When a Business Needs Help

It is important to recognise when you need help or anticipate future problems, understanding the "where", "what", and "how" for the cause of the problems is very important in designing the solution.

Where Is The Problem?

Understand where the problem exists.

Remember that profitability is dependent on three things (or a combination thereof) – selling more, achieving higher margins (i.e. buying/producing cheaper or being able to charge a premium for your product) and reducing overhead expenses (lower insurance, operational cost, rental, etc.).

Often, some extensive investigation will indicate where the changes in the performance are required.

Management accounts are a useful tool for identifying the specific areas to target.

If you asked the question "what are management accounts?" you already know that you do not track the financial performance of your business – which is the reason for almost 50% of failures in SMEs.

Once you understand where the problem is in the business, you can start working on a remedy.

What Causes The Problem?

Linked closely to "where" is "what".

You need to understand the reasons behind the problems in your business.

In competitive trading circumstances, many businesses face dwindling revenues and therefore have a cash flow problem. The reality is that cash flow is never the actual problem – a shortage of cash (i.e. working capital constraints) is always a symptom of a problem that manifests in the working capital of the business.

Selling too few items, low sales revenue but fair margins, low margins, and high stock-holding, are examples of operational problems that erodes working capital (i.e. cash available to sustain operations).

You can identify these by evaluating the operational data or management accounts of the business.

How To Find a Solution

Now that you know the "where" and the "what", the next important matter is "how" to find a solution.

In turnaround management, focus the majority of resources at the areas that will deliver the solution the fastest. 

Unnecessary costs that do not contribute to long-term sustainability must be eradicated. (For example, the installment on the luxury SUV you bought in prosperous times that is draining cash from the business now that turnovers are down.)

It will not be easy to determine where the major problems in the business are.

Make sure your knowledge of the activities and performance of your business is at a level to be able to detect possible areas for improvement by systematically working to find areas that need attention. Quite often when there isn't an obvious reason it might be because there isn't just one, but a few small areas that contribute and you need expert help to determine the areas.

Determining Savings in Internal Resources

Determine what internal resources (people, processes, equipment) are needed to address the problem. It may be that you need to engage key employees to come up with a solution. This will have multiple benefits, which will possibly include a better solution than just yours; buy-in from employees that you are committed to solving the problem; and, their commitment to seeing the solution through.

Often, entrepreneurs' first reaction is that the business needs more money, this is not normally the case.

You first need to figure out where the money is being spent in the business and then fix it before injecting more money. You will need to show potential lenders that you have fixed the problem before they will consider contributing additional funding to the business.

Pushing for Change And Turnaround

Once the plan on how to fix the business has been made, it needs to be designed, programmed, implemented and promoted.

A senior person in the business, preferably an owner, needs to "sponsor" and take the responsibility for implementing the turnaround plan and ensuring the plans get managed efficiently and effectively. Specific milestones must be set, action dates agreed and adhered to and regular progress monitoring done.

A very important fact is that the more senior the sponsor of such a plan, the better the success of the implementation of the plan. This sponsor might not have the ability to dedicate all of their time to the project but will dedicate other resources (including people) to achieving the goals set.

External Assistance

Sometimes challenges are too complex to solve internally and need to be discussed with an expert that is not as close to the business as the owners or management.

Or sometimes it is essential to appoint outside assistance, contracting a mentor, adviser or consultant.

The person will have the right experience, background, and knowledge to assist.

Do reference checks and understand his or her abilities. Set clear terms of reference, expected outcomes and milestones to achieve, since you will be entrusting them with a large part of the responsibility to return your business to profitability.

Monitor Progress

Make sure you stick to the plan – it doesn't matter if it is your own or an external adviser's plan, it should be used as a guide to growing the business. Then, make sure you continuously evaluate all actions against this plan.

Monitoring progress also means re-assessing if the plan is still appropriate in the current conditions. Regular evaluations need to be carried out against the goals set to ensure the turnaround strategy remains on track.

You can only manage what you measure, so make sure you measure your progress according to this plan.

Highlight Small Successes

People often only celebrate large events in life, both personally and in business.

Make sure that each achievement in the journey to return your business to its healthy state is highlighted. For example, each time a new client is contracted towards higher turnovers; or any activity that gives rise to achieving the end-goal, warrants noting. It will keep you and your staff ocused and also underline the fact that progress is being made.

Re-invent

Albert Einstein said, "that we cannot solve the problems we face today by the same level of thinking that created these problems."

Therefore, think wider about your business and think of ways in which you can mitigate the risk of a re-occurrence in your current situation. How can we sell more, better, faster? How can we access new markets? How can we achieve growth without necessarily incurring higher expenses? Work smarter, not harder.

Don't let it Happen Again

Business runs in cycles.

There will always be times of prosperity, followed by times of hardship.

When things are going well, keep on working smarter to ensure the business stays lean and that you build in enough reserves to cover for the lean years.

Spend money on improving your business and increasing efficiencies.

Once you have done this, the business will be on solid ground for both the prosperous and the lean times and when you are in this position it will be easier to manage the tough times.

Please CONTACT US for more details.