Making sure that everybody fully understands, and is committed to supporting the current situation.
Bring together all employees and clearly define the problem, making sure that everybody fully understands the situation. Employees, managers, suppliers, banks, investors, unions, and anyone else who may influence your business should be involved, to some degree, in formulating the turnaround strategy. The involvement of all stakeholders in planning and implementing the strategy will generally increase their level of commitment to your business turnaround.
Explain the severity of the situation, emphasizing that without their commitment and loyalty, the business can fail. Employees need to ‘come to the party’ and be involved in the rebuilding of the business. When a company is in crisis mode, management and staff need to be in harmony and in step with the need of the company.
Team Support – Support from all key team members is necessary. Create a shared commitment to action between employees and owners/partners. When a business is in crisis mode the owner and staff need to be in harmony and in step with the needs of the business.
The right results come from the right people doing the right things at the right time in the right way for the right reasons." When all your team members are not committed to your business mission, vision, and values, they are also not committed to executing your goals. You not only need to show people what direction the company is headed in, but you need to get them to "buy into" this direction. Great success is almost always the result of great teams. An aligned team always out-performance an individual.
Commitment - Everybody should help play his/her part in saving the business, but this won’t help if the owner doesn’t lead by example. Commit to your new way of operating. It's easy to make plans to change, but it's another thing to actually carry out those plans. Success is a result of action based on planning. It’s quite obvious that things need to change, but the question is do you ‘have to’ change?
Different Actions - Recognize that getting different results requires a different course of action. If you simply keep doing the same things, you’ll get the same results. To expect anything different without changing the way you operate is insanity.
Step 3: Prepare a Business Turnaround Strategy Plan
How do you write a turnaround strategy plan
The objective of writing a business turnaround plan is to prove to your creditors that you can stay in business while you turn things around.
A business turnaround plan is a document describing your core business, sales plan, staff reductions, and cost-saving actions. It includes a cash budget, and a set of monthly financial projections with objectives indicating how you intend to get out of your situation in measurable terms. Your turnaround plan serves as a roadmap to save your business, and to insure and convince partners, customers, employees, banks and suppliers to support you.
So, take your time and do it right. Be brutally honest in your assessment and clearly state how you got into this situation and how you will stay in business while you turn things around. This will help restore your credibility. You will need this to obtain concessions from your creditors.
To prove that you can stay in business while you turn things around, you need to do the number-crunching to ensure profitability? If not, go back and work your numbers. In any event, do your homework and figure out what you need to charge to make your profit target.
What Creditors Want to See
A good credit rating can make or break you personally. Likewise, it can make or break your business. Often small businesses run on personal credit lines. Keeping your and your business’s credit rating in good standing is important for operations, growth, and development. When lenders look at your business, they will consider the four C’s:
Condition of business - Are your industry and your company profitable—or likely to stay profitable? How long have you been in business, and what has the condition of your business been?
Character - What is your credit history, your experience in your company’s industry, your ability to manage a loan? Has your business taken a loan in the past? What has the payment history been? Have you defaulted on any loans?
Capacity to repay - Is your projected income sufficient to make a profit, maintain healthy cash flow, and pay off the loan? Do you have sufficient sources of income?
Collateral - Do you have enough assets or collateral to sell if necessary in order to repay the loan? Additionally, lenders want to see your business plan. It does not need to be your full-length business plan, but it should cover what your business does, what is your competitive advantage, what your projected earnings are, and when you intend to repay any loans.
The key to a successful business turnaround plan is sufficient and accurate analysis and planning in every area of the business. One of the most important lessons I have learned in business over 30 years, was from Steven Walker, (CA) who taught me that all the information you need to make the right decisions regarding your business can be found in your numbers. It will provide you with financial anticipation and foresight to make the right daily decisions.
Want to know where to spend your advertising money, where is the most business coming from, what is your most valuable products and customers? Where is significant potential for growth and profitability? Listen to your numbers, they will guide you. Without these numbers, you will not be able to make accurate daily decisions.
It is vital to understand your financial information, set financial and sales targets, preparing a cash flow forecast. Set targets for each day, week, and month and measure everything – from cash flow, sales, and profit. This section explains what the effect of all these changes will be by presenting detailed forecasts in the form of short-term financial statements and projections.
The problem is, you’re not going to get the information you need from your year-end financial statements or your accounting system. And unfortunately, this is about all the numbers the average business owner has. That’s why the most business owners simply don’t know their important numbers.
Looking at your financial statements tells you what happened, but not why. It does not show us what would happen if you make incremental changes to current costs, prices, and revenues. It’s also extremely difficult and almost entirely useless for decision-making purposes because the minute you receive them the information is outdated and limited.
You can add a budget and a forecast to it, and you can see what was intended and how well you did. A big improvement and useful, but not sufficient. If only one element in your forecast change, everything change, and you have to do it all over again. These reports are lagging rather than leading indicators or measures.
