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Business Planning 15 min read

How To Quickly Turnaround Your Business

Access Finance
5 April 2017
Written by Access Finance

When you find your business getting into trouble, what plans do you have in place to turn it around? Here’s everything you need to know about how to get your business back on track if you’ve suffered a setback.

Turning around your flagging business isn't as easy as walking into the office and flicking a switch. You have to find the switch and trace back along the wires to establish what the root cause is. Is it your power supply, your lightbulb, a missing anode, old or frayed wires or are you piggy-backing your electricity?

In his book 'Good to Great' Jim Collins highlights the effectiveness of having a hedgehog business strategy. While hedgehogs are chased down by many predators -  usually stronger, faster and more agile - the hedgehog survives because of its core defence strategy: the ability to curl up into an impregnable spiky ball. But you can't protect your core successfully until you know how, what and where the potential threats are.

Establish What's Going Wrong

If you are an established business that was once very successful but is now suffering then it might not always be the fault of a flawed business model says Niels Juul.

Juul, CEO of NoFatEgo Productions, has been at the sharp end of many film production company takeovers and knows from experience that a failing company with a strong history, almost certainly will have people-problems at the very heart of things.

But in reality there are four key areas you should be looking at which will identify the underlying problems at the heart of your company:

  • Revenue
  • Expenses
  • Operations
  • Cash Flow


Do you know your sales revenue?
Every investor looking at companies registered on the stock market is seeking information on their ability to make and generate money. If they aren’t clear and tangible they will not be considered an investment.

According to InvestingAnswers, an online guide to investing, one of their key indicators of a company worth investing in is revenue. Revenue is the amount of money you made from your product or service; it is your top line.

It isn't easy to expect a company to have rising revenue figures year on year, but it can be illuminating to see how and when it slowed or started turning downwards. If you have falling revenue figures it could be because:

  • You have too few customers
  • Your pricing is off
  • The product gets returned or has a bad reputation.


It might suggest a need to increase sales or marketing, to improve your product or amend your pricing structure. A company with falling revenues needs to look at itself closely. Are your sales staff incentivised? is your product being made to the highest standards? Have you asked your customers why they aren't buying from you any more?

Expenses are rising
Your costs matter, a lot. It's easy to monitor your business when its young, every pound matters and every penny is watched. But as you grow bigger it becomes less easy to control and manage all your business expenses across several departments and or sites.

Your purchasing decisions make up the bulk of your expenses and ensuring that you are getting the most competitive prices from your suppliers can be the difference between operating at a profit and seeing your business go down the pan.

Entrepreneur David Finkel offers four ways in which you can get your purchasing expenses back in order:

  • Consolidate purchases and negotiate better pricing
  • Make sure suppliers are competing for your business
  • Review your supplier list regularly
  • Train your staff to buy 'better'.

But there are other expense too and you can almost certainly cut costs by reviewing ALL of your outgoing expenses:

Stock - Do you have inventory that hasn't shifted for a while? Try selling it at a discount to move it on and amend purchasing to only items that you have a demand for. Look into JIT (Just in Time) purchasing to control buying.

Overheads - Take a good look at your energy costs, are you as ruthless on your business utilities as you are for your home. Look into switching costs and either move suppliers or threaten to leave.

Employees - Do you need all your employees? Did you scale up when you got busy? And have you scaled back down when revenues went south?

Office - Stationery, ink supplies, coffee and biscuits are all necessary items we all feel should be freely available. Consider whether there are cheaper alternatives that can do the job equally as well.

Space - Do you have unused office space, can you lease or sublet this out? Is it possible to move to a smaller location or even to renegotiate your rental?

Managing your operations
Have you ever seen a frog boiled? Asks McKinsey's Doug Yakola. What he means by this is that often management doesn't realise that it is getting out of its depth and into financial problems until it's too late. Just like how that frog doesn't notice that the water it's in is slowly warming up.

Businesses can get into difficulty for a number of reasons:

  • Looking at the wrong data sets
  • Too eager to use capital without looking at core problems
  • Seeking short term gain at the neglect of long term health
  • Not realising that a business plan just isn't working.


Cash Flow
Chief of all the problems running through a business is the ready access to cash. Cash that is needed to pay for the day-to-day running of the business. Without it, a company is powerless to purchase materials, to pay staff and to ensure that the lights stay on.

Key Distress Indicators You Should Be Looking Out For

Business recovery expert McKinsey has highlighted 25 possible warning lights that might indicate that your company is in a state of distress and it has put them in four categories: Working Capital, Financial, Profitability and Employees.

If your company is experiencing a combination of these factors then it might be time to start putting in remedial plans and get ready to reorganise your business strategy.

Working Capital

  • Declining or negative cash flow
  • Increasing liabilities
  • Unresolved short-term debt
  • Continual drawdown to service debt
  • Contracting supplier terms
  • Increase in aged debtor account
  • Increase in outstanding accounts payable.


