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Discover 10 Steps to a Successful Business Turnaround
In all business turnaround situations there are certain steps that are commonly taken to change the fortunes of a failing business.
The owner of a less than successful business may require professional expert help to arrest the business demise and to create value for the organization. The task of managing the required change may be beyond the owner’s skill set or too much emotional sentiment may exist that may preclude the owner from taking the tough ‘business saving decisions’.
Is there a standard process to be adopted in business turnarounds?
All business situations are different and, therefore, merit different approaches and emphasis on different aspects of the work. However, there are some steps that are generally considered in many successful business turnaround situations and ten of the most relevant are given below:
1. Review and Assess the Present Situation
In a business turnaround it is important to understand fully the starting position. It will be important to gather objective and anecdotal data in order to review the situation and to determine the causes, as well as to comprehend the immediate effects, of the issues impacting the business.
Management accounts, the sales order book, financial arrangements, internal controls, customer service levels, quality and leadership skills are typical areas that will require evaluation and a view taken on.
2. Develop Plans and Business Strategy
After assessing what is required to be changed for the business turnaround to be successful, it will be necessary to develop robust plans and strategy that will achieve success.
Without doubt it will be necessary to comprehensively document the actions to be taken, the timings, the financial impact of those actions and to obtain ‘buy-in’ from the business owner.
The benefits of writing the business plan include that of a reference against which actual results can be measured and an indication to third parties that the proposed business turnaround plan has been carefully evaluated and is a viable proposition that should be supported. This will be an important and relevant form of communication to investors, staff and others who may need to know what the businesses future plans are.
3. Communicate With Key Employees
For the business turnaround to gain momentum it will be necessary to meet with managers and key personnel. The current business affairs should be explained and the consequences of not taking corrective action should be made known. An outline of the proposed actions to be taken should also be communicated and a request for comments should be sought.
Whilst it may not be possible to answer detailed questions it will be important to elicit the concerns of this group and address them as positively as possible.
Members of this group will critical to the success of the business turnaround. They will be charged with taking the planned actions and delivering the results; consequently it will be imperative that the group act as a team and are committed to the future plans.
4. Communicate With Other Employees
It will be necessary at the earliest opportunity to meet with all employees or their union representatives, particularly if job losses are planned.
A prolonged period of uncertainty, fuelled by rumour and counter rumour, will not be beneficial to the business and whilst bad news may not be easy to deliver, the communication of it in a timely sensitive manner is desirable.
The meeting will also be the opportunity to provide an insight into the future business plans and the part the remaining employees will play.
5. Meet the Bank
The bank and other parties with a financial investment in the business should be advised of the business turnaround plans. If possible meetings should be arranged to discuss the plans and to seek assurances of continued, and maybe, more support for the business.
6. Meet Customers
Dependent upon the severity of the situation within the business it may be necessary to reassure key customers of the business turnaround plans and the benefits that will accrue for them.
This action should be considered mandatory if the cause of the business demise has been poor customer service, poor quality product or any other matter not meeting the expected/agreed customer satisfaction levels.
Begging for a second, third or even fourth chance to ‘get things right’ may be embarrassing but remember: no customers – no business. Learn from past mistakes, do not promise what cannot be delivered and ensure internal systems, processes and communication channels are raised to a standard that will seamlessly allow business to be conducted in a timely and efficient manner.
7. Meet Suppliers
If the business has failed to settle payable accounts on time, even the murmur of business turnaround activity taking place may result in suppliers imposing draconian payment terms that may jeopardize the business turnaround recovery plan.
If support for the turnaround plan has been gained from the financial institutions and investors, it will be advisable to actively seek meetings with vendors to outline the plans and to seek their continued support.
Re-establishing trust will be critical. Negotiating new or even the continuation of existing, payment terms from a weak position will be difficult, however, all promises made should be honoured or if failure is imminent inform the vendor in advance of how any debt will be discharged.
8. Conserve Cash
Review and improve if necessary the credit management procedures. If possible negotiate extended payment terms to suppliers; examine thoroughly all unused assets of the business and liquidate if necessary.
Options that may be available include selling unused buildings, renting out spare office space, selling unused plant and office equipment, disposing of excess or redundant stocks, factor sales debt and if unavoidable make excess employees redundant.
In addition the elimination of all unnecessary overhead cost should also be actioned.
9. Implement New/Update Systems and Procedures
A thorough review of existing systems and procedures will be required to meet the goals of the business turnaround plan. Implement change if necessary; it will be noteworthy to recall that a continuation of old practices will almost certainly result in the same old results.
Positive and profitable change may be required and this should be communicated to employees, so that they understand their roles in the new business environment.
10. Monitor, Measure and Take Action
Throughout the business turnaround process, results should be regularly measured against plan and corrective actions taken if required. Key performance indicators (KPI) should be determined that will give a snapshot of the business performance and be available on a daily, weekly or monthly basis.
The KPIs should include financial and non-financial measures and reflect the important aspects of the business that will determine success or failure.
Finally it will be desirable to pro-actively communicate the turnaround progress to all interested parties – employees, customers, suppliers as well as the financial institutions.
Provided sound business management principles are employed, results measured and positive trends reported, control of the business should be re-established. However, the business turnaround work should not be considered as a one-off. The experienced gained during the turnaround process should be adopted to avoid a repetition of the earlier mistakes made.
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