Turnaround Financing

Turnaround financing can improve a dying business.

Turnaround financing is for companies that have had a history of bad performance. It involves the challenge of improving a business by investing more money, or capital into the dying business. Often times the company is bankrupt or simply not performing. Turnaround financing includes the capital invested into the stagnant business. This capital could include financial capital or human capital.

Often times a group of investors or other private parties with capital and management savvy will finance the dying business to improve their own operations. Sometimes a company an investor will invest money into may provide a complimentary product or service to a business they already have. By combining the two operations profits may increase, and that is oftentimes a big reason that turnaround financing takes place.

Three different categories of turnaround

• Cost Structure:  The investor will look at the expenses of a company and find areas that could be cut back that would increase profitability. This wouldn’t mean a large change like bringing in new management or creating a new business plan.

• Management:  Replacing the current management that isn’t getting the job done is another option for the investor. They will have to look hard at the new candidates for management including their past business successes. They will have to determine if just a management change will be necessary to make a difference, or if a change needs to take place along with more working capital to make a positive difference.

• Declining Marketing Position:  If a company is declining in market position an investor will not be as interested in investing in this business because the chances of success aren’t as great. A declining marketing position can’t be controlled by the investor like changing cost structure, management, and/or the business plan.


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