A distinction should first be made between disaster recovery or contingency planning , survival / recovery planning, and change management. The first occurs as the result of a short term dramatic change in the environment – the second through an accumulation of problems and errors. All businesses can be brought to the edge of failure through the accumulation of problems and errors – some will tip over into the need for closure and the immense personal and economic damage that that causes. Change management has similarities to survival and recovery planning, but is longer term – the organisation has time and can correct mistakes that it makes – survival and recovery planning by contrast is much more time critical and detail driven – with the emphasis on getting it right first time and quickly.
Survival is the first essential stage – ensuring that the business can continue to trade. This is followed by recovery as the organisation moves from existence back into some form of prosperity. 7 stages can be typically defined for survival and recovery planning – though in reality they need to parallel rather than sequential activities.

Where are you?;
Defining responsibility and authority;
Modelling and monitoring;
Creating a stable platform;
Working with stakeholders;
Conserving cash;

Where are you?

The first step must always be to understand what the problem is, and how serious it is. This means a detailed review of the information held within the company. Obviously the first place to start is the financial records, but a detailed analysis is needed of:

  • Legal issues of liquidity status;
  • Cash position;
  • Debtors;
  • Creditors;
  • Stock – separated into completed stock, work in progress, components, raw materials;
  • Plant;
  • Fixed assets – property, IPR etc;
  • Personnel;
  • Customers;
  • Suppliers;
  • Financial stakeholders

The crucial first step is to define whether the business is viably trading. Rules and regulations vary from country to country on insolvent trading – but it is safe to say that if this stage has been reached, immediate legal help is required. It is useful to have all these components listed in detail in a standard operating procedure.

What financial measures are needed?:

The current ratio (Assets/ Liabilities) provides one such test (though it depends on the valuation of assets;

The quick ratio (Liquid Assets/ Liabilities) provides a more valuable measure as it identifies whether the company can viably continuing trading;

Z score indicates where the company operational trends are leading;

Cash flow return on investment provides valuable data on how effective the business is at generating cash and what the trends have been;

Gearing ratios indicate the underlying viability of the asset base of the business;

Interest cover indicates whether the company can continue to pay its financing charges.

Where the financial analysis indicates that insolvency has occurred, the directors of the organisation need to be immediately informed. This will also be true if there are banking covenants and rules imposed on the company. Unless additional short term financing can be obtained (from directors or closely connected shareholders/ financial stakeholders who are made fully aware of the problems) the decision to call in expert legal help should be formally noted and acted upon.

Should the liquidity barrier not have been breached, the comprehensive analysis of the framework of the business can continue. Each component can provide a foundation for recovery. It is important to identify what are the priorities in the analysis, but each component needs to be entered into a detailed action plan, with task, timeline and milestones. This has two benefits: it not only identifies what needs to be done, but serves as the framework for any presentation that will need to be made for assistance from stakeholders. Ibis has over 260 questions relating to key parts of the business – and in every recovery problem this is added to and made specific to the organisation. 

This worksheet identifies each key item, followed by a series of questions, the impact that each will have on the underlying problem, the speed at which it can be completed and the likely risk that the policy change will cause in future recovery, combined with the reality of the environment – can we do it?. This filtering process provides a short list of best fit options – those that have a high impact, can be done quickly, have limited recovery risk and are achievable.

An example of the typical Ibis worksheet for finished stock in a manufacturing company operating in a market with little competitive price pressure:












Speed (month)






Can do?



Finished stock



Can we sell obsolescent stock?
















Can we reduce stock holding/ stock cover?
















Can we part deliver on finished orders?
















Can we persuade client for staged payment?
















Can we increase prices?
















Can we move to direct delivery and not hold stock for many clients?













Defining responsibility and authority

Obviously, where the company has breached its liquidity boundaries and cannot gain extra finance, the choices are restricted to those laid by law – but otherwise the organisation needs to rapidly decide on who will take charge of the survival plan and actions. There is no magic answer to this question, though the key fact must be that the individual is credible to the stakeholders, has the expertise and the personality to carry through the often complex requirements of survival and restructuring. The options are:

  • To maintain the current management structure in its entirety;
  • To replace the existing CEO with another of the existing management team;
  • To hire an outsider to carry through the programme.

