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It’s tough to feel optimistic when your business is failing. But, InterimExecs RED Team executive Yoav Cohen knows how to save a failing business. “You almost always have a way out if you act quickly and decisively,” he says.
We asked Cohen to look at the most common reasons businesses fail, break down turnaround strategies for a company in crisis, and share his step-by-step action plan for struggling businesses.
1. Create a Roadmap
It’s all about a macro-micro view, he says. Give your business a thorough and honest SWOT analysis that looks at all of its Strengths, Weaknesses, Opportunities, and Threats. Then develop a turnaround business plan that answers these questions:
- What are the challenges and potential solutions?
- What is the workflow and workload within each department?
- How can you prioritize the steps to reach your solutions?
- What are the costs involved at each step?
Each answer should include a significant amount of detail to create a clear picture of what needs to be done.
“Many business owners think that simply maintaining a spreadsheet with a budget is enough to keep them out of trouble, but nothing is further from the truth,” Cohen says.
“In these situations, you need to evaluate all areas of your business, look at what your competitors are doing, and evaluate your product or service offerings and the value you offer to your customers. Going beyond just a spreadsheet and into the details is extremely important.”
2. Cut Costs — Then Cut Some More
Cash is king, particularly when a company is facing tough times. Weekly cash reports fly in “normal” times, but when it’s a failing company, creating a daily cash-flow report is a must, Cohen says.
It’s also critical to approve any payment beforehand and collect accounts receivable as soon as possible. If necessary, adjust your pricing and offer a cash discount for faster payment. Yes, you’ll take a small hit but it’s typically cheaper — and faster — than bridge funding from a credit card, business loan, or bank line of credit.
Once you have tended to the cash coming in the door, focus on the cash going out. That means evaluating all liabilities from vendor costs to product performance, including:
- Delay or reduce vendor payments. Expect some negative feedback, but know that it is possible to “work out a payment plan that both sides can live with,” Cohen says. And, he suggests, “consider switching to lower-cost providers for essential services and supplies.”
- Review inventory and cut any product that’s been unprofitable. Analyze your products for cost in terms of production, delivery, target market, and marketing strategies. Any products that aren’t making money need to be shelved, at least for the short term.
- Let go non-critical staff. As difficult as it may be, it’s critical to make the tough but necessary shifts. Keeping only employees who are bringing in revenue or who have a versatile skill set and have the know-how to fill in the gaps created by the staff reduction. Be honest and upfront with your staff, asking them for support, and understand that emotions can run high. During this time, it can be helpful to form an advisory board that can guide owners through the turnaround.
3. Communicate Transparently with Stakeholders
Be upfront with your stakeholders, from employees to customers, suppliers, tax authorities, and bankers.
“This can be difficult to do for a variety of reasons, but swallowing your pride and having tough conversations with outsiders is crucial for a successful turnaround,” Cohen says. “No one likes to be surprised, and customers will usually cooperate if you keep them well-informed.”
Cultivating a support network is one of the most important steps in maintaining key relationships in difficult times. He recommends informing customers and vendors about the situation and your action plan to course-correct. That likely means working out extended payment terms for new orders or possibly finding new suppliers that might offer better terms since they’re not entrenched in your current cash-flow issues.
“Even if they run a credit check and ask you to pre-pay, that may still be better for your cash flow than working with your current suppliers, who may ask for cash on delivery and payment toward your old debt,” he says.
When it comes to bankers, a real conversation is a must. Outline the challenges as well as your roadmap for a turnaround, which may include asking them to restructure your line of credit.
“Appear confident and reassuring, and be specific with your request for assistance,” he says. “Bankers also have skin in the game, so they will cooperate if you are up-front and honest with them.”
4. Get the Help You Need
These are uncharted waters for you. But our gig economy means there is a wealth of advisors available to help. Many of them are business owners themselves so they understand the emotions of entrepreneurship. Even more importantly, all of them are seasoned executives, many of whom have saved other companies from business failure.
Whether yours is a small business, startup, or struggling middle-market company, there is an interim or fractional executive ready to step in and help.
At InterimExecs, we have vetted thousands of executives with vast experience in business turnarounds. From interim Chief Financial Officers with years of business finance knowledge to Interim Chief Executive Officers who have shepherded turned failing companies into successful businesses to Interim Chief Operating Officers who understand how to marshall new products to market while working with vendors to reduce costs and improve quality, there is a rock star executive ready to lead your company back to profitability.
That includes people like Yoav Cohen, who points to the $50 million public telecommunications company that posted a $4.5 million loss. The company’s turnaround resulted in a $2 million, then a $2.8 million, profit in two years. The dramatic improvement was achieved by eliminating unprofitable products, negotiating with suppliers to reduce the cost of goods sold, restructuring the accounting department, and implementing a more efficient software system, among other tactics.
More Resources:
When Revenue and Earnings are Down: Fixing Declining Sales
5 Times Companies Should Choose Interim Management Over a Full-Time Executive
InterimExecs RED Team is an elite group of CEOs, CFOs, CIOs, and CISOs who help organizations through turnaround, growth (merger, acquisitions, ERP/CRM implementation, process improvement), or absence of leadership. Learn more about InterimExecs RED Team at www.interimexecs.com/red-team or call +1 (847) 849-2800.