Financial

  • Declining stock price
  • Reducing company value
  • Failure to meet debt obligations
  • Resignation of key financial staff
  • Diminishing liquidity
  • Repeated changes to banking agreements
  • Falling credit rating
  • Failure to submit accounts on time
  • Revisions to submitted accounts.


Profitability

  • Shrinking industry
  • Reduction of capital investment
  • Going concern opinion
  • Shrinking EBITDA
  • Unsustainable regulatory requirements
  • Regulatory inquiries.


Employees

  • Large scale employee reductions
  • High management turnover
  • Disruption in workforce (pay, strikes etc.).


What this shows is that there isn't ever a singular reason why your company is failing, but usually a number of intertwined reasons that become too big of a hurdle for your company to jump over.

If you can identify what's going wrong before they become too much of a barrier then you have a chance of turning around your company and making it a profit again.

6 Ways To Turn Around Your Business

Protect your core business
As Scott Neilson advocates in his book 'Leadership: The Lost Art' the most critical aspect of leading a business is 'clarity of direction'. Everything in your business should follow this direction; the business operation, training your employees and sales focus. Whatever your business is most proficient at is the core of your business. These are your high-value activities, and you must concentrate and on them.

Perhaps the best way of looking at this is to consider that the best way to grow your business is 'to keep doing the thing that is making money and not overly extending on new ideas'.

  • Identify your most profitable customers
  • Focus on your biggest revenue products
  • Highlight your most important product offerings.


Be brutal
If things aren't going the way you expect and you've cut your expenses, revised your business aims and focused on your core activities then it's time to get brutal. Nobody likes letting go of people but if you want to survive, then you need to keep only the employees that are essential to you and the business.

  • Lay people off
  • Reduce hours
  • Combine roles.


There is only one rule when laying off employees, make the first cut deep. There is nothing more demoralising for staff than repeated rounds of staff cuts.

Make culture a consistent 'thing'
For those remaining staff, now is the time to get them motivated.  Communication with your staff is essential. There is a lot to be said about having a defined company culture, but this doesn't mean you need to returf your carpet and put in 5-a-side goals or take everyone off to a company retreat every month. A consistent goal or message is usually enough. But it must centre on your core business aims and long-term vision.

  • Making sure everyone is on the same page
  • Create a common vision
  • Engage with employees and suppliers
  • Getting all stakeholders on-board.


Re-energise your sales
Are all of your employees becoming sales reps? Because if you don't have enough revenue coming in then you are going to need to sell more product. This means getting everyone to reach out to their contacts, no matter what their position in the company.

People usually make purchasing decisions based on the value of the product and how it can solve their problems rather than what the actual price is. So focus your sales and marketing towards this aspect rather than the default position of discounts and sales.

  • Fill your pipeline
  • Reconnect with previous customers
  • Make your products and services value-based rather than price
  • Make some client visits, reconnect with customers past and present.


Talk to everyone
Communicating your plan with your employees is a good starting point to communicating it to your wider business contacts. Suppliers and clients still have the power to scupper your recovery plans.

If you can outline your current difficulties to key customers, you might be surprised how helpful they can be in ensuring one of their key suppliers remains. The same goes for your suppliers too who can often help in extending payment schedules and being flexible on deliveries and pricing. Importantly talk to your bank who may well be able to help out with your financial liabilities and offer you increased support through funding, business loans, overdraft and other financial assistance.

  • Talk to your customers
  • Talk to suppliers
  • Contact your bank.


Consider external investment
While this should never be your first go to, it should clearly be one of the strategies available to you. If you have assessed where the problems lie within your company and the reasons for it, you can start tackling them in the ways listed above through concentrating on your core business, cutting labour and costs and ensuring that your team is motivated in to sell. At this point you may well be able to prove that you have a good product, you have customers and a solid operational structure. The only thing missing might be the ability to call upon cash flow. At this point it may be worth considering the role of investment, either equity-linked or through a business loan.

Is Your Business Plan Working?

For many business owners, going back to basics often involves taking a good look at their business plan. Sometimes that business plan was never going to work and sometimes your business environment has changed and the plan no longer reflects it.

For those that make a living buying up poorly performing businesses and turning them around, it often means completely ignoring the original business plan and focussing on the four core aspects of the business as detailed earlier; revenue, expenses, operations and cash flow.

If you are to do the same it can often mean adopting a similar, pragmatic approach to turning around your business.

Quickly turning your failing business around isn't about putting a plaster over the wound and carrying on, it's about seeking to understand why you're losing so much money and understanding the fundamentals of business recovery.

If you can analyse the problems affecting your business' success, then you can put in lasting and efficient measures to improve your operation, manage your employees better and ensure that your revenue streams are trending in the right direction.

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Originally published 05-Apr-2017 17:40:06, updated April 5 2017

Topics: Business Planning, Asset Finance Solution

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