the following six key areas to enable a full understanding to be made.

1. Can the business survive in the short-term ? If insolvency is about to occur ( ie an inability to pay creditors as they fall due for payment ) then the chances of survival may be greatly diminished.

2. Might the business be viable in the medium term ? This test requires a positive answer to both sustainable profitability and adequate funding .

3. What is the diagnosis of the core problems within the business ? A balanced scorecard and a SWOT analysis can highlight relevant facts and conclusions.

4. What is the extent of stakeholder support ? It is vital that shareholders, banks and creditors will support any recovery plan proposed my management or a "company doctor".

5. What is management's capability to deliver recovery/turnaround ? If the management team have largely created the business decline then they are unlikely to be trusted with its recovery at least not without support .

6. What possible outcomes are being considered ? These could include turnaround, work-out , break-up, disposal or insolvency action such as administration or winding-up.

Every diagnostic review should include a detailed financial analysis covering current trading and estimated realisable value in addition to two or three projections of future profitability and cash flow.