Redesign to Turnaround Underperforming Small and Medium-Sized Business

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 –

Management

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 –

Redesign to Turnaround Underperforming Small and Medium-Sized Businesses

 

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

The New Cash Management Approach – Pay Slower

Could you continue unscathed, if your customers stopped paying you for two to three months and instead paid within 60 and 100 days? On April 16, 2013 an article was published in the Wall Street Journal, “P&G, Big Companies Pinch Suppliers on Payments.” The WSJ article discussed a trend among large companies to push payments out.

If you do not have any large clients, you may not be immune to this trend.  If you provide materials to suppliers of large clients, these clients will attempt to delay payments to you, i.e. attempting to push the payment issue down-stream.

The immediate impact to your business will be the evaporation of your free cash flow.  Your ability to develop new products, make acquisitions, pay dividends, reduce debt, and hire will be greatly reduced.

So what can you do?

I recommend you anticipate the issue.  The following tactics are simply “best practices.”  If you are not affected by this trend, none of these tips will harm you.

– Increase required down payments/retainers. A non-paying customer may be worse than no customer at all, if you incur costs to obtain the business or advance funds to complete the business.

– Tie sales compensation in some form to payments received, i.e. commissions tiering and/or quarterly bonuses.  This tactic will ensure your Sales force is providing quality customers that pay on-time and they stay engaged in the collection process.

– Document and distribute payment terms that provide discounts for early payments; but late fees if payments exceed established timing.

– Stay engaged.  If you are owed, ask for payments.

Doing nothing is ill-advised, as the message relayed to your customers will be, “its ok to pay me late.”

However, if you implement the above recommendations without success, you may need to consider the following two options to address an expected cash crunch –

– Establish a short-term borrowing facility – Short-term financing based on your credit worthiness through a bank.  This option will have a cost which you may not be able to pass to your customer, i.e. negatively impacting your margins; or,

– Consider factoring – Receive an advance against accounts receivables from an asset based lender called a factor.  This option may be required if you don’t quite qualify for a traditional loan.   This option will have a cost which you may not be able to pass to your customer, i.e. negatively impacting your margins.

It will be interesting to see how the credit agencies handle these situations, as a lack of timely payments should impact the credit quality of the delinquent payers, i.e. D&B, S&P, Moody’s…

It will also be interesting to see investors’ perceptions of this change.  There are several financial ratios calculated by investors and analysts that use Current Liabilities as the denominator.  It makes sense that if payments are put-off, Current Liabilities will increase which will impact – Working Capital (Total Current Assets – Total Current Liabilities); Current Ratio (Total Current Assets / Total Current Liabilities); and Quick Ratio (Cash + Accounts Receivable) / Total Current Liabilities).

What are you seeing?

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

What is the proper way to roll-out an ethics program?

In my experience – Ethics policies are tucked away within a company’s code of conduct.  Prior to year-end, every employee is required to go and review the policy and click on a little button on the bottom that states, “Accept.” Employees open the training material and go right to the last page and press accept on-line.

According to the 2011 National Business Ethics Survey® (http://www.ethics.org/nbes/files/FinalNBES-web.pdf), the increase in training observed from companies surveyed, has not resulted in a noticeable reduction in abuses.

Select Survey Results
The proliferation of ethics standards and ethics training increased 2000 2003 2005 2007 2009 2011
Written standards for ethical conduct 79% 68% 83% 83% n/a 82%
Training on company standards of ethical workplace conduct 54% 50% 65% 75% n/a 76%
But the impact is questionable
Pressure to compromise their company’s ethical standard is flat 14% 11% 11% 10% 8% 13%
Abusive Behavior declined slightly 24% 22% 20% 21% 22% 21%
Discrimination is flat 16% 14% 12% 13% 14% 15%
Stealing is flat 13% 13% 12% 11% 9% 12%
Falsifying time reports or hours worked declined 20% 22% 16% 17% n/a 12%
Sexual Harassment declined slightly 13% 14% 10% 10% 7% 11%

Clearly there are many factors that can have an impact on the statistics presented.  However, six data points for each criteria, over eleven years is significant.

So if the process of annually checking a box, prevalent in many organizations, does not work, what will be successful?

Raytheon Company (http://www.raytheon.com/responsibility/stewardship/ethics/ethics_over/index.html) claims they have a process that is yielding success.  The program includes the following elements –Offer Ongoing Ethics education – Annual, peer group training sessions where real workplace issues are discussed; periodic e-mails to staff, which review ethics situations; and on-line learning modules for completion are distributed; Advocate ethics activities within the community; Establish an Ethics office, to allow for the reporting of abuses, by employees, i.e. whistle blowers; and, Create metrics and track progress.

What is your experience?

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

Bridging the gap between Sales and Finance

The sales and finance relationship is tricky, but necessary.  The Sales Team interacts with current and potential customers.  The Finance department is responsible for ensuring the company’s cash flow can support Operation’s efforts to meet these customers’ needs.  Following is an approach to make the partnership easier –

Establish Process with Controls

Sales activity should be flowed out to identify bottlenecks and risks.  If need be, policies should be established.  For example, it is difficult to ensure that decentralized national sales forces obtain the proper approval signatures from both the client and senior management.   A process should be established with timelines to make sure all approved documentation is collected and retained in one central location.  If during the course of the relationship, legal proceedings are necessary to ensure the collection of outstanding debts, these executed contracts will be required.

