Turnaround That Operation
Oct 13, 2008
Often we find ourselves in a situation where the company needs to take drastic action to survive. Many owners now feel they are in that situation and blame the economy for where they are. A recovery will not happen unless different actions occur to make it happen. Losing 10% of your equity a month and having a company boat I'm sad to say are generally incompatible. On the turnarounds I was intimately involved in, the reasons for their success were pretty similar:
- Get the financial numbers correct or get the complete understanding from upper management that the numbers are right. You simply cannot right the ship without knowledge of where you are and where you are going and if management does not believe the numbers, the task will surely fail.
- Develop a written plan and get the bank or other financing institution on board. The task will also fail if the bank does not understand and can assess the likelihood of success of what you are doing.
- Attack the drains of cash. These might be expenses or they might be excess asset purchases such as equipment or inventory. Get a rational justification as to where these balances need to be and challenge the management to develop a plan to get them lower.
- Make management compensation contingent on success. No big buyouts or severance packages. Rewards come from success.
- Look at each customer and fire the ones that are not profitable. You might be shocked that in these situations, managers have gotten desperate and acquired many customers that are not profitable in an attempt to show rising sales. I was in one turnaround where we fired 60% of our customers.
- Look at manufacturing or other production processes. Determine a more efficient way to perform them. If the processes were the most efficient, the company would not be in that situation.
- Reward everyone for the turnaround. The best ideas do not come from management, they are paid to recognize the best ideas and get them implemented. When it happens, most companies make the huge mistake of rewarding management but not the people that made it happen
- Along the same lines, make sure you involve as many people as possible in the turnaround. Hold after hours team meetings to create ideas and explore current procedures. Often, the number of people that show up surprises managers and the contributions those people make.
- Finally, measure weekly and daily progress against where you need to be.
A B2B CFO can assist in this process. Please let us know if we can provide the same level of success to you.
