Objective assessment in a turnaround crises starts with the numbers or, more concisely, the financial analysis. Subjective interpretation of a business threat is frequently wrong, but the numbers don’t lie.
I use the identical number crunching tools your banker uses to assess credit risk and pin down the financial fluctuations which ultimately tell the story. The goal is to find a turnaround focus.
Financial analysis requires comparing or “spreading” 3 years +YTD financial statements and looking for meaningful fluctuations in revenue, expenses, assets or liabilities. Sometimes, the results point to a combination of issues spread across multiple accounting categories.
Financial analysis is a very technical and analytic process, but frequently it’s the key to isolating the “real” problem and finding a turnaround solution.
It’s a gritty process but it often uncovers subtle cash flow issues, debt-to-worth inequity, inadequate cost of goods sold margins, slow inventory turnover or receivables collection periods. Left untreated, any of these technicalities can threaten a business’s ability to survive.