Production Planning

At the beginning of the year or at the time a new Sales Manager is hired, a full twelve-month sales plan should be established and approved by the Sales Executive.  The plan should include discounts offered and expected Marketing dollars utilized.  Expect that increased discounts and marketing dollars will be needed in highly competitive markets with a strong competitor(s).

Model Development

The most successful sales team I worked with was provided a simple financial model in excel, for their use.   Areas requiring variable inputs specific to the relationship were yellow shaded.  With this tool, sales personnel could easily input the variables missing and see the value of the relationship, at the point of sale.  Slowly but surely the sales team began to understand the drivers of revenues and expenses, when establishing a relationship.

Escalation Process

There will be situations when the model does not show the relationship is as profitable as required, by Finance department standards.  In this case, if the sales manager believes that the relationship should be established for strategic reasons, they need to have the ability to escalate the approval.  There are times when entering a relationship which is not as profitable initially, makes sense after some seasoning.  Other reasons may include a new product/program introduction or establishing a referral relationship.

Activity Tracking

Sales activities should be tracked via a sales manager specific scorecard which shows each individual and each of the contracts they manage.  Examples of items to be included  – revenues less discounts used, less marketing dollars used, customer service hours provided, commissions paid…  When this information is presented in one document, it is possible to see the profitability of every sales manager and the profitability of each relationship.

Scheduled Meetings to Discuss Results

Tracking reports should be discussed at monthly Sales meetings that include the Sales Executive and the responsible Finance Executive.  As the Sales Manager is intimately involved with the relationship, details not obvious by “the numbers” can be learned, which may impact collections and the future of the business.

The process established above provides a controlled, risk free way to achieve sales.  As outlined, finance will not be surprised by the results of the sales team.  Sales Managers will  have the independence to achieve company and personal goals.

What is your experience?

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

The Value Embedded in Tele-Commuting

As communication technology advances and tools become more pervasive, the traditional office blurs, i.e. geography and time zone.  Organizations are more-and-more giving up traditional brick and mortar, in exchange for the online office.  High speed internet is now available in many places.  Business can be conducted at home or at the local coffee establishment.  The term telecommuting includes all remote working and work from home arrangements.

The trend is growing —

“In a recent Accountemps survey, one-third (33 percent) of chief financial officers (CFOs) interviewed said remote work arrangements, such as telecommuting and working from satellite offices, have increased at their companies in the last three years.” (PR Newswire 09.14.2011)

“TechCast, a virtual think tank based at George Washington University, forecasts that 30% of the employees in industrialized nations will telework  2–3 days a week by the year 2019. What’s more, they estimate the market for related products and services at $400 billion a year.”  (TeleworkResearchNetwork.com / Kate Lister / May 2010)

Benefits to these arrangements include –

  • Benefits to Employer – “Half-time home-based work among those with compatible jobs could save employers over $10,000 per employee per year—the result of increased productivity, reduced facility costs, lowered absenteeism, and reduced turnover. The cumulative benefit to U.S. companies would exceed $400 billion a year.”  (TeleworkResearchNetwork.com / Kate Lister / May 2010)
  • Benefits to Employee – “Overall, researchers have found that virtual workers are slightly more satisfied than their in-office counterparts. In general, virtual work leads to higher satisfaction, lower absenteeism and higher retention. Additionally, because the majority of virtual assignments result from the employees’ expressed desire, organizations usually observe little to no decrease in production or performance. On the contrary, productivity often increases (Erskine, 2009; Mulki, Bardhi, Lassk & Nanavaty-Dahl, 2009).”  (Cornell University study Remote Work: An Examination of Current Trends and Emerging Issues Spring 2011)
  • Benefits to Society – Online Office arrangements provide the opportunity for those with disabilities to more efficiently participate in and/or transition into the workforce, i.e. an online arrangement may allow individuals on maternity leave to transition back to the work force more easily.

Benefits to date have been experienced by employers and employees, using a combination of various technology tools.  Top 10 technologies that companies provide to support remote workers include – Laptop 62%, Virtual Private Network (VPN) 40%, Instant Messaging 29%, Outlook Web App (OWA) 28%, On-line Meeting 27%, SmartPhone Mobile Computing 25%, Desktop 21%, Remote Desktop 18%, Collaboration/On-line Workspace 17%, Video Conference 17%. (Microsoft 2010 US Remote Working Research Summary National Survey Findings).

However, as you would expect with changes in business methods, come unforeseen issues, i.e. innovation creates disruption –

  • Issue 1 – Employee Exclusion – “Employees in virtual environments may develop perceptions of exclusion or isolation due to their need to rely on technology to communicate with others; common forms of communication technology (e.g., email) do not provide a high level of information richness and can inhibit social exchange (Marshall, Michaels, & Mulki, 2007).” (Cornell University study Remote Work: An Examination of Current Trends and Emerging Issues Spring 2011)
  • Issue 2 – Remote Responsiveness – “Some remote employees struggle when attempting to coordinate their work with their managers and other employees or when attempting to receive timely feedback.”  (Cornell University study Remote Work: An Examination of Current Trends and Emerging Issues Spring 2011)

More and more companies are figuring out the proper way to reap these benefits, while addressing the issues.

Where is your company in this process?

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.