How to Build a Business Turnaround Plan
A credible turnaround plan starts with a 13-week cash flow forecast, identifies the root causes of the losses, sets out what the business will change and stop doing, and explains how its debts will be dealt with. It moves through five phases (stabilise, diagnose, plan, implement and return to growth) and gives lenders and creditors milestones they can measure.
Part of our turnaround series. This guide focuses on the plan itself. For an overview of what a turnaround involves, when it is the right route and how K2 works with directors, start with our business turnaround guide. Not sure whether you need a plan yet? Check the warning signs a business needs a turnaround.
What a turnaround plan is for
A turnaround plan, sometimes called a business recovery plan or financial recovery plan, has two jobs. Internally, it is the board's agenda: a sequenced list of the decisions and actions that will take the business from loss-making and cash-constrained to stable and profitable. Externally, it is the document that persuades lenders, HMRC, landlords, key suppliers and sometimes investors to give the business the time and support it needs.
Those two jobs pull in the same direction only if the plan is honest. Creditors and banks see optimistic projections every day. A plan that needs everything to go right is not a plan; it is a hope. Credible plans rest on conservative assumptions, explain the root causes of distress rather than blaming external events alone, and show evidence of change that has already started.
Survive the next 13 weeks
Fix what is broken operationally
Restructure what the business owes
These three pillars are the basis of K2's turnaround methodology. A plan that addresses only one or two of them rarely holds.
The five phases of a turnaround
The phases overlap in practice, and cash control never stops, but the sequence matters: each phase creates the conditions for the next. Typical durations are covered in how long a turnaround takes.
1. Stabilise: stop the bleeding
Take control of cash. Build the 13-week forecast, introduce daily or weekly cash reporting, stop non-essential spending and get authorisation for every payment. Speak to the creditors most likely to take action, including HMRC and the bank, before they act. If the forecast shows a gap that cannot be closed, this is when emergency funding or a formal moratorium may be needed.
2. Diagnose: truth before action
Establish why the business is in difficulty. Analyse margin by product, customer, site and contract; review overheads, working capital and management capability. The key output is an honest viability verdict: is there a profitable business here once the debt is dealt with? If there is not, the plan should say so and set out an orderly alternative.
3. Plan: decide and document
Turn the diagnosis into decisions: what the business will stop doing, which costs go, how pricing and terms change, what funding is needed and how existing debts will be restructured. Choose between an informal route, a formal procedure or a combination. Build a monthly profit, cash and balance sheet forecast, typically for 12 to 36 months, alongside the rolling 13-week forecast.
4. Implement: deliver the changes
Execute the operational restructuring (margin recovery, cost reduction, working capital) and the financial restructuring, whether that is HMRC Time to Pay, a refinancing through turnaround finance, a CVA or a restructuring plan. This is where turnarounds are won or lost.
5. Return to growth: build for the long term
Once trading is stable and the balance sheet reset, strengthen governance, reporting and the management team, refinance onto mainstream terms and set a strategy for measured growth. The disciplines introduced during the crisis, especially cash forecasting, should stay.
The 13-week cash flow forecast
The 13-week forecast is the foundation of every turnaround plan and the first document any adviser, lender or court will ask for. It is a week-by-week view of every cash receipt and payment over the next quarter. Unlike a profit forecast, it deals only in cash, on the dates cash actually moves, so it shows exactly when the pinch points fall and how much headroom remains.
The layout below is an illustrative example only. The figures are invented to show the structure and are not drawn from any real business.
Example 13-week cash flow forecast (illustrative figures, £000). Payments shown in brackets.
| Week | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Opening cash | 120 | 150 | 138 | 138 | 66 | 98 | 77 | 79 | 10 | 44 | 80 | 114 | 120 |
| Receipts | 70 | 75 | 68 | 80 | 72 | 74 | 70 | 82 | 76 | 78 | 74 | 80 | 85 |
| Payroll | – | – | – | (95) | – | – | – | (95) | – | – | – | – | (95) |
| Suppliers | (40) | (42) | (38) | (45) | (40) | (40) | (38) | (44) | (42) | (42) | (40) | (44) | (45) |
| HMRC (PAYE/VAT) | – | – | (30) | – | – | (55) | (30) | – | – | – | – | (30) | – |
| Rent | – | (45) | – | – | – | – | – | – | – | – | – | – | – |
| Debt service | – | – | – | (12) | – | – | – | (12) | – | – | – | – | (12) |
| Net cash flow | 30 | (12) | 0 | (72) | 32 | (21) | 2 | (69) | 34 | 36 | 34 | 6 | (67) |
| Closing cash | 150 | 138 | 138 | 66 | 98 | 77 | 79 | 10 | 44 | 80 | 114 | 120 | 53 |
Illustrative example only. Figures are hypothetical and do not represent any real company.
