Where do you find the time to run the business? How do you create the time to think differently, or for that matter, how do you just think and deal with all these distractions at the same time?

The Current Situation: In these tough times as a leader, it often feels like being in a boxing match with punches coming from all directions. Low sales, low revenue even though production is increasing, margins being squeezed, chasing sales in a competitive market, considering to reinvent the business, following up on receivables while it continues to grow, banks calling on debt, and looking for alternative funding sources. Where do you find the time to run the business? How do you create the time to think differently, or for that matter, how do you just think and deal with all these distractions at the same time? It’s a challenge, and there is no easy answer or golden bullet. There are subtle differences in turning around an E&P, service, or manufacturing business. However, the basic issues are the same.

Distressed businesses are normally running out of cash and turnarounds fundamentally come down to increasing the cash balance. When the pressure is heating up from the banks, creditors, and customers, it’s important to focus on the business areas that make money. There are many important “busy things” you feel should be focused on; however, focus on the areas that will enable your business to be profitable. This means focusing the business on the basic elements of success that made the business successful in the beginning.

Often, the contributing factors to business challenges are external, such as oil and gas prices, market changes, financing costs, and economic downturns. The key is to understand the real issues that are in your control. Don’t bury your head in the sand and blame external factors on your situation. Ten percent of failures are due to influences beyond the leader’s control and fundamental bad luck. The remaining 90% of failures are related to influences management could control, and 50% of those issues are internally generated problems leaders didn’t control. Therefore, it’s imperative a leader contemplates how they arrived at the situation they are in, what they can control, and what they should try to control.

One cannot emphasize enough the importance of following a disciplined approach in turning around a business, and it’s often the lack of discipline that results in turnarounds being unsuccessful. This includes positive leaders who take accountability, define clear objectives, deadlines, and targets, and deliver measurable results to try and create an empowering working environment. Without this, time slips by, and before you know it, your business is in even more trouble.

PHASES OF
A TURNAROUND

There are five key phases of turning around a business, and parts of these phases run concurrently.

To be successful, leaders need to define the real causes that have brought them to a distressed situation and not focus on the symptoms. This requires the leadership to challenge the status quo and drive innovative thinking. To help this, identify an individual who cynically challenges the leadership and raises the red flag when something is not working. Engage various parties through brainstorming workshops and interviews to get to the real issues. Use fact based inputs, such as accurate sales numbers, product margins, detailed line by line cost analysis, vendor lists, outstanding creditors and debtors, finance charges, capital commitments and forecasts, etc. This information should be sourced from all parts of the organization, including sales, production, supply chain, HR, development, finance, and external sources, such as customers and vendors. Engage the board since they generally have a distance from the business to see the forest from the trees. Ensure you have the shareholder’s and management’s input and they are pulling in the same direction. Apply the one plus one equals three concept; however, don’t get stuck in analysis paralysis!

●  Are the right people in the right places?
●  Are there ways to cut cost, increase sales, and increase cash flow?
●  Is the business focused on the right things?
●  Are the mechanisms in place to drive a cost culture?
●  Do you understand the customer requirements?
●  Are you targeting the right customers?

●  Is the business focused on profitable customers versus unprofitable?
●  Are your products in the current environment relevant?
●  Is the cost base on the product too high?
●  Can the business better utilize technology to create competitive differentiated products?
●  What impact is the current financial structure having on the business?

Don’t pull the wool over your eyes. Cash is king. Ask yourself is the business generating sufficient cash or burning it? What are the short term cash flow needs of the business? Is there pressure from other stakeholders, and how is that going to be managed? Focus on the investