How to Fix Your Business
A Roadmap for SMEs: Lead Your Business Away from Trouble and Back to Success
Owners of small and medium enterprises (SMEs) are entitled to the same turnaround help as large corporations. Unfortunately, they don't receive it because turnaround consultants are expensive and their methods are not readily known. A turnaround roadmap can remove the mystery about turnarounds and provide a guide for owners of SMEs that are underperforming.
Like GPS navigation, a turnaround roadmap provides waypoints to help the user navigate from one location to the next. The seven major waypoints on a turnaround roadmap are listed below. If you can follow a map, you can turn your business around.
STABILIZE - The first action in any crisis is to stabilize the environment so you can make good decisions. The key to stabilizing a small business is to maintain a positive cash balance at all times. Never spend more in a week than you had at the end of the previous week. For example: if you have $100,000 cash in the bank on Monday, that is all you can spend this week, even though you may collect $125,000 on Thursday. This way, you will maintain a positive cash balance at the beginning of each week. This simple cash control budget works like a tourniquet; it maintains sufficient cash while you determine what went wrong and what to do about it.
Control the cash by personally signing every check that leaves the building. Also, sign every purchase order so you don't buy anything you don't absolutely need. Prepare a cash flow budget for 13 weeks. It usually takes this long to diagnose the problems and reorganize your business. You must create enough cash to move through this phase.
Persons inside and outside your business will look to you for leadership. Step up and lead by example, manage by walking around and talking with people, know your numbers and business processes, and be solution oriented.
DIAGNOSE -- There could be a number of reasons why your business is in trouble, but generally one of the following is the culprit: 1) sales are down, either taken by new competitors or lost to a decline in market demand, 2) gross margins declined while fixed costs remained the same, or 3) the business has become top-heavy from an acquisition, or from adding new plant and equipment.
You can quickly isolate the causes through financial analysis. Look at your company's performance ratios for the past three to five years. Next, compare your ratios to those of other companies similar to yours. You can purchase this information from the Risk Management Association or any number of sources. Study the numbers and variances. You'll see where others are doing well and you are not. Close the gaps.
Once you've analyzed your company, review your industry and what's going on with your competitors. The results of this company and industry analysis will help you determine what caused your cash crisis and what you must do to fix it. Remember, the lack of cash is an effect, not a cause. As you move on the next waypoint, you begin eliminating the causes.
REORGANIZE -- Every sustainable business has a core division, product or service that produces positive cash flow. Sort yours in descending order by the amount of positive cash flow each produces. Draw a line where the cash flow turns negative. The products or services above the line become your new turnaround company. Everything below the line is systematically discarded. That means facilities, inventory, and people. The rule is: if it produces positive cash flow it stays; if not, it goes.
PLAN - Write a simple turnaround plan to get through the next year and convince your creditors to stick with you. State your objectives in measurable terms. Describe your core business, sales plan, staff reductions and cost saving actions. Include a cash budget and a set of monthly financial projections. Prove that you can stay in business while you turn things around.
Be honest in your assessment of how you got into this situation and how you intend to get out of it. This will help restore your credibility. You will need this to obtain concessions from your creditors.
NEGOTIATE -- Sort your creditors into two groups: Group A creditors (those you need to do business with in the future, like banks and critical suppliers), and Group B creditors (those you can replace and don't need to survive).
Meet with Group A creditors and sell them on your turnaround plan. Be factual and positive. Show them how they will be repaid from your successful turnaround. Most will go along with you. Don't waste time with Group B creditors. Hire a debt negotiator to obtain a settlement for you and move on.
EXECUTE - Many CEOs cab get past the crisis and calm their creditors down, but they fail to execute.....and the business quickly deteriorates. Don't let this happen to you. Set up a weekly agenda and stick with it. Do all the tasks called for in your turnaround plan and remain accountable. Success is won or lost through execution.
GROW (or Sell) - If you like what you do and can you see yourself happily doing it for another three to five years, you should keep your company and grow it. You now have a profitable company and staying on course should be easier this time around. You certainly know what to avoid.
If you are tired, you probably should sell this company and do something else. The good news is your company is now worth something, whereas before you turned it around, it was worth little or nothing. Manage it well while you have it on the market.
Any business owner who chooses can learn to fix his business. The turnaround process is not mysterious - it is a logical and systematic process. If your business is underperforming, it is up to you to lead your company away from trouble and back to success. Use a turnaround roadmap to guide you.
Van Lanier is creator of Turnaround RoadmapTM- a management method that provides know-how, guidance, and support for underperforming small businesses. Get a free turnaround guide and learn more at www.LanierTurnaround.com.