Even in this simple example, the forecast tells the board something a profit and loss account would not: payroll, a VAT quarter and loan repayments cluster around month end, and in week 8 the closing balance falls to £10k. That is the week to plan for now, by agreeing the timing of the VAT payment with HMRC, accelerating collections from specific customers or arranging additional facility headroom, rather than discovering it in week 7.
Good practice
Forecast receipts customer by customer, based on how they actually pay rather than on terms. Include every tax liability, arrears instalment and one-off payment. Roll the forecast forward every week and compare actuals with forecast line by line, so the variances tell you where your assumptions are wrong.
Common mistakes
Deriving cash from the profit forecast, assuming debtors pay on time, leaving out quarterly or annual payments, and showing the closing balance without the overdraft or facility limit alongside it. A forecast nobody updates is worse than none, because it creates false confidence.
For more on the causes of a cash squeeze and ways to ease it, see managing cash flow problems.
What goes into the plan
A turnaround plan for a small or medium-sized business does not need to be long, but it does need to answer the questions every stakeholder will ask. A practical structure:
| Section | What it should cover |
|---|---|
| Current position | Cash, trading, balance sheet and a creditor schedule showing who is owed what, what is secured or guaranteed and what is overdue. |
| Causes of distress | An honest account of what went wrong, distinguishing root causes from symptoms and internal failings from external events. |
| Viable core | Which parts of the business make money and will be kept, and which products, customers, contracts or sites will be exited. |
| Operational actions | Margin, cost and working capital changes, each with an owner, a date and a quantified cash and profit impact. |
| Financial restructuring | How existing debts will be dealt with and what new funding is required, with the informal or formal route chosen and why. |
| Forecasts | The rolling 13-week cash forecast plus monthly profit, cash and balance sheet projections, with the key assumptions stated and a downside case. |
| Management and governance | Who will lead the turnaround, any changes to the team, and how the board will monitor delivery and report to stakeholders. |
| Milestones and risks | Measurable milestones for the next 3, 6 and 12 months, the main risks to the plan and what the board will do if they materialise. |
Directors should remember that if the company is insolvent or close to it, their duties are owed with increasing weight to creditors. The plan and the board minutes approving it are part of the evidence that directors acted properly. See directors' duties and responsibilities and trading while insolvent.
The stakeholder plan
A turnaround succeeds only if enough stakeholders support it. The stakeholder plan sets out who needs to be told what, by whom and when. Silence is usually read as bad news, so communication should be planned, consistent and honest.
Lenders
Early, candid engagement with the forecast and the plan. Agree a reporting pattern, typically weekly cash and monthly management accounts, and keep to it. No surprises.
HMRC
Approach before enforcement with a realistic Time to Pay proposal and evidence that current liabilities will be paid on time. Missed instalments usually end the arrangement.
Key suppliers and landlords
Identify the suppliers the business cannot trade without and talk to them directly. Agree realistic terms for arrears and future supply rather than making promises the forecast cannot support.
Employees
Staff will sense the pressure. Tell them what is happening and what is expected of them, within what can properly be shared, and follow consultation obligations if redundancies are proposed.
Customers
Protect the relationships that generate profit. Key customers may need reassurance on continuity of supply, particularly if trade press or credit agencies pick up the company's difficulties.
Shareholders and investors
Shareholders may be asked to inject funds, accept dilution or waive loans. They need the same honest picture as creditors, and should understand that creditors' interests take priority as insolvency approaches.
KPIs that show recovery is on track
Choose a small number of measures the board reviews every week and a slightly wider set it reviews monthly. The weekly measures are about survival; the monthly ones are about whether the plan is working.
