What MDs Can Learn from Private Equity Turnaround Strategies to Drive Business Improvement

Introduction

In numerous business improvement conversations with both private equity (PE) and non-PE management teams, I often encounter contrasting sentiments. Some say, “We are PE-owned, so we must act in the best interests of the PE firm.” Others insist, “We are privately owned, so we do not act like a PE firm, we are not ruthless.” While I recognise the feelings behind both perspectives, the reality is straightforward: the primary purpose of any business is to make a profit and ensure long-term viability. When challenges arise, both ownership structures pursue the same goal.

The real difference lies in approach. Private equity firms are typically more decisive and transparent about their purpose, an approach that often leads to quicker business improvement during difficult periods. This article explores how private equity firms pursue business improvement during downturns and how managing directors (MDs) of privately owned companies can apply these lessons to strengthen their own operations.

The Primary Objective of Private Equity

At its heart, private equity is about delivering attractive, sustainable returns by unlocking the full potential within a business. This is not achieved through reckless manoeuvres. Rather, PE investors apply financial discipline, operational insight, and strategic clarity to drive business improvement. They focus on stabilising operations, restructuring for efficiency, and creating a clear path towards sustainable growth.

Business improvement is the end goal, not disruption for its own sake. Every action is guided by the aim of building a stronger, more resilient business.

Comparing Ownership Models: PE-Owned vs. Privately Owned Businesses

Private equity–owned firms typically operate with a defined exit horizon and a short-to-medium-term focus. In contrast, privately owned businesses often have deeper emotional ties to legacy and long-term stability.

Despite these differences, both models share essential principles for business improvement:

• Commitment to Business Continuity: Ensuring operations are stable, even during turbulent times.

• Cash Flow Preservation: Managing cash as the lifeblood of the business.

• Cost Optimisation: Constantly seeking greater operational efficiency.

• Reputation Management: Protecting market credibility at all costs.

• Swift Crisis Response: Acting quickly and confidently when challenges arise.

• Financial Prudence: Exercising strong fiscal control.

• Workforce Stability and Engagement: Keeping key talent motivated and aligned.

• Continuous Improvement Culture: Embedding learning and adaptability into the business DNA.

• Clear Internal Communication: Aligning everyone around shared goals.

Whether the business is PE-backed or privately owned, improvement is a continuous journey, not a one-off event.

The Importance of Decisive Action for Business Improvement

One of the defining strengths of private equity firms is their ability to make swift decisions. When a downturn strikes, they act decisively, restructuring where necessary and safeguarding cash flow.

Privately owned businesses can sometimes fall into the trap of hesitancy, lacking the external pressure that pushes PE firms to move fast. Unfortunately, indecision often compounds existing problems, making business improvement more difficult and expensive later.

A key enabler of PE firms’ effectiveness is their deliberate organisational structure. They surround themselves with experienced advisors, operational specialists, and turnaround experts. This access to expertise accelerates the business improvement journey, ensuring interventions are grounded in experience and pragmatism.

Importantly, even when acting quickly, private equity firms are measured and deliberate. Their interventions seek not just to survive the immediate crisis, but to restore a strong foundation for long-term improvement.

A Myth-Busting Note

Before going further, it is worth addressing a common misconception: the myth of private equity as ruthless asset strippers.

In reality, true PE professionals are focused on improving businesses, not dismantling them. While in rare distressed scenarios asset disposals may occur, the overwhelming majority of PE-led actions are aimed at stabilising, strengthening, and growing businesses sustainably.

Business improvement is their currency. Without a stronger, more valuable business at the end of the journey, there would be no return for the investors.

How PE Firms Pursue Business Improvement During a Downturn

During difficult periods, private equity firms typically focus on:

• Operational Restructuring: Streamlining operations to improve efficiency and focus on core strengths.

• Management Enhancements: Upgrading leadership where needed to support business improvement.

• Strategic Repositioning: Realigning the business model with changing market realities.

• Financial Engineering: Adjusting debt and capital structures to safeguard liquidity.

None of these actions are taken lightly. They are targeted interventions, designed to protect the business and place it firmly on a path of renewed improvement and sustainable growth.

Lessons for Privately Owned Companies Seeking Business Improvement

For MDs of privately owned businesses, there are several important takeaways:

• Focus Relentlessly on Fundamentals: Prioritise cash flow management, cost control, and operational efficiency.

• Be Decisive and Thoughtful: Move quickly when needed, but ensure actions are aligned with a longer-term vision for improvement.

• Build a Strong Internal Culture: Invest in employee engagement and foster a culture of continuous improvement.

• Plan Beyond Survival: While immediate issues need attention, plan for recovery and long-term prosperity.

• Adopt Best Practices with Confidence: Embrace operational audits, financial discipline, and strategic repositioning as routine tools for improvement.

• Stay Financially Disciplined: Understand margins, contribution rates, and the real cost of every expense.

Even lifestyle businesses need to pursue disciplined business improvement if they wish to maintain their independence, viability, and success.

Top Tip: Embed Business Improvement Thinking Throughout Your Team

If I could offer one overarching recommendation, it would be this: embed the concept of business improvement into your daily operations.

Make financial literacy and revenue awareness a theme at every level of your business. Encourage team members to understand not just the cost of a product or service, but how much revenue is required to cover that cost. For instance, if a packet of post-it notes costs £5, at a 10% operating margin, the business must generate £50 of revenue to pay for it.

This mindset shift can drive a more commercial, improvement-focused culture that supports both short-term performance and long-term success.

Conclusion: Improving the Business is Everyone’s Business

While private equity firms may sometimes be perceived as hard-nosed, their underlying philosophy offers valuable lessons for any MD who is serious about business improvement.

By acting decisively, focusing on core business fundamentals, and maintaining an unwavering commitment to operational stability and growth, leaders can steer their companies through downturns and emerge stronger.

Business improvement is not just for distressed firms or high-growth ventures. It is an essential discipline for any organisation seeking to build resilience, protect value, and create a future that is stronger than the past.