Most businesses stagnate because they start with a boost of enthusiasm and when the owner gets tired of all the stress, the business becomes a drag. Profits go down, so the answer is to borrow more money and the slide down the slippery hill to liquidation starts.
Equally all, or perhaps, most businesses can be turned around and mentored into a more profitable situation if a few rules are followed.
In all business turnaround situations there are certain steps that are commonly taken to change the fortunes of a failing business. I have listed 10 of the common steps that we could take when trying to help companies recover.
However change on your own is not easy, you are bias in that you will not be able to self criticise yourself or your team. The owner of a less than successful business may require a professional expert to help arrest the business demise and to create value for the organisation.
The task of managing the required change may be beyond the owner’s skill set or too much emotional sentiment may exist that may preclude the owner from taking the tough ‘business saving decisions’. If you need help call me on 0965 222208.
All business situations are different and, therefore, merit different approaches and emphasis on different aspects of the work. However, there are some steps that are generally considered in successful business turnaround situations and 10 of the most relevant are given below:
Review and Assess the present situation
In a business turnaround it is important to fully understand the starting position.
It will be important to gather objective and anecdotal data in order to review the situation and to determine the causes of the downward trends, as well as to comprehend the immediate effects of the issues impacting the business.
Management accounts, the sales order book, financial arrangements, internal controls, customer service levels, quality and leadership skills are typical areas that will require evaluation.
Undertake a SWOT analysis on the company, its product and its present service. It is vital to know the present situation well before you can commit to change.
Always “ Begin with the end in Mind”  always know where you are going to finish, that way the path is clear.
Look at the basic 4 “P,s” Product, Price, Promotion and Public Perception. Where is the problem, what needs change, what is good?
Before change, you must know what you have, what is wrong and what is the best change you can make.
Develop Plans and Business Strategy
After assessing what is required to be changed for the business turnaround to be successful, it will be necessary to develop robust plans and strategy that will achieve success.
Without doubt it will be necessary to comprehensively document the actions to be taken, the timings, the financial impact of those actions and to obtain ‘buy-in’ from the key personnel.
The benefits of you, the owner, writing the business plan include that of a reference against which actual results that can be measured and an indication to third parties that the proposed business turnaround plan has been carefully evaluated and is a viable proposition that should be supported.
This will be an important and relevant form of communication to investors, staff and others who may need to know what the businesses future plans are.
Take your time and review constantly, remember to ask
“What If” before making any decisions.
Develop a plan and launch it only when you are sure, do not change direction halfway through, this is Crisis Management.
Communicate With Key Employees
For the business turnaround to gain momentum it will be necessary to meet with managers and key personnel.
The current business affairs should be explained and the consequences of not taking corrective action should be made known. An outline of the proposed actions to be taken should also be communicated and quest for comments should be sought.
Whilst it may not be possible to answer detailed questions it will be important to elicit the concerns of this group and address them as positively as possible.
Members of this group will be critical to the success of the business turnaround. They will be charged with taking the planned actions and delivering the results; consequently it will be imperative that the group act as a team and are committed to the future plans.
Communicate With Other Employees
It will be necessary at the earliest opportunity to meet with all employees or their union representatives, particularly if job losses are planned.
A prolonged period of uncertainty, fuelled by rumour and counter rumour, will not be beneficial to the business and whilst bad news may not be easy to deliver, the communication of it in a timely sensitive manner is desirable.
The meeting will also be the opportunity to provide an insight into the future business plans and the part the remaining employees will play.
Meet the Bank
The bank and other parties with a financial investment in the business should be advised of the business turnaround plans. If possible meetings should be arranged to discuss the plans and to seek assurances of continued, and maybe, more support for the business.
Remember that silence is the very worst thing you can do, the banks like to know what is happening at all times.
Meet your Customers
Dependent upon the severity of the situation within the business it may be necessary to reassure key customers of the business turnaround plans and the benefits that will accrue for them.
This action should be considered mandatory if the cause of the business demise has been poor customer service, poor quality product or any other matter not meeting the expected/agreed customer satisfaction levels.
Begging for a second, third or even fourth chance to ‘get things right’ may be embarrassing but remember: no customers – no business.
Learn from past mistakes, “do not promise what cannot be delivered” and ensure internal systems, processes and communication channels are raised to a standard that will seamlessly allow business to be conducted in a timely and efficient manner.
Meet Suppliers
If the business has failed to settle payable accounts on time, even the murmur of business turnaround activity taking place may result in suppliers imposing draconian payment terms that may jeopardise the business turnaround recovery plan.
If support for the turnaround plan has been gained from the financial institutions and investors, it will be advisable to actively seek meetings with vendors to outline the plans and to seek their continued support.
Re-establishing trust will be critical. Negotiating new or even the continuation of existing, payment terms from a weak position will be difficult, however, all promises made should be honored or if failure is imminent inform the vendor in advance of how any debt will be discharged.
Cash Conservation
Review and improve if necessary the credit management procedures. If possible negotiate extended payment terms to suppliers; examine thoroughly all unused assets of the business and liquidate if necessary.
Options that may be available include selling unused buildings, renting out spare office space, selling unused plant and office equipment, disposing of excess or redundant stocks, factor sales debt and if unavoidable make excess employees redundant.
In addition the elimination of all unnecessary overhead cost should also be actioned.
Please note that I have not said, raise more money from further loans. This is not the way to turn a failing company around, it is simply throwing good money after bad.
Until you have put the company right and turned the downward trend into and upward one, you must not invest more money.
Implement New/Update Systems and Procedures
A thorough review of existing systems and procedures will be required to meet the goals of the business turnaround plan. Implement change if necessary; it will be noteworthy to recall that a continuation of old practices will almost certainly result in the same old results.
Positive and profitable change may be required and this should be communicated to employees, so that they understand their roles in the new business environment.
Monitor, Measure and Take Action
Throughout the business turnaround process, results should be regularly measured against plan and corrective actions taken if required.
Key performance indicators (KPI) should be determined that will give a snapshot ofthe business performance and be available on a daily, weekly or monthly basis.
The KPIs should include financial and non-financial measures and reflect the important aspects of the business that will determine success or failure.
Finally it will be desirable to pro-actively communicate the turnaround progress to all interested parties – employees, customers, suppliers as well as the financialinstitutions.
Provided sound business management principles are employed, results measured and positive trends reported, control of the business should be re-established.
However, the business turnaround work should not be considered as a one-off. The experienced gained during the turnaround process should be adopted to avoid a repetition of the earlier mistakes made.
Follow these rules and you can turn your old, tired and unprofitable business into a thriving business in a few months.