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Turnaround

November 26, 2009

The path to success is full of sharp turns, detours and forks in the road. If you find yourself heading in the wrong direction, only a quick turnaround will get you back on track.

Competition, recession, interest rates, new technologies, and governmental policies are only a few of the road blocks that today’s businesses have to negotiate. Companies of all shapes and sizes can get in trouble.

There is a fine line between success and failure. Many well established and substantial firms have found themselves crossing that line. Many have not been prepared to meet the challenge.

Businesses don’t stand still, they are either coming or going. The transition from a healthy company to a troubled one begins in a slow and often undetected process. This sets the stage wherein a single traumatic event yields a fundamentally troubled company.

Those traumas include such occurrences as a major decline in sales, the death or departure of key personnel, difficulties with an unfavorable contract, problems with the Internal Revenue Service or problems with the company’s lenders. Surprising as it may seem, rapid growth can often be the well disguised trauma that can cause crisis in a previously weakened company.

What happens once the trauma occurs is fairly predicable. The stress of the crisis will cause fundamental weaknesses in the business to become visible. Planning and orderly decision making will deteriorate. Actions will be taken on a spur of the moment basis in an effort to silence the squeaky wheel. Little consideration is given to the longer term consequences. Frustration will increase and morale will fall.

The impact of the crisis and breakdown of the decision making process will precipitate financial problems. Margins generally shrink, inventory becomes a problem, cash flow is tight. Lack of control and faulty decision making will often worsen the situation in areas such as credit and collection.

Dealing with the symptoms of the problem comes to occupy more and more of management’s time. The search for scapegoats and a lack of confidence in internally generated information begins. The organization’s normal interaction is disrupted by dealing with the “problem”. Progress grinds to a halt.

Left unchecked, the company’s slide will continue and accelerate. Ineffective cuts will be made, problems will mount, customer relations will deteriorate, personnel problems will grow and finally banking relationships will fall apart.

Get help before it’s too late. Putting a struggling company back on the right track is a disciplined and time consuming task. There is no particular magic involved. The job is the same regardless of the type of company involved. Most companies that get in trouble forget that first and foremost they are in the business of business. They can each have their own special situations, but they must all execute the fundamentals at an acceptable level.

Turning around a troubled situation requires fast action. Confidence amongst the company and its creditors, customers, suppliers and employees must be regained or reinforced. The objectivity and credibility of an outsider can be helpful. A properly qualified outsider will be viewed as having the expertise to make competent decisions and as having the objectivity to make them without prejudice.

If the trauma has occurred, the first objective is to stop the bleeding. Immediately put a stop to all activities that are depleting the companies cash reserves. Next, identify opportunities to cut overhead and fixed expenses. The essential point is that cash is the ultimate resource.

With the bleeding stopped and the initial cuts made, strategies for maximizing the use of cash must be developed. Having gained the confidence of all the parties involved, these actions will give you the breathing space necessary to formulate new strategies for the business and get them implemented.

All businesses will have troubles at one time or another. Recognizing the early symptoms is the key to avoiding a bloody trauma. If your business is experiencing difficulties, be honest enough to recognize and admit the problems. It’s a lot easier to adjust your course than to have to do a complete turnaround.

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