They hold the pivotal role of revitalizing businesses, yet there exist significant differentiators between turnaround consultants and restructuring advisers.
While both professionals are adept at navigating corporate challenges, their approaches diverge in key ways. Turnaround consultants specialize in identifying operational inefficiencies and devising strategic adjustments to enhance ailing companies’ performance.
On the other hand, restructuring advisers primarily focus on the financial aspects, working to renegotiate debts, optimize capital structures, and ultimately ensure long-term financial sustainability.
Thus, while their objectives may align towards business recovery, these two roles bring distinct expertise to the intricate realm of corporate rejuvenation
Defining a turnaround and restructuring
Business turnarounds and restructuring represent relatively recent concepts, both geared towards salvaging companies from the brink of liquidation.
According to Investopedia, a business turnaround denotes the financial revival of a company that has endured prolonged underperformance.
Turnarounds embody a phase of progress, infusing stability into a business’s future. It entails a hands-on approach necessitating candid recognition of the company’s issues, contemplation of necessary transformations, and the formulation and execution of a solution-oriented strategy. Turnarounds are preemptive measures taken by businesses before insolvency.
Conversely, restructuring encompasses a spectrum of formal insolvency procedures designed to aid companies in dire financial straits. It centers on the company’s capital structure, encompassing debt and equity, cash generation, debt handling capacity, and overall business and component valuation. Though formal in nature, involving potential voluntary administration, it serves as a mechanism to sidestep liquidation.
This structured process permits distinct negotiations with creditors compared to the informal turnaround approach. To draw a horticultural analogy, business restructuring resembles a rigorous pruning to remove deceased or ailing segments of a plant.
In contrast, turnarounds are akin to nurturing the plant: gentle pruning, enriched soil, mulching, consistent watering, and more — all orchestrated to stabilize, reset, and foster the flourishing of the business.
How a business turnaround works
Business turnaround constitutes a strategic crisis management approach that demands astute handling. The initial step entails a comprehensive evaluation of the situation, akin to medical triage. Proficient turnaround consultants undertake a diagnostic review encompassing the entirety of the company, strategically prioritizing areas necessitating immediate attention, those requiring subsequent focus, and those that might not warrant intervention or have become irreparable.
Commonly, this intricate process is optimally orchestrated by a seasoned turnaround consultant. Following the triage assessment and the issues pinpointed by the company’s leadership and the consultant, a collaborative strategy is formulated to address and rectify the challenges at hand. Unlike restructuring, business turnaround focuses more on practical, operational aspects, fostering a collaborative “team game” approach.
The extent of the turnaround’s implementation intricacy and intrusiveness is contingent on factors such as the complexity of the issues, the company’s size, and the level of involvement desired from the consultant by the directors. It can encompass anything from streamlining financial management processes and rectifying accounts to meticulous examination of cash flow management.
Alternatively, it might necessitate a cadre of specialists to address various challenges, scrutinize different business components, explore refinancing avenues, make decisions regarding divestment or closure of certain segments, and undertake a thorough revitalization of key personnel and board members. The duration of engagement can span from a few months to a more comprehensive overhaul lasting two to three years.
Read more: Turning around a retail business
How business restructuring works
The journey of business restructuring is initiated by a meticulous examination of the capital structure and balance sheet. This preliminary step encompasses an evaluation of the adequacy and suitability of the financing mechanism, alongside an assessment of its scale. Moreover, it entails a comprehensive analysis of the economic value inherent in different segments of the business, scrutinizing how capital is deployed within them.
To illustrate, consider a scenario where a business has extended its operations to another state, but the financing approach adopted proves suboptimal, causing both financial and human resource drain. In such instances, restructuring could entail investigating more fitting financing arrangements or, if necessary, discontinuing the operation in question.
In more pronounced cases, a company might opt for voluntary administration, enabling formal negotiations with creditors and financiers. This process might involve presenting a deed of company arrangement to creditors, drafted by an administrator, outlining a restructuring blueprint.
This plan could encompass the potential forgiveness of a portion of the company’s debt to creditors. By doing so, the business can persist, employees can retain their positions, and creditors can maintain a valuable customer, thereby circumventing the threat of insolvency.
Differences between turnaround consultant and restructuring adviser
The realm of restructuring advisers is predominantly inhabited by highly specialized accountants. In instances where a company undergoes administration, these advisers need to be licensed insolvency practitioners. As a result, this domain is chiefly commanded by major accounting firms and prominent investment banking groups.
On the other hand, turnaround consulting constitutes a multifaceted operational endeavor, encompassing adept leadership to rapidly and significantly reshape a business for enhanced performance. Consultants in this field typically boast proven, seasoned leadership backgrounds, often diverging from traditional consulting origins. Their leadership style is characterized by leading through practical example.
One of the primary challenges they often encounter involves garnering trust and buy-in from the distressed business’s proprietors and management. Turnaround consultants must possess adept restructuring skills, as their engagement often occurs at a juncture where insufficient time remains for a comprehensive turnaround execution. It’s not uncommon for the turnaround strategy to encompass elements of restructuring.
The trajectory of turnaround consultants frequently leads them to consulting in the later stages of their careers. Many have operated at the C-level and gained hands-on experience within distressed companies. This seasoned background is reflected in their age demographic, with approximately 95% of turnaround consultants aged over 40. In contrast, given their anchoring within accounting firms, restructuring advisers often adopt a more targeted approach with a pyramid structure, diverging from the holistic and multifaceted approach embraced by turnaround consultants.
How to get the most out of both
Each business possesses its own unique characteristics encompassing size, ownership structure, industry, financing approach, and the competencies of its personnel. Nevertheless, the underlying factors driving a company toward financial turmoil share a common thread. To extract optimal benefits from the expertise of a turnaround consultant or restructuring adviser, businesses can adhere to three key principles:
- Initiate Early Action: Swiftly addressing challenges and enlisting professional guidance yields more favorable outcomes. Tackling issues promptly paves the way for more effective resolution.
- Embrace Expert Assistance: While seeking professional aid might entail a financial commitment, it must be viewed as an investment rather than an expense. Businesses that opt for expert assistance frequently realize a superior return on this investment.
- Embody Openness and Trust: Similar to aiding someone in recovery, providing information, devising strategies, and formulating plans is essential. However, for success, it hinges upon the readiness of the business to embrace this guidance, adhere to the devised plans, and place trust in the consultant or adviser. Just as a counselor’s support is vital in overcoming addiction, trust and collaboration are fundamental to the efficacy of the treatment.
By adhering to these principles, businesses can optimize their engagement with professionals in turnaround and restructuring, propelling themselves toward more favorable outcomes.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.