To secure going concern for a firm, a turnaround professional should on-board before the final struggle for economic survival has begun.
If waiting too long, going concern is at stake and it is more promising to go to Las Vegas, to preserve investments.
The suck of the downward spiral
Root causes for distress situations putting going concern at stake are often managerial mistakes of the past or changes in the economic environment, impacting critical business processes.The earlier
- first negative trends are identified as an indication of an upcoming distress situation,
- root causes are thoroughly analyzed, identified and understood according to their cause-effect ratio, and
- eligible actions are applied,
it is, to maneuver a company back to save waters.
Ignoring first signs and waiting too long, the firm moves closer to the cliff and the risk of crossing the “point of no return” is increasing. Once entered into a downward spiral, recovery of the firm is getting more and more difficult and chances for going concern are diminishing.
Signs of an arising distress situation
The actual distress situation sends the notice, before its arrival.
A number of KPIs indicate negative trends in advance of the immediate distress situation. The “notice period” can easily span over a period of 6-24 months, also allowing management sufficient time to take appropriate actions. Early warnings include financial KPIs and also the behavior of various stakeholders.
Signals are visible inside as well outside the organization.
Going concern, or go to Las Vegas?!?
Without professional assistance, only 12.5 % of companies under Chapter 11 survive
For the owners and investors of those businesses, a trip to Las Vegas offers better chances, to preserve their investments.
This data might be discouraging, but the true message is: Once a company is under chapter 11 (or similar regulations in other countries outside the US), a reanimation of healthy economic processes is already difficult and success is at stake.
With the help of turnaround experts chances for going concern rise from 12.5% to 93%.
Instead of booking the trip to Las Vegas, calling in a turnaround specialist is an excellent idea.
Take away:Once in a heavy distress situation, chances for the success of a turnaround are diminishing. If expert support is disregarded, investors are better off, to try to recover their investments, gambling in Las Vegas. However, with expert help, chances for going concern are rather high.