The Turnaround Check, How One Number Warns You

Most business failures are not a surprise. They look sudden from the outside; they are almost always visible from the inside long before they land. The problem is that the people who could act on the warning are usually watching the wrong indicators, or the right indicators once a year, when quarterly or monthly would have been in time.

Formal warning arrives late. The bank flags a covenant issue after the quarter's numbers land. The auditor raises a going-concern note when the annual audit closes. The board's finance report is a snapshot of the position at the end of the previous month, delivered midway through the following month. By the time the formal indicators light up, the business has usually been drifting for two or three quarters.

The Turnaround Check exists to catch the drift earlier. It reads the numbers that a lender or a competent advisor would read first, produces a single result band, and tells you what that band means and what to do about it. Five minutes. Free.

This piece explains what it looks at, why those specific indicators matter, and what each result band should trigger.

Why "wait for the auditor" is often too late

The auditor's going-concern qualification is a serious signal. In South Africa it is issued under International Standard on Auditing 570 (IAASB, 2019), which requires the auditor to evaluate whether events or conditions cast significant doubt on the entity's ability to continue as a going concern for the twelve months following the balance sheet date.

The problem is that a going-concern qualification is retrospective. It reflects the position at year-end, evaluated during the audit, delivered in the audit report several months later. By the time a going-concern qualification appears in a signed audit report, the underlying conditions have often been developing for eighteen months.

The bank's covenant test is faster but still lagging. Most senior debt facilities test covenants quarterly against the quarter-end numbers. A DSCR covenant breach shows up two to three months after the period in which the underlying cash flow deteriorated. By the time the breach is formally identified, the next quarter's numbers are already deteriorating further.

The Turnaround Check reads current data (the month-end numbers you already have) and asks the question the bank and auditor will ask in six months' time: is this business generating enough cash to service its obligations, and is the trend the right way or the wrong way.

What the Turnaround Check reads

The check reads three families of signal, each of which a serious analyst would look at first.

Debt service coverage. The ratio of cash available for debt service to the debt service itself. A ratio above one point three is generally comfortable. Between one point one and one point three is under pressure. Below one point one is in trouble; at or below one is failing to service debt and running down cash reserves to bridge the gap. The specific threshold varies by lender and by industry, but the shape of the signal is standard (Brealey, Myers, and Allen, 2020).

Working capital signals. The behaviour of debtor days, creditor days, and inventory days. A business that is stretching its creditors while its debtors are lengthening is a business that is silently financing itself off its suppliers because it cannot fund working capital from operating cash. This can hold for several quarters before it becomes visible in the P&L; it is visible immediately in the cash conversion cycle. Foundational work on this includes the Altman Z-score (Altman, 1968), which formalised the relationship between working capital position and failure prediction.

Payment-pattern signals. The evidence of missed or late payments to tax authorities, primary suppliers, or landlords. A single missed payment can be an administrative error. A recurring pattern of late payments to a small number of critical creditors is a leading indicator that the business is running out of the cash to meet its obligations in time.

The Turnaround Check combines these signals into a single result band that reflects the overall picture. The bands are green, amber, and red, each with a specific meaning and a specific next step.

What each result band means

Green: you are fine, for now. The business is generating enough cash to service its debts comfortably, its working capital position is stable, and its payment pattern is clean. Nothing in the current position suggests immediate action is required.

Green does not mean the business is invulnerable to future stress. It means the current data does not show early warning signs. The correct response to a green result is to run the check monthly as a discipline, so that if the position starts to deteriorate you will see it in the following month rather than in the following audit.

Amber: watch the next 90 days closely. The business is showing one or two of the early warning signs but has not tipped into distress. The debt service coverage is under pressure but still positive. The working capital position is drifting. There may be a payment-pattern signal that is worth investigating.

Amber is the band where preventive action has the highest return. The tools available to an amber-band business are the ordinary tools of financial management: tighten working capital, review overhead cost lines, have a proactive conversation with the primary lender about the trajectory, address the specific driver of the drift. Amber-band situations that are actively managed rarely deteriorate into red. Amber-band situations that are ignored routinely deteriorate into red within two to three quarters.

Red: get advice this week. The debt service coverage is below one point one, the working capital position is stretched, or the payment pattern shows repeated late payments to critical creditors. The business is at material risk of running out of cash within the next six months, or of failing a covenant test in the next quarter.

