Business Recovery/Turn Around
Transforming businesses from obstacles to prosperity
Stephen J. Homola
Business Recovery/Turnaround has many connotations. Our use is defined as recuperation, revitalization, and an upturn toward a healthy bottom line, return to profitability, and a path to growth. BMCS has a ten-step process it offers its clients to re-direct a company’s downward trend into a recovery and reverse trending from an unhealthy operation to a path of strength.
To implement the ten keys in a successful recovery/turnaround, we have to perform, in order, the following ten steps. Owners of small to medium-size businesses have successfully used these steps.
Step 1: Write business, sales/marketing, and operation plans
It is essential to take the invested time to properly write a realistic and cohesive plan on how a business must operate. Rarely do companies who write and maintain plans on an annual basis get into trouble. Plans chronicle the good and bad of the past and set a vision for the future.
Investors, management, and employees all need to know what the company’s future plans are. They need to see where they fit in, how they can help, and to share suggestions based on their expertise that will help the company succeed.
Step 2: Meet with key personnel and a board of directors or advisors
You must get the key people in the business together to have a no-holds-barred discussion on how to fix the company. Never go into the meeting without a plan of your own. People lose confidence in leaders who lack a plan and vision for their business. The key in this type of meeting is to be self-assured, open-minded, and flexible.
Step 3: Revise plans
After listening to key executives in the business, revise and ask key executives to review the plans a second time before presenting them to the board of directors and employees.
Step 4: Meet with employees
Have a company meeting, admit that there are things wrong with the business, and discuss how management plans to fix it. Provide employees with a copy of the company business plan and ask for their input. For an established business, this step demonstrates that careful consideration has been given to the development of the business.
Step 5: Meet with customers
“Rumors” within and outside the company of your imminent demise are swirling around the business community. Key customers are becoming nervous and some are even looking for new vendors. Don’t stick your head in the sand. Inform your customers about your situation and tell them how you plan to correct it. Be reassuring, but not deceitful.
Step 6: Meet with vendors
Company vendors get very nervous when they hear “on the street” that one of their customers is having trouble. Sometimes word travels faster than you can thoughtfully alert the appropriate people about your problem. With that said, you need to develop a prepared statement outlining the problems and how you plan to deal with them. You will receive plenty of concerned telephone calls. Respond quickly and thoughtfully to all of them.
Step 7: Contact tax authorities
If you can’t pay your local, county, state, and federal taxes, notify the authorities. Tax authorities will work with you. You’ll be on much better terms with them than if you fail to pay and have it appear as if you are trying to avoid your obligation.
Step 8: Contact your bank
If you have loans or a line of credit, call—don’t write—your loan officers and tell them you need to meet in person. Give them the bad news followed by your plan of action. Appear confident and reassuring.
Step 9: Keep only employees who are essential to the business
Figure out which employees you can let go without damaging your business. Nobody likes to let people go, but for the business to survive you want to keep only people who are bringing in, making, or servicing sales.
Step 10: Cut unnecessary costs
Make a list of all your expenses and eliminate what you don’t need. You need to buy time in order to fix your problems, and cutting expenses is a good way to buy “financial” time.
All business recovery/turnaround situations are different, however, there are some actions that are found in most recovery/turnarounds. The following are the common steps taken in the business recovery/turnaround plan:
In all business recovery/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 recovery/turnarounds?
All business situations are different and, therefore, merit different approaches and emphasis on different aspects of the work. One must be committed to the process and focus that every challenge can be overcome with a tenacity of conviction. Let’s face it. The business has been operational and has a history of being “in-play” before the downfall. It will take that same amount of energy and passion to correct the circumstances. However, there are some steps that are generally considered in successful business recovery/turnaround situations and the most relevant are:
· Review and Assess the Present Situation
In a business recovery/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.
· Develop Plans and Business Strategy
After assessing what is required to be changed for the business recovery/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 recovery/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 business’ future plans are.
· Communicate With Key Employees
For the business recovery/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. While 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 be critical to the success of the business recovery/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.
· 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 rumors and counter rumors, will not be beneficial to the business and while 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.
· Meet the Bank
The bank and other parties with a financial investment in the business should be advised of the business recovery/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. It is never in the best interest of a bank to have a company default on its credit obligation. One must remember that the bank already has a vested interest and a recovery/turnaround is in their best consequence, as well. Banking “Work-Out” programs are established to assist, not to punish.
· Meet the Customers
Dependent upon the severity of the situation within the business it may be necessary to reassure key customers of the business recovery/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 businesses to be conducted in a timely and efficient manner.
· Meet the Suppliers
If the business has failed to settle payable accounts on time, even the murmur of business recovery/turnaround activity taking place may result in suppliers imposing draconian payment terms that may jeopardize the business recovery/turnaround plan. If support for the recovery/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 honored or if failure is imminent inform the vendor in advance of how any debt will be discharged.
· Cash Conservation
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 eliminated.
· Implement New/Update Systems and Procedures
A thorough review of existing systems and procedures will be required to meet the goals of the business recovery/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.
· Monitor, Measure and Take Action
Throughout the business recovery/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 KPI 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 recovery/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 recovery/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.
Summary:
While every business recovery/turnaround plan is unique to the organization under impact, there are logical steps to take to handle and avoid the confusion of how to act. Business Management Counseling Services can aid your company or organization prior and during the time of necessity. We highly recommend a pro-active approach of preparedness, however when a pro-active plan does not exist we can facilitate the least amount of collateral damage to the event.
