Addressing severe underperformance 

If the latter is the case, then you must deal with it without delay, taking whatever steps are necessary to prevent insolvency, administration or liquidation.

Senior management should act robustly or their distressed, underperforming company may become the target for a predatory buyer, such as a private equity house. When a new buyer takes control, it is often senior managers who are the first casualties.

Among the many warning signs of underperformance, the most apparent are often:

• increasing pressure from stakeholders to deliver profits and cash
• an inability to react to changes in market conditions
• declining sales and profitability (including cost pressure from low cost competitors).

What common problems might I face when tackling this issue?
The challenge is to spot the indicators of underperformance and recognize what they signify.

Do not assume they will go away in time.

Indicators could be:

• the negative consequences of a loss-making subsidiary
• the crippling affect of undertaking manufacturing in locations with high labor costs
• poor management decisions leading to unplanned for expenditure and/or losses.

It is often very difficult to act on ― or even admit to ― shortcomings in a business’s operations. It may be fairly easy to identify exactly where things are going wrong but finding solutions, requesting outside help and making major decisions that could impact many levels of the organization, can be much more challenging.

So what should I do?

• Get to the root of the problem and figure out what needs to be done ― fast.
• Engage with all levels of management to create decisive, strategic and operational plans.
• Be prepared to take on outside help. It may be necessary to ‘parachute’ in an experienced executive in the form of a Chief Restructuring Officer. Advisors who are brought in should be hands-on, taking a direct role in helping to turn around the business.

In summary
It is crucial that problems in your business are recognized, acknowledged and tackled before they cause major ― perhaps fatal ― damage to the organization. You must assess the extent of the problem and match it with a suitable strategy, depending on how much time is available. For example, if the problem is cash flow the solution might be focused on freeing up crisis cash for immediate use or it might involve the formulation of a longer-term strategic approach to cash management to help ensure the problem doesn’t reoccur.

Accepting that a problem exists and understanding it allows for better application of remedial measures at a time when a business can ill afford for anything else to go wrong.

How can KPMG firms' professionals help?
By providing advice on:

• rapid cost reduction
• effective cash management
• turnaround planning and implementation
• financial restructuring
• exit planning.