Each has advantages and disadvantages. The existing CEO is known to the stakeholders – but may be (and often is) part of the problem rather than part of the solution, while hiring an outsider will be expensive, time consuming and no guarantee of success. What little research there is on the subject suggests that the third option – that of replacing the CEO with another of the existing management team offers the best chance of success, supported where relevant by external expertise. This avoids the classic “Pottery Barn” rule, which has become increasingly common. This is that because an individual has broken something, they are uniquely positioned to sort it out. This argument would be funny if it did not cause further problems.

Research suggests that the most important qualities of the recovery “tsar” (however appointed) are:

  • Task orientation
  • Transparency;
  • Negotiation skills;
  • Communication skills.

Task orientation because actions have to be taken – they cannot be left on one side; transparency because trust between management and stakeholders is essential in this period of high stress; negotiation skills because compromises have to be reached between the ideal requirements of the company and the requirements of the stakeholders, and communication skills because it is essential that all parties are kept informed.

Whatever the route chosen, research shows clearly that management need to lead by example to achieve the support of stakeholders, particularly employees. The pain of survival and recovery must be at least equally shared to ensure future commitment and support. What research there is suggests that where management cut their benefits dramatically the chances of survival are greatly increased.

Modelling and monitoring

Software can provide a high level of control over the vital detail of planning during the survival phase. A combination of:

  • Accounting systems;
  • Spreadsheets;
  • Project management tools;
  • Forecasting software;
  • Internet banking

Provide real time information on the way in which the plan is developing and what is working and what is not, and enable management to carry out the vital “what if?” calculations. It also helps any presentations that management have to make to stakeholders – demonstrating the depth and completeness of the work that has gone into the survival and recovery plan.

Detailed and timely monitoring is obviously also crucial – to identify variances early and take the necessary corrective action. This regular update can also be part of the communication between the company and the key stakeholders. 

Management have to choose to focus on particular ratios or measures of operating performance. The Ibis view is that the critical two for the survival phase are the quick ratio and the CFROI – which can be termed the KPI's of this phase of the organisation plan

Create a stable platform

It is vital that the changes made are coherent and will lead to the creation of an entity that will have solid foundations for future development. This means that the plan that is created must be conservative and err (probably excessively) on the side of caution. Uncertainty caused by continual dribbles of information on this and that change will just add to the existing suspicions of the stakeholders. All the research suggests that it is better to get all the bad news out at once, rather than hoping that small quantities of bad news leaked out over time will not be noticed. Carry out the necessary re-structuring and do it early – but keep a clear view of the company core competence; this must be maintained.

Stakeholders are king

The sad fact for troubled businesses is that new suppliers/ investors/ customers are very (and probably justifiably) wary. The survival phase of the organisation must rely on the goodwill of existing stakeholders – and be fully aware of that fact. Stakeholders on the most part are willing to help an organisation in trouble – working on the fact that half a loaf is better than no bread at all – or that they may get into trouble themselves, and will then need assistance. Involving the stakeholders early, and providing them with a detailed and comprehensive survival and recovery plan establishes a negotiating position – can you help us?- this is how you can, and if our proposals go too far we can rework the plan. Once this new agreement has been reached, it is obviously vital that the business must deliver on its promises – another argument for an initially conservative and pessimistic plan.

Cash is queen

Micro-management of cash is essential as part of the survival plan. Agreements made with stakeholders have the first priority, and each individual payment needs to be scrutinised – with the question – what is this? Why do we need it? Can we do without it? The use of investment appraisal techniques is valuable here, but the underlying message should be that if it is essential for survival we spend the money, if it is not we don't. This philosophy should extend throughout the company and all its activities – but again with the aim to maintain the effectiveness of the core competences. There are however numerous cost cutting measures that require little investment and can be rapidly implemented without harming core competence, also lowering the break even value and improving profitability. 

Both the CFROI and Quick Ratio will provide a good measure of how rapidly the cash management is improving. 


Once the survival phase has been completed, the company should consider a re-financing exercise. The reason for this is simple: even though the organisation has survived it is still extremely weak financially and has limited reserves to cope with any contingencies. Another advantage is that it will focus the organisation on planning for the future thereby creating a much more viable business concept and operational management.


The earlier that action can be taken, the less serious the problem will generally be. Companies should not put off the essential decisions that need to be taken for their survival. A motto should be engraved on the tombstones of many organisations:

Don't put off today, for it will be worse tomorrow” 

Prevention is better than cure. Creating an effective business monitoring system will ensure that problems are identified early with far better chances of success, as will the integration of a comprehensive contingency plan.

More information on the way in which Ibis can contribute to your business plan development is provided at Advantage Ibis 

More information on the Ibis approach is also available on the FAQ page..