Reviewed by Sep 30, 2020| Updated on
When a company that has undergone a period of poor performance transitions into a phase of a financial recovery, it is called a turnaround. After a time of recession or depression, a turnaround may also apply to the recovery of the economy of a nation or region. Likewise, it may refer to the recovery of an entity whose personal financial situation, after a while, improves.
Turnarounds are critical because after enduring a significant period of negativity, they represent an upward shift or change for an individual. The turnaround is analogous to a cycle of restructuring in which the company turns the losing era into one of productivity and prosperity, thus stabilising its future.
Turnarounds may occur from the person to the economy of a country or even be a global event at many rates. The term refers to a process when an organisation starts experiencing steady and successful financial or output recovery after a period of decline.
In most situations, understanding the issues causing the decline is the first step for going into a turnaround process. They may examine changes in management in the case of a business, or problem identification and strategies for solving them. The best action in extreme situations can be to liquidate the company.
There are specific characteristics which will usually identify an entity that needs a turnaround. For a company, these may include a decrease in the price of its stock, the need to lay off staff, and sales that do not meet creditors' payment requirements.
Changes in the competitive advantage of a company and obsolete products or services may also be indicative of a business that needs to explore strategies for turnaround. Failure to control resources like labour and capital can also put pressure on the company. A stock speculator can benefit from a turnaround if he correctly anticipates a poorly performing enterprise's improvement.