The second problem is if you do not have the relevant information (numbers) regarding your business performance, you may not know when a situation requires corrective action. Making it impossible to identify problems on time, which is causing you to lose money that may lead to a situation where your business runs out of cash and are unable to pay the bills. In most cases, we can only respond to current situations, usually too late when the damage is already done.
So, you've got to add up some of your own numbers. You need to measure what really matters.
Measure What Really Matters
With little or no margin for error, and few second chances, sufficient and accurate analysis have to be done swiftly and on every area of the business to identify the real cause of the problem. This is key to a success turnaround because you have to make decisions based on facts, so you can choose the right turnaround strategy, that will improve your ability to adapt and survive the crises.
The success of your business turnaround start with your ability to identify and analyze, simple but very important Leading and Lagging numbers in your business. These Leading and Lagging numbers, also known as indicators, business drivers, key success factors, KPI's and many more, are important (key) measurable values in a business that are used for measuring and evaluating the performance, and success in different parts of your business.
Lagging Indicators are an important (key) measurable value of an intended result or the goal that you want to achieve. For example, to increase your business growth, sales, profit, and income... Lagging measures, reports past results or events that already happened -the end result. For example, total sales for the month, total Net, or Gross profit for the month. These results have passed, and there is nothing you can do to change it. They are history.
Lead indicators or measures in business are the day-to-day activities that lead to the result of the "Lag Indicators"(The goal or objective you are trying to achieve). These Lead activities (Input) drive the performance and success of the "Lag Indicators" and predict future results.
To change any current results in your business, you have to focus on the Lead indicators or measures. They are the things you can control and influence that will lead to a different result.
Read the complete step-by-step process for identifying your business most important lead and lag numbers here: Leading vs Lagging Indicators Examples In Business
Knowing this will empower you to make the right daily decisions for the future. Measuring the leading key numbers will allow you to have Insight, the ability to understand why you have certain results (numbers) in your business. After that, you can start to ask various “What if questions, such as “What if we increase the income by 20%?" Or "What if we reduce cost wit 10%?” These changes probably will have numerous results, many of which might have never been anticipated. By asking a series of "what if" questions will give you the ability to have the foresight that will allow you to manage your business a 100 % better, Reduce risk, have confidence in your decisions and make you considerably more profitable and grow your business substantially
Determine Outcome and Goals For Your Turnaround Plan
This is the hardest part, and that’s to make the decision to become responsible for your own future. As long as you know where you are and where you’re going, it’s easy to get there. Set some goals for your business to have clarity where you’re going and why are you doing what you’re doing.
It’s important to measure your progress from where you start now, not against how far you have to go. Remember! Your past does not determine your future; only what you do now determine your future. Each action or strategy you implement or make happen boosts your profits and growth. By comparing your progress with the point at which you started out, you will be encouraged to continue.
Goals are achieved step by step and each step needs to be validated - otherwise, the goal may seem far away, and it may feel you are making little progress when really you are. Then compare your current reality and state of progress with the final vision.
Once the short-term cash survival evaluation is complete, you need to decide:
What issues need to be attended too immediately? For example, how can funds be generated immediately within the business?
What issues need to be attended to in the short term? For example, what possible short-term financing is required.
What issues will be attended to in the medium to long term? For example, look for new outlets and markets for the products/services on offer, or develop/improve new products/services.
What components of the business should remain the same? For example, all core profit-generating items to remain. No large projects are undertaken in the short-term.
Step 4: Stabilizing The Business Finances
Stabilize your business if it is in crisis, and maintain positive cash balance at all times is very important because you need to be making good decisions without being under pressure. The key to stabilizing your business is to immediately create and then maintain a positive cash balance at all times. There could be a number of reasons why a business is in trouble, but what’s important is to find out what caused the problems and dealing with it. Part of stabilizing the business is negotiating the restructuring of your debts and obligations to the level your cash flow will support - nothing more.
Negotiate The Restructuring Of Your Debts
Negotiate the restructuring of your debts and obligations to the level your cash flow will support - nothing more. Sort your creditors into two groups: Group A and Group B. Group
Group A creditors - are those you need to do business with in the future, like banks and critical suppliers.
Group B creditors - are those you can replace and don't need to survive. Usually, Group B creditors create the most noise.
Because you've done your homework and are operating with positive cash flow, you are now in a position to negotiate. Meet personally with each Group A creditor and sell them on your turnaround plan. Be factual and positive. Show them how they will be repaid from the cash that flows from your reorganized company. My experience is that most Group A creditors will go along with you.
Creditors often try to strengthen their position and compromise your long-term viability for the sake of recovering their money more quickly than your cash flow allows.
Politely tell them, "No." Remind creditors that it is only the cash flow from your reorganized business that can repay them.
Don't waste time with Group B creditors. Hire a debt negotiator to obtain a settlement for you and move on. These specialists are a unique group, and frankly, some are better than others.
