Reviving a struggling company is complicated. There are lenders, creditors, investors, owners and employees - each with its own agenda - all with a stake in the company. A turnaround of a troubled business is like walking in a mine field. It’s rife with hazards at every turn. Taking it in stages with solid planning makes it all more doable.
Deal with the Management Issues First
One of the main reasons that a company goes under is poor management. Managers lose sight of what they set out to do. To get it back on track, deal with the management issues first. According to a study from the Association of Insolvency and Restructuring Advisors, only nine percent of businesses fail for reasons that are beyond management’s control.
Some management failures are direct, but more often it’s a combination of missteps.
Poor management can show itself in a variety of different ways including dictatorial management, poorly managing staff, no clear direction, failing to win customers, lack of strategic review and poorly planned expansion.
Quoting Will Rogers, “When you’re in a hole, stop digging.” Stop making a bad situation worse.
That’s sound advice for you and the senior executives of the distressed company. You should all take it to heart.
Outside turn-around specialists are often a great resource, and they will bring fresh ideas and new strategies. They can work as practitioners, or as consultants.
Practitioners work for the distressed company and will take over the management and operation of the business and act as CEO or CRO.
Consultants advise the existing management team, and do not take control of the business. Those same managers may be the ones who caused the company to fail.
Professional Turnaround Plan
Consider that the real goal of the turnaround of a troubled company is to create a company that future investors or buyers will want. Use a professional turnaround plan to get you there.
The first step is often new leadership. Who should take the reins to move the company forward? Hiring the right turnaround CEO can make all the difference. The right CEO should have a proven record, and be able to build a team to execute on change management.
Often an outside CEO will be appointed, the professional at steering the turnaround and handling the crisis. She can stabilize the company, implement the transformation plan and hire her own replacement.
Anyone who inhibits the turnaround should be replaced. You may have to replace senior management and at least some of the board of directors. Some directors failed at oversight.
The second step is diagnosis: determine how severe the problems are. Answer these four questions:
- Is the business viable?
- Can it survive?
- Is it worth saving?
- Is there enough working capital?
The conclusion of the analysis process should result in a preliminary plan of action for the business. This plan will list the problems and solutions, as well as the key strategies needed to turn the situation around. This plan should also include a cash flow forecast for at least 13 weeks.
The analysis phase should also determine the most profitable products and services in the business (with the highest gross margin) which will help the company move forward. Any non-profitable products and services should be terminated. Problems that exist between different functions, such as sales and production, should be reconciled.
Stage three of the turnaround process is the emergency. This is where control is assumed, particularly control of cash, and the company moves to break even and centralized cash management. Stopping the cash bleed is what allows the company to survive.
Remember, time is the enemy in a turnaround. It erodes the chance of a successful outcome and the value of the assets. Getting things done shows immediately the business is viable and is changing.
Cash generation is paramount. Quick wins on cash should be prioritized.
Collect outstanding receivables, and then negotiate your payables, ask for extended payment terms from suppliers.
Consider selling losing units, real estate and unused assets. If you must, borrow against assets to generate working capital, using an asset-based loan.
Restructure debt so interest payments meet what the company can afford.
If it looks like layoffs will be necessary, make the cuts quickly and fairly. One deep cut is much better than repeated smaller cuts, and the team left behind works better when they feel their jobs are secure.
Stage four: restructuring. Once the cash crisis has subsided, attention shifts to profitability. Capital structure needs to be fixed.
Ultimately the remaining operations have to generate profit. Product pricing and margins should be examined, as well as the return on assets and return on investment.
Incentives can help align what your employees do with the success of the business and engage them in making improvements. Employee teams can track down inefficiencies.
The only two ways to grow sales are to sell existing products to new customers, or new products to existing customers. Selling both to both boosts sales.
Stage five: stability. The business should start running smoothly again. The new culture should take hold so the business places earnings, return on investment and the yield on employed assets first.
- Look for profitable growth.
- Exploit your competitive advantages.
- Focus on customer service and relationship.
- Set up continuous training programs for managers and staff to improve your people.
Only once you have stabilized the company and the future looks bright will you be able to potentially refinance your loans for a lower, longer term.
About Delancey Street
Delancey Street is a premier, and award winning, business debt settlement company that helps business owners nationwide. Our goal is simple: help you escape debt in a safe and legal manner. Based out of New York, we can help in 49 of 50 states. We tell you how it is; because your business and future is on the line.
