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quarterly issue 3

Business transformation: How to restore a post-COVID business back to health

Author: ICAEW Insights

Published: 13 Sep 2020

turn head

As businesses hit by the economic fallout from the global coronavirus outbreak seek help adapting to the new normal, Joe McGrath looks at how to make a success of turnarounds

The urgency with which governments had to step in to protect businesses as COVID-19 spread highlighted the interconnectedness of society at large. Alongside the health crisis, minds were focused on dealing with the turmoil ripping through global economies.

Chartered accountants are now working hard as company directors look to transform their companies to ensure survival. 

While some companies will be bruised and in need of changes to their strategic direction, others will require swift and more extensive surgery to restructure, if they are to survive at all.

Tony Murphy FCA, a director at accountants Harrisons, says the situation is unlike the global financial crisis of 2008 because the need for assistance is across multiple sectors and demand for transformation, restructuring and insolvency assistance is enormous.

“There will be businesses that were solid before COVID-19, but they have had their balance sheets bashed to hell and back,” he says. “Some will be trading, but not necessarily making any money.”

The anticipated demand for business transformation and restructuring assistance is already high and practitioners expect this to continue to rise in the coming year. A report by Begbies Traynor – published in July 2020 – highlighted the scale of the issue. According to the company’s own research, there were already 527,000 businesses in “significant financial distress” at the end of June 2020, an increase of 33,000 since the beginning of the year.

“The latest figures show there is a wave of company financial distress waiting to break upon the UK economy,” said Julie Palmer, a partner at Begbies Traynor. “This crisis will force many companies out of business, while those who were clinging on prior to the pandemic will now have become simply unviable due to high levels of debts and poor sales.”

The firm says that the number of non-viable businesses would have been much higher if court activity had not been reduced by government interventions. These steps included a suspension of asset recoveries through County Court Judgement issuances, and winding up petitions against indebted companies. This intervention is scheduled to end on 30 September 2020.

Given the outlook for corporate financial health, the time that practitioners have to manage turnarounds and transformations will probably be far shorter than they would have had during normal economic times.

Business transformation consultant Hannah Keartland says businesses facing immediate financial pressures from the pandemic will need careful attention to their everyday operations in the first instance, before looking at how potential innovations could help the business in the longer term.

“If you have a business that is really struggling, and needs to do things more quickly, you have to look at sorting out the current operations prior to unlocking the innovation piece,” she says. “You’ve probably got a lot of challenges with people feeling vulnerable. Don’t think about radical innovations that will take years to deliver. There will likely be innovations that are much more achievable.”

Keartland, who worked for Deloitte, Innocent Drinks and Cancer Research UK before establishing her own consultancy, adds that businesses in financial difficulty will need help identifying immediate opportunities for revenue wins and should be urged to strip out unnecessary costs as quickly as possible.

“Focus on the cash flow and the here and now,” she says. “It is about getting people in the room who know the business. If you can make this happen in the first few months, you can buy some time to start doing some of the more radical stuff.”

By freeing up the business with healthier cash flows, it is then possible to start thinking about more transformative innovations, such as embracing new working methods or new technologies, Keartland says. However, she also stresses that COVID-19 has accelerated the pace at which businesses are expected to innovate, citing the remote working phenomenon and the associated speed at which new technologies were embraced as just one example.

“If you think back 20 years, even 10 years, organisations would have had a project team to test a new approach, separate to everyday business as usual. Now, organisations are in constant change.

“We are no longer living in a world which is peppered by little bits of change. You have to be constantly testing and learning small things. You have to respond to what the market really wants. You can’t spend 12 months developing a strategy and implementing it.”

While some companies will have the breathing space to transform and restructure over a period of years, others will need more immediate action. These case studies show three very different change management examples, highlighting the versatility of skills that practitioners are likely to need in the months ahead.

ICAEW-licensed insolvency practitioners can be found on the official ICAEW directory. 

Read these three COVID-19 case studies on Vineyards.com, Ford and Starbucks for examples of how to make successful changes that will restore an organisation to health.