Improve Cash Controls
In the difficult times ahead it is crucial to centralize the control of cash receipts and payments, make sure “everyone” knows that cash is tight, and you are taking personal control of cash flow. Don't buy anything that is not absolutely required. Remember survival is KEY, CASH IS KING for now. Profits will soon flow from very tight cash controls.
Improve Cash Generation
It’s critical that you are able to find adequate ‘bridging finance’, be it external such as the increasing of overdraft facilities, borrowing from a third party; or internal were dead stock and unneeded equipment are identified and sold, reducing of assets, improving accounts receivables or down payments for orders.
A key factor is creditor and lender support for the financing while the business is in a turnaround state.
Manage Payable's Better
The owner must develop a cash-generating system for the business. Cash is king. More businesses fail due to cash flow problems than anything else. The owner has to generate sufficient cash to survive in the short-term. This can be done with better Debtor collection policies, and processes to reduce the time collections take by handling slow payers better, reduce credit limits, and improving credit approval processes to reduce credit losses.
Improve Inventory Management
The Inventory represents an enormous capital investment for any business. The goal of inventory management is to create a balance between holding enough stock to optimize sales, while at the same time avoiding the costs and risks of overstocking. This is an important management function in any business, but particularly in manufacturing, wholesaling, and retailing.
Profits tend to evaporate when inventory is not properly supervised, or when inventory levels and stock purchasing are not given sufficient thought. Good stock control and inventory management start with accurate records. You will need to know exactly what and how many stocks are being held, their value, and cost. Incorrect or out-of-date stock records spell disaster, and it's important to have an efficient, reliable, and accurate method of keeping records.
Step 5: Increase Profitability - Not Revenue
Focus On Profits and Cash flow - Not Revenue
After stabilizing your business, and maintaining a positive cash balance it's time to create a highly profitable and cash flow rich business model. "Profit is the future cost of staying in business".
Read the complete step-by-step process for: The World's Fastest way to increase profit
Improve Profit Margins
Profit margins will be increased by the reduction of variable costs, increasing margins and productivity. The only way to assure continued profits for any business is through constant analysis of what’s happening in that business. Whether you are selling products or services, it’s important to periodically study sales and cost figures relating to your business. In them, you will discover clues to what you must do to increase profits each year.
Sometimes it means cutting expenses or increasing the price of certain products or services and sometimes it can mean adding something else to your line and sometimes it means dropping a product or activity that’s clearly unprofitable. Focusing on one area alone may or may not generate more profits for you. However, focusing on several areas and monitoring your results can have a HUGE impact on your bottom line.
All businesses need to manage costs and expenses. The old saying "You have to spend money to make money" can be a dangerous one. Every business has its costs, but in a time of crisis, it’s vital to your company’s survival, that every business owner takes the time to distinguish between essential expenses and "nice to have" expenses.
Whatever the size of your business I can tell you this; you can always cut costs. No matter how many smart business people tell you they have already cut costs, you will always find more savings in their businesses. So don't forget to be tough on costs to save your business. Reduce all fixed costs by 10% - constantly audit all facets of your company and break down each area of your business and attack it individually.
Step 6: Increase Revenue - Without Spending More On Ads
Increase Your Revenue
Firstly, try to increase the amount of money every customer spends every time they buy from you. Remember that it takes five times as much effort and money to generate sales from new customers than from existing ones.
Secondly, try to increase your conversion ratio. Let me explain. If you are currently converting 3 out of 10 leads into customers - your conversion ratio is 30%. But if you increase that number to 4 of 10 – your conversion ratio is 40%. If you can accomplish this, your revenues will increase by 33%
Third, try to increase the frequency with which every customer purchase from you. This is all about customer service and delivering on your promise. Keeping them happy Your goal should be to create customers for life. You are better off investing in your current customers and generating new business from them than you are trying to find new clients.
Now, after you have taken these steps first, you can begin to increase your leads (potential new customers) While it may seem obvious to start with Lead Generation and finding new clients first, it doesn't work. Increasing Inquiries, or Lead Generation, for many Business Owners, is the most common way of increasing sales. The reason for doing Lead Generation last is that marketing and advertising can be one of the most expensive ways to market your business. It can also be the most costly if you don’t have the right marketing strategy.
Improve Service Delivery
“The key measure of business success is customer satisfaction”.
" The true purpose of a business is to create and keep a customer"
Improve Service Delivery:
As hectic as things may get, do not forget the importance of customer service! Understand that it is the small things that create great results and makes a great impression on your customers. This includes everything you do; from the way, you greet your clients, to the quality of your product and service and availability of stock.
Consistency is the keyword that leads to repeat visits, increased spending, and word of mouth advertising. If your service exceeds people’s expectations consistently, they will stick with you and tell all their friends and family. If your service is poor they also tell all their friends and family.
Customer service is also a powerful way to set yourself apart from your competition. It’s one of the strengths a small business has, and by emphasizing customer service, you can compete with larger companies who may offer more variety, lower prices, and other perks you can't afford