Weekly
- Cash headroom against the facility limit
- Forecast accuracy: actual versus forecast receipts and payments
- Debtor collections and overdue balances by customer
- Creditor position: overdue suppliers, HMRC and any arrears plan
- Order intake or sales pipeline
Monthly
- Gross margin by product, customer or site
- Overheads against the restructured budget
- Debtor, creditor and stock days
- EBITDA and progress against plan
- Covenant headroom and delivery of plan milestones
What lenders and creditors want to see in a plan
Lenders, HMRC and trade creditors are being asked to accept risk, delay or a loss. They are managing their own obligations, and in most cases they would prefer a viable business to survive. A plan earns their support when it answers their questions directly.
An honest diagnosis
A clear account of what went wrong, including management's own part in it. A plan that blames only the market is harder to believe.
Evidence of action, not just intention
Costs already cut, loss-making work already exited, cash controls already in place. Change that has started is far more persuasive than forecasts of future improvement.
A reliable short-term forecast
A 13-week forecast with a track record of accuracy. After a few weeks of actuals landing close to forecast, confidence in the longer-term plan rises.
Conservative assumptions and a downside case
Sales recovery that is realistic, margin improvement that is specific, and a sensitivity showing what happens if things go worse than planned.
A better outcome than the alternative
Creditors compare the plan against what they would receive in an administration or liquidation. Formal procedures such as a CVA or restructuring plan are built on that comparison, so it should be explicit.
Credible leadership and independent input
Confidence that the team can deliver. Many lenders give more weight to a plan that has been prepared or tested independently. See what a turnaround consultant does and turnaround specialist vs insolvency practitioner.
Where a consensual deal is not achievable, the same plan becomes the basis for a formal procedure: a CVA, a Part 26A restructuring plan or, if the company needs immediate protection, administration. For how the wider insolvency environment is moving, see our live UK insolvency data.
Frequently asked questions
What is a business turnaround plan?
A business turnaround plan is a written plan setting out how a company in difficulty will stabilise its cash, fix the causes of its losses, deal with its creditors and return to sustainable profit. It combines a short-term cash forecast, an operational plan, a financial restructuring proposal and a set of milestones that lenders, creditors and the board can measure progress against.
How do I create a financial recovery plan for my business?
Start with a 13-week cash flow forecast so you know how much time you have. Then diagnose the root causes of the losses, decide what the business will stop doing, set out the operational and cost changes, and propose how debts will be dealt with, whether through Time to Pay, refinancing or a formal procedure. Base the plan on conservative assumptions, give each action an owner and a date, and share it with the stakeholders whose support you need.
What is a 13-week cash flow forecast?
A 13-week cash flow forecast is a rolling, week-by-week forecast of every cash receipt and payment over the next quarter, showing the opening and closing cash balance each week. It shows exactly when cash will be tight, how much headroom remains and which payments must be managed. It is updated every week, with actual figures compared against the forecast.
What do lenders want to see in a turnaround plan?
Lenders want an honest explanation of what went wrong, evidence that the causes are being fixed rather than just the symptoms, a reliable short-term cash forecast, a realistic medium-term financial plan, a management team they believe can deliver it and clear milestones they can track. They also want to see that their position is no worse than under the alternatives.
What are the phases of a business turnaround?
Most turnarounds move through five phases: stabilise (take control of cash and stop creditor action), diagnose (find the root causes and test viability), plan (agree the operational and financial changes), implement (deliver the changes and restructure debt) and return to growth (rebuild the business on a sustainable footing). The phases overlap, and cash control continues throughout.
Can I write a turnaround plan myself?
Directors can and should lead the plan, because they will have to deliver it. Independent input usually makes it more credible to lenders and creditors, who see many optimistic forecasts, and an experienced adviser can test assumptions and identify options the board may not have considered. Where a formal procedure such as a CVA is part of the plan, a licensed insolvency practitioner must be involved.
Need help building a turnaround plan?
K2 offers a no-charge, confidential initial assessment. We will review your position, tell you honestly whether the business is viable and help you build a plan your stakeholders can support. See our business turnaround guide for how we work and what a turnaround costs, or take the 2-minute business survival check.
30+ years turnaround experience · Confidential consultation · Honest about viability
Related Guides
Put the plan into practice.
Warning Signs a Business Is Failing
Financial, operational, creditor and legal signals, and what to do at each stage
How Long Does a Turnaround Take?
Realistic timelines from stabilisation to return to profit
Turnaround Methodology
K2's five-stage framework for rescuing a business
Turnaround Finance
Funding options to close the gap in your forecast