- November 20, 2012
- Posted by: Javier González Montané
- Category: Turnaround
In economy we can talk about recession when continued decline in economic activity for two or more consecutive quarters. In the micro-economy world, I mean in the companies’ world the timing used to be different. Usually the review process in companies is yearly, and because management teams used to have a second opportunity, two years with losses could be considered a decline that needs a turnaround. Obviously if the losses are important, time is reducing.
Ideally, the turnaround process must start not too late in the decline phase in order not to allow deteriorating too much the situation. Although in many cases that decision is delayed until many quarters of losses, what will likely erode importantly the cash situation of the firm.
Someone could ask how we know that we are not to late in the decline phase. Well, this question does not have an easy answer. In reality the committee in charge of the turnaround decision must use their experience and intuition to realize soon that the firm needs a crisis management, and that those problems are not going to be solved for the current management team at least without the support of a turnaround team.
It is important to highlight that a turnaround project could take between one and two years. So we must not delay too much the turnaround decision, or it could be too late to recover the situation.