by Peter Bendoris, Managing Director, Newpoint Advisors Corporation
I recently had the chance to sit down with the IMA (Institute of Management Accountants) for a webinar on a topic I live and breathe every day: business turnarounds. If you work with clients who are showing signs of financial stress, this is the world I want to pull back the curtain on. Here’s a rundown of what we covered, and if you want the full conversation, you can watch it on YouTube. Plus, at the end of the article, find a free downloadable checklist of the turnaround warning signs accountants need to know.
What Does “Turnaround” Actually Mean?
It’s not just returning to profitability, and it’s not just generating positive cash flow for a month. A real turnaround means a company is generating sustainable, positive cash flow. I’ve seen plenty of businesses post one good month, only to lose money the next. Profitability is a GAAP measure and doesn’t always track cash accurately, so this distinction matters.
Why Does a Company Need a Turnaround?
At its core, it comes down to five things: protecting liquidity, protecting assets, aligning stakeholders (lenders, owners, investors, vendors, creditors), repositioning the business, and rebuilding value. If there’s something worth saving, a turnaround is how you save it.
The Early Warning Signs
As accountants, you’re often the first to see trouble brewing. Watch for delayed financial reporting, growing working capital needs, overdrafts, missed forecasts (especially multiple versions that keep getting missed), declining stakeholder confidence, employee turnover, and communication that slows down or turns hostile. One newer red flag we’re seeing more of: daily or monthly sweeps of cash out of a company’s bank account, often tied to merchant cash advances.
A Word of Caution on Merchant Cash Advances (MCAs)
This deserves its own callout because it’s one of the hottest issues in the lower middle market right now. MCAs aren’t loans; they’re advances against future sales, which means they attempt to skirt usury laws. Firms will promise fast money, sometimes within 24 to 48 hours, at interest rates north of 30%, and they’ll sweep a company’s bank account regardless of the balance. This often leads to “MCA stacking,” where a business takes on multiple of these advances just to stay afloat, digging the hole even deeper. If you have a client considering this route, please urge caution.
What Triggers a Turnaround Engagement
Missed payroll taxes, vendors demanding cash upfront, delayed fulfillment, lawsuits, covenant defaults, and frozen bank accounts or lines of credit are all common triggers. By the time we’re called in, there’s usually already a small fire. The goal is to catch it before it spreads.
Our Process: Stabilize, Diagnose, Restructure, Create Value
We start by building a cash flow model, usually 13 weeks, and put tight governance around every dollar going out the door. We talk to stakeholders constantly during this phase. Time is the enemy, so buying time is priority one.
From there, we diagnose. That means a full operational assessment across sales, marketing, legal, manufacturing, personnel, and the broader macroeconomic environment. We also look hard at the capital structure and whether current leadership can actually execute a plan.
This leads to a fork in the road: is there something to save, or not? If yes, we move into a strategic reset, focused on core business, margin improvement, asset utilization, and sometimes the hard conversations about underperforming or toxic employees.
A Hard Truth About Bankruptcy
Many business owners assume bankruptcy is the answer. It’s not, at least not often. The success rate for lower middle market companies emerging from Chapter 11 is only about 10%. Between legal costs (plan on $200,000 just to start) and the difficulty of getting all creditors to agree to a plan, bankruptcy should be a last resort, not a first move.
Why Turnarounds Fail
I’ve seen it all: lack of buy-in from stakeholders, poor accounting records that make it impossible to trust the numbers, not enough time or liquidity to execute, sabotage or half measures from employees who resist the plan, faulty assumptions, and yes, sometimes outright fraud. The single most common line I hear that signals resistance to change: “we’ve always done it this way.”
Family-Owned Businesses Are Their Own Challenge
These situations are often more about psychology than numbers. Family members with voting rights can override sound business decisions, and it can feel like hitting a brick wall. What tends to break through is being direct: if you’re relying on this business for your retirement, that retirement is at risk. If you want to pass the business to the next generation, you owe them a company that’s actually worth inheriting.
The Bottom Line
A turnaround isn’t just a cost-cutting exercise. It’s about realigning the business, restoring confidence, and being honest about what’s driving the distress. It’s also not guaranteed. In our experience, about 75% of the turnaround plans we take on succeed. That other 25% is a reminder that acting early always gives you better odds.
If you’re an accountant working with a client who’s showing any of these warning signs, don’t wait. The earlier we get involved, the more options are on the table. Download this free checklist of red flags accountants need to know.
You can watch the full webinar, including audience Q&A on fraud, family business dynamics, and real client case studies below:
