All business turnarounds follow the same principles. It doesn’t matter if it’s a Fortune 500 company or a small business with less than ten employees. They both follow the same principles. What’s s a principle? It’s something that is universally true which if followed usually produces desirable results and in the case of a turnaround there are four principles to follow.
Stopping the bleeding from negative losses and other valuable resources is the first thing to plug when focusing on a turnaround. Increasing revenues won’t fix anything until the losses have been stopped because increasing sales costs money, sometimes lots of it. You won’t be able to effectively focus on building your future let alone surviving until you knock down expenses.
Three areas to cut losses from are the following:
1. Operating Expenses - This is a big one. Operating expenses often make up the biggest expense for businesses. So focus on cutting utilities, products and services purchased monthly expenses, loans, rent, and outside services to free up cash.
2. Labor (Time) – Labor often makes up the next biggest area for businesses to focus on cutting. It’s been said that close to 30% of the work done in a business is repetitive and doesn’t add value to the customer. Learning to increase productivity by eliminating unnecessary tasks, consolidating activities, and using technology to lower labor costs can help eliminate overtime therefore making a more efficient and productive set of employees.
3. Advertising/Marketing – Businesses often overspend and waste money in advertising and marketing that doesn’t directly bring in prospects or make sales. Image advertising is a perfect example. Ad agencies don’t care about results rather just how pretty ads are. Your marketing should always sell something whether it’s a phone call, a meeting with the prospect, or a brochure. Remember that advertising is selling in print.
Once you stockpile valuable cash and time, the next step is to figure out where the problem is. What part of your business is still profitable? What part is not? A good turnaround plan requires that you focus and build on what produces positive cash flow and cut what doesn’t. It’s not rocket science.
Here are three tips:
2. Stop selling everything that isn’t brining in positive cash flow – This will bring significant changes. For example 70% of your products may still be profitable and the other 30% not, eliminating the weaker part will provide a stronger business. Focus on building your strengths not your weaknesses.
3. Narrow Your Focus – You can’t be everything to everyone. Learn to differentiate your product or service and then put that message in all your advertising/marketing.
Any turnaround plan will involve going to your creditors with a plan. The best way to approach them is to be honest. Telling them you won’t pay them won’t exactly get them on your side. Instead, explain to them that you are having trouble paying bills and explain why. You then want to show them your plan. Most of the creditors will accept an honest effort. They know they won’t get paid if you go broke. They do want to see a willingness on your part to do what needs to be done so show them your cost reduction plan as well as your new marketing strategy.
You then need to prioritize your creditors and suppliers. Not all creditors are the same. The first group are the ones who play an integral part in your business and are the ones you will want to pay first. These are the people you need to impress. Bring out that suit you only wear on special occasions.
The second group of creditors are the ones who are not a priority and you should make every attempt possible to get out of those debts.
Now that you effectively cut the dead weight from your business in terms of slashing operating expenses, eliminating unproductive labor, advertising, and all unprofitable business operations, you are ready to refocus your company on your profitable areas.
Turnarounds are easier than you think if you follow these principals and have a blueprint to follow.
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Did I miss something? List any other relevant turnaround tips or strategies below.
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