Red is a signal that professional advice is required. Not every red result becomes a formal insolvency situation, but every red result requires a qualified financial advisor to work with the owner or the board to develop a response. The options at this point are still available: negotiated debt restructuring, equity injection, sale of non-core assets, formal turnaround plan. What removes options fastest is delay.

What to do next, by band

If you are green.

Run the check monthly. Set a calendar reminder. Watch the trend rather than the point estimate. Two or three months of small deterioration in the DSCR is the leading indicator that is most likely to be actionable.

If you are amber.

Call in a competent finance advisor within the next thirty days. Not to run a formal restructuring: to review the position, identify the one or two drivers of the drift, and develop a small number of specific interventions. Most amber-band situations can be corrected with a working capital tightening, an overhead review, and a proactive conversation with the primary lender.

Have that proactive conversation with the lender before the next covenant test. A lender who learns from the borrower that the business is under pressure but has a plan will engage constructively. A lender who learns from a covenant breach that the business is under pressure will engage defensively. The difference matters.

If you are red.

The right professional advice at this point is an independent financial advisor with restructuring experience, and often a lawyer with corporate insolvency exposure. The specific question the advisor will help you answer is: what are the realistic options, given the current position and the trajectory. The options typically include: informal negotiated workout with the primary lender, corporate restructuring (voluntary, negotiated, done while the business is still technically solvent), or formal statutory rescue. In South Africa, statutory rescue sits under Chapter 6 of the Companies Act 71 of 2008 (Republic of South Africa, 2008); in the United Kingdom under the Insolvency Act 1986 and the restructuring plan introduced by the Corporate Insolvency and Governance Act 2020; in the United States under Chapter 11 of the Bankruptcy Code; and under equivalent regimes in most other jurisdictions. The right regime is the one your local counsel operates in.

The choice between these options is not obvious and it is not the owner's alone to make. But the choice needs to be made, and the timing of the choice materially affects the outcomes available. A restructuring conversation that starts when there is six months of runway available produces more options than the same conversation started when there are six weeks of runway available.

Why we made it free

The Turnaround Check is free because the alternative to knowing your position is not knowing your position, and not knowing is worse than knowing. A business owner who runs the check monthly and sees the green-to-amber transition three months before their auditor would have flagged it has time and options. A business owner who does not run the check has neither.

CentraSolve builds paid modules for the businesses that need deeper analysis: the M2 Bankability and Viability module for owners who need to understand whether their business is fundable and whether it will survive being funded, and the M4 Business Rescue module for practitioners working on formal rescue engagements. The Turnaround Check is the first step for any user. It costs nothing to run, and it does the one thing everyone else charges for: it tells you honestly where you stand.

The privacy question

A reasonable question a business owner asks before entering their numbers into a free online tool is: what happens to the data.

The Turnaround Check reads what you enter, produces a result, and shows it to you. Your inputs are held only as long as needed to produce the result and to allow you to email yourself the report. Your inputs are not shared with third parties, are not sold, and are not used to train any model. Anonymous aggregate patterns (how many users ran the check in a month, what percentage landed in each band) may be used to improve the tool itself. Individual identifiable inputs are not.

The full privacy position is set out in the CentraSolve privacy policy, which is linked from the footer of every page on the platform.

The one action to take today

If you have not run the check on your business in the last quarter, run it now. It takes five minutes.

If the result is green, put the reminder in your calendar to run it again next month. If the result is amber, book a conversation with a competent finance advisor within thirty days. If the result is red, book a conversation with a restructuring advisor this week.

The Turnaround Check is available at centrasolve.com/turnaround-check. The tool asks you eight questions and returns a result band with the next-step guidance for that band. No login is required to run the free version.

References

Foundational literature on failure prediction and working capital

Altman, E. I. (1968). Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. The Journal of Finance, 23(4), 589–609.

Brealey, R. A., Myers, S. C., and Allen, F. (2020). Principles of corporate finance (13th ed.). New York: McGraw-Hill Education.

Audit and statutory sources

International Auditing and Assurance Standards Board (IAASB). (2019). International Standard on Auditing 570 (Revised): Going concern. New York: IFAC.

Republic of South Africa. (2008). Companies Act 71 of 2008, Chapter 6 (Business Rescue and Compromise with Creditors, sections 128 to 155). Pretoria: Government Printer.

Editor's note. The Turnaround Check is a screening tool, not a diagnostic. A green result does not certify that a business is healthy, and a red result does not diagnose insolvency. Owners of amber-band or red-band businesses are directed to seek qualified financial or legal advice before acting on the tool's guidance.