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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 under
performing.
Like GPS navigation, a turnaround roadmap
provides way points to help the user navigate from one location to
the next. The seven major way points on a turnaround roadmap are
listed below. If you can follow a map, you can turn your business
around.
1.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 USD100,000 cash in the bank on Monday, that
is all you can spend this week, even though you may collect
USD125,000 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.
2.DIAGNOSE
There
could be a number of reasons why your business is in trouble, but
generally one of the following is the culprit:
-
sales
are down, either taken by new competitors or lost to a decline in
market demand,
-
gross
margins declined while fixed costs remained the same, or
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 analysed 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 way point, you begin
eliminating the causes.
3.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.
4.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.
5.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.
6.EXECUTE
-
Many
CEO s 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.
7.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 under performing, it is up to you to
lead your company away from trouble and back to success. Use a
turnaround roadmap to guide you.
Source
: SME Toolkit
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