We believe in the Axiom: “if you give a man a fish, you feed him for a day; it you teach a man to fish, you feed him for a life time”. Accordingly in our engagement process we endeavor (to the extent of the client’s wishes) to educate while consulting such that our services no longer needed.
There are five major steps within the successful turn-around of a business entity; Management assessment; Situation analysis; Emergency actions; Restructuring; and, Return to the “New Normal” (integration) as a result of the aforementioned. All must be completed with speed of execution because time is of the essence where investments and careers are concerned.
Management Assessment Phase
Management, like the rudder of a ship, steers the business entity through product cycles, business cycles and economic cycles. In smaller-cap companies, for a myriad of reasons, management may lack sufficient training and/or experience to successfully navigate these periods. Coaching may be sufficient or, depending on the circumstances, a replacement may be required. In larger-cap companies, there may be deficiencies in both executive management as well as the board of directors which may signal a change is necessary.
It’s also very important to identify any employees that may be negative, involved in gossip and/or obstruction of changes needed for success.
Situation Analysis Phase
The objective here is to quickly and adequately summarize the situation such that GO or NO-GO decisions can be made with management and/or ownership.
If GO, critical issues are defined, a cursory solution set is developed and a preliminary action plan is established along with a cash flow forecast, strategies, tactics and project timeline.
If NO-GO, prepare a preliminary plan to sell or otherwise close the business for presentation and approval by all the stakeholders.
As with most turn-around situations, the adage is: Cash Is King. Stated differently, the control and distribution of cash is the most critical element of moving the business to the next, healthier level. Accordingly, a cash management policy and authority need to be established and governed strictly according to that policy. If strictly adhered to, this will prove that the business is stable, viable and in turn-around mode.
In pursuit of cash management, a thorough analysis of the balance sheet is called for in an effort to find sources of cash. Collecting A/R, renegotiating A/P terms, renegotiating leases, sale of excess or dead inventory at a discount, the sale unused real estate and hard assets, the sale of under-performing business units, and the restructuring existing debt are all fair game.
Any and all non-essential employees must be laid off, fairly and immediately. Concurrent with this, let the remaining employees know what is happening by scheduling regular update meetings such that they feel job security and will be part of the solution.
Rationalizing the Business
Profitability is the goal with any business and specialization is part of that profitability. A full product and process review of the business should occur at this juncture allowing for both old and new products to be evaluated for strategic fit and profitability (cost and selling price) while keeping in mind the contribution margin from each. The cost side of the business should be fully vetted for savings across all categories.
In terms of specialization, it should be determined whether or not certain material, non-strategic or non-proprietary parts, components or processes could be/should be outsourced to specialists.
Depending upon size and/or the nature of ownership, make any necessary adjustments to the P/L statement and balance sheet to better relate to the current situation.
With employee incentives, develop a sales and marketing plan that addresses pricing strategy along with increased penetration to existing customers while creating new customers.
The new normal
Now, with management implementation teams fully up to speed on the “new normal” of the now–profitable entity, management can focus on existing customers, growing the existing business and spotting new opportunities for growth.
Executive management should be fully in tune with and report on monthly operational results along with ROA and hitting balance sheet goals. It is true that you get what you measure.
With what will the business compete? Product, price, place and promotion are good places to begin. However, there are other ways to compete including excellent customer service (with CRM tools), ISO compliance, ITAR compliance if military products, JIT delivery, and one of the simplest but seldom overlooked, a personal connection and contact with the customer.
As with any recent turn-around project, we must remember that business is a contact sport and you have to continuously improve in order to be “on your game”. Continuous improvement should be made part of the company culture with goals and results for constant discussion.
It is also true that if you aren’t growing some incremental amount each year, you are receding. Continuous improvement and growth go hand-in-hand.
This could be time to restructure long term-financing at more reasonable rates now that the company is stable and on a sustainable growth path.