When is it time to implement a turnaround strategy?

While the answer is never straightforward, there are certain indicators that show a company’s foundation is weakening. By recognising the right time to implement a turnaround strategy – whether internal or external circumstances have brought a client there – leadership can take corrective action, increasing the possibility of recovery.

Five signs it’s time for your client to implement a turnaround strategy

1) Consistent financial losses and cash flow problems

Accountants know accurate numbers rarely lie, but they can be easy to rationalise away. Many small and medium enterprise (SME) business leaders overlook early warning signs of financial distress due to limited visibility into their operations and finances. And in fast-paced, high-growth environments, challenges are often seen as temporary. The focus on expansion can obscure deeper issues, delaying necessary action.

Recurring losses, late vendor payments, or unhealthy debt levels are clear signals of instability. The earlier you flag these patterns, the more options are available to stabilise operations. Helping clients face these financial realities head-on can prevent reputational harm and operational breakdowns.

2) Declining or inconsistent gross margins

Even if revenues remain stable or appear to grow, a declining gross margin is often indicative of growing inefficiencies within the company’s operations. This symptom of declining performance usually points to underlying issues, such as rising costs, employee turnover, stale pricing, poor quoting, and operational inefficiencies, among other issues.

Meanwhile, an inconsistent gross margin typically reflects a lack of hygiene within the accounting function. During times of poor financial reporting, companies are more likely to delay making important business decisions because leadership is not comfortable with the data’s accuracy. And as a result, they can needlessly lose cash due to inaction.

In these scenarios, the financial picture often does not become clear until a professional intervenes and implements accounting best practices and quality financial reporting.

If a company waits too long to implement a turnaround strategy, it will soon find itself bleeding cash, and its friendly lender may no longer be so friendly. It’s important to get out in front of these issues and begin making strategic decisions to get margins back in order. If you notice that your client’s gross margin is shrinking month after month or varying wildly, advising them to revisit pricing, efficiency, and the capabilities of their accounting department is a key first step.

3) Operational inefficiencies and high employee turnover

Excessive staffing, delayed delivery times, inadequate quality control, and a host of other issues often signal growing operational inefficiencies, which can drag down productivity, increase costs, and lower morale. When these parts of a company deteriorate, not only will customers become dissatisfied, so will employees.

A steady loss of key talent disrupts continuity and culture, while increasing recruitment and training costs, worsening the cycle.

Losing top talent demotivates existing staff, negatively affects culture, and usually leads to decreased profits. Implementing a turnaround strategy can help identify leadership gaps, restructure teams, and improve processes to restore efficiency and employee satisfaction.

4) Customer churn or declining satisfaction

Customer satisfaction is often the truest measure of a company’s health. Complaints or defections often reflect unmet expectations in service quality, pricing, responsiveness, or innovation. Declining customer satisfaction is also the most difficult area to remedy since customer relationships, once harmed, are often difficult to salvage without drastic changes. While the customer might play nice on the surface, quality and customer satisfaction issues are likely to cause them to rethink their business relationships, leading to requoting work or moving to a competitor. And when companies rely heavily on a few key clients, these concerns can be the death of once great businesses.

If customers are dissatisfied, immediate changes are in order. Time is of the essence in these scenarios because irreversible reputational harm is occurring daily. A turnaround strategy in this area usually focuses on various operational and customer service improvements to win back trust and loyalty.

5) Economic downturn

Sometimes the need for a turnaround isn't driven by any internal missteps, but instead by external forces like market changes, tariffs, or global economic instability. Even well-run businesses can feel the squeeze when demand drops, financing tightens, or key customers reduce their spending.

Business leaders do their best to anticipate this ebb and flow, but waiting too long to adjust during a downturn can leave a company overexposed and overextended. Proactive planning helps your clients weather these cycles. Identifying nonessential costs, diversifying revenue streams, and making wise spending decisions can better position your client for resilience and growth in challenging markets.

A path forward

As accountants, the value we bring isn’t just in reporting the past, it’s in helping our clients see the warning signs of the future. Implementing a turnaround strategy isn’t about failure; it’s about preserving and strengthening what’s been built.

If you’re spotting these signs in your client base, it may be time to bring in a turnaround expert who can provide an objective perspective and guide corrective action. The earlier the intervention, the stronger the odds of recovery.

Matt Schoenholtz is a partner and client advisory services leader. In his role as CAS Partner, Matt serves as an outsourced financial officer and advisor for Mowery & Schoenfeld's clients; he also leads the firm's turnaround accounting practice. He specialises in consulting with businesses on their daily accounting, as well as overall financial planning and health.