There are many reasons why an organization may require business turnaround assistance. Rarely is it due to a single factor. A business may find itself in need of assistance based on unforeseen external factors, i.e. a natural disaster, competition, new regulation, new taxation assessed federally or at the local level.
Internal reasons for turnaround assistance may be attributed to a period of high growth. Rapid unplanned growth can be very disruptive, if the focus turns away from profitability. It is not uncommon for any or a combination of the following situations to occur – customer service declines, as well as customer satisfaction; company reacts to the sudden increase in business and creates processes that are inefficient; contracts are signed quickly, increasing the potential for error; employee overhead rises through increased overtime or additional headcount; and cash outlays jump to manage the increased business.
Years later you stop and look at the business and discover things are inefficient and costly. An Accounting colleague once advised that often times he is asked to look at an established business to help them correct a low profitability issue. He reflected on the fact that, “Most of the time when a business comes to me for help, it is already too late.” You need to understand when a problem exists.
The clearest sign that turnaround assistance is required is after a steady erosion of your business economics. Profitability continues to decline because –
- Revenue increases year-over-year are anemic due to continual price pressure in a mature industry;
Marketing efforts are not organized and occur sporadically, i.e. the volume of new business, only serves to replace terminating relationships;
Employment and administrative expenses increase; and,
Competition is fierce.
But even after pointing out the data that shows a sustained economic decline, do not be surprised to hear management colleagues provide the following excuses –
- The company’s economic issues are attributed to only one department or product. Just fix that area;
There are quick fixes that can solve all our problems;
A problem does not exist. We are just experiencing a rough patch that will self-correct;
Recent short-term revenue increases signify that a problem no longer exists; and,
We can solve the issues through expense reductions only.
The solution to counter an underperforming small or medium-sized business is a redesign. Interestingly, the method to redesign a business is the implementation of standard business management “best practices.”
Following are six areas, that when optimized will increase the probability of success for your organization –
Understand the economic drivers of your business; and study the production results of your efforts. Make a commitment to financial discipline and prudent growth.
It is important that the entire management team of the organization is in agreement that a business redesign is necessary. I have seen situations where one manager recognizes an issue, while another does not. To be successful, you will need complete support from all managers.
There will be times when hard decisions will need to be made. Complete commitment to the process is required. If during the course of the redesign, things improve for a short period; do not stop implementing the corrective measures. Trust your analysis. Improved returns may not mean the problems are solved.
Diagnose the Depth of the Issues
The first step is to critically look at your establishment to understand the state of your business management practices. As a result of this review you will be able to develop a list of areas that need adjustment. Some improvements may require only a slight modification to your current processes; while other improvements may represent a large change to your approach. Once the issues are identified, you will need to prioritize the adjustments to your business model.
Develop an Appropriate Strategy
Understand the market and survey internally and externally, i.e. competitors, customers and employees. Develop detailed strategies that allow you to minimize weakness, maximize opportunities, and mitigate threats. Communicate the strategies throughout the organization.
There are many strategies that a company could adopt. However, if you are in a turnaround situation, your business energies and the corresponding strategies should be focused on efficiency and growth – become the low cost provider; differentiate your product or service in the market; be the value provider; and, adopt a customer centric approach.
Plan and Actively Manage Cash Flow
Cash Flow can be considered the barometer of the financial health of any organization. An effective cash flow policy includes ongoing financial management. In a perfect world, your monthly revenues cover your monthly expenses and leave a surplus, i.e. a profit that increases cash reserves. But the perfect world is a theoretical place.
Success requires planning and a constant review of how your actual results compare to your plans. Through this approach, you will be better able to make small adjustments to help you reach your financial goals.
Communicate the overall plan company-wide. Involve employees and managers in the company redesign. Set a plan and establish metrics. Monthly distribute a one page document to the employees in the organization that clearly tells how the organization is doing compared to the metrics established during the planning process, i.e. a Scorecard.
A redesign to turnaround a business cannot be completed behind the scenes. Progress sharing with your employees is very important.
Optimize Support Functions
Most processes work best when there is consistency. Variations in activities and manual processes create a higher probability of error and expose the organization to unnecessary risks and time wasting.
Out of the ordinary tasks should be the exceptions. Not the rule.
The task of documenting policies and procedures makes you critically look at processes and identify how things may be accomplished more efficiently. A natural outcome in the short-run will be a reduction in costs.
Optimize Business Development
Marketing is a service that supports the sales efforts of the organization, by providing tools to foster lead generation, customer retention and relationship development/management. This area should ensure the business is efficient, effective, and provides top tier product/service delivery capabilities. The focus should be to maximize profitability and increase customer satisfaction while maintaining appropriate risk controls.
Regardless if your organization has an extensive marketing group or not, there are a few staples critical to a successful approach to generating new business: create clear and concise brand positioning; produce targeted promotional materials which may include a selection of brochures, ads, flyers, and e-newsletters; build an on-line presence that may include a social media component; measure and track business results; and, manage the organization’s Customer Relationship Management (CRM) system.
Implementing adjustments to these six areas may represent a change in the way you have been conducting business to date. New ideas cause disruption. Closely monitor process change results and adjust, as required. It is the commitment of your managers and dedication of your employees that will be required to ensure flawless execution and success.
You will benefit from an immediate savings through cost containment, once business operations are optimized. But a complete turnaround requires successful marketing and sales. A complete turnaround requires both revenue enhancements, as well as cost containment.
I have found that small or medium-sized businesses may incorporate some of the concepts, but rarely all of the concepts. However each large Fortune 100 company I worked with incorporated every one of the concepts. These are proven methods of success.
The blog you just reviewed is chapter one of a book that I published. This book is a little different as it is experience based vs. academic based, i.e. what has worked in my career. The book discusses each solution in the context of how it was observed in business. I wanted a tool that a business owner could pick-up and use with practical recommendations, that can be applied across industries.
If you wish to read more, the complete book is available here –Regis Quirin, All rights Reserved. Written For: CFO Tips - What you need to know, to be a CFO TODAY!