Periods of financial distress test the foundation of any business. Whether driven by market downturns, liquidity shortfalls, or internal disruption, companies facing financial uncertainty must act swiftly and strategically to restore stability and preserve value.
A well-structured going concern plan becomes not just a financial tool, but a lifeline. It can help reassure creditors, retain employees, manage risk, and set the business on a path toward recovery.
Here are the core elements that every distressed business should include in its going concern plan.
1. Stakeholder Communication and Support
In distress, communication can make or break your recovery effort. Your plan should define:
- A strategy for engaging lenders, investors, employees, suppliers, and customers.
- How you are sharing updates, managing expectations, and avoiding misinformation.
- Any stakeholder concessions or partnerships being pursued to support the turnaround.
Credibility is earned through consistent, transparent, and proactive communication even when the news is difficult.
2. Immediate Liquidity and Cash Flow Management
In distressed situations, cash is king, and the ability to manage it tightly is non-negotiable. Your plan must provide:
- A 13-week cash flow forecast with daily or weekly granularity.
- A clear picture of payables, receivables, and burn rate.
- Identification of critical payments (e.g., payroll, taxes, debt service) and non-essential outflows that can be delayed or renegotiated.
Rapid improvements in working capital can create crucial breathing room while longer-term solutions are explored.
3. Short-Term Stabilization Strategy
Your plan should detail the concrete steps you’re taking now to stabilize the business. This might include:
- Cost containment measures, including headcount adjustments, facility closures, or renegotiated contracts.
- Asset sales or monetization strategies to generate quick cash.
- Discussions with lenders, including forbearance, covenant waivers, or refinancing.
This section signals to stakeholders that leadership is taking decisive, responsible action under pressure.
4. Assessment of Root Causes and Risk Factors
Financial distress rarely arises from a single event. Your plan must address:
- The underlying causes are margin compression, operational inefficiencies, poor capital structure, or market decline.
- A candid review of risk factors, including customer loss, legal exposure, or supplier concentration.
- A framework for monitoring and mitigating future risk.
Transparency here demonstrates credibility and builds a foundation for future trust.
5. Leadership, Governance, and Turnaround Capability
Investors and creditors need confidence in the people leading the turnaround. Your plan should include:
- An overview of the leadership team’s experience in crisis situations.
- Outside advisors or restructuring experts engaged to support recovery.
- Governance practices, including board involvement or special committees, that enhance oversight and accountability.
In times of distress, a focused, empowered leadership team is critical.
6. Pathway to Long-Term Viability
While short-term fixes matter, your going concern plan must also address how the business becomes viable again. This could include:
- A revised business model or go-to-market strategy.
- Divestitures or exits from unprofitable business lines.
- Operational restructuring, including supply chain or workforce redesign.
This roadmap should align realistic actions with specific financial targets over a 12–24 month horizon.
7. Legal, Regulatory, and Contingency Planning
Distressed companies face complex legal and compliance risks. Your going concern plan must also consider:
- Compliance with audit and financial disclosure requirements, especially if insolvency risk is material.
- Legal review of contracts, debt instruments, and fiduciary obligations.
- Contingency plans, including potential restructuring filings or orderly wind-down scenarios, if needed.
This protects the business and its leadership while maximizing optionality. Retaining a debtors rights attorney as a member of your professional advisory team is key.
Final Thought: A Plan is a Promise
For companies in distress, a going concern plan is more than a document. It promises employees, creditors, and customers that leadership is facing the situation head-on.
At JACO Advisory Group, we help companies under pressure find clarity, stabilize operations, and rebuild for the future. Whether you’re leading a family business through turbulent waters or managing a complex restructuring, we’re here to guide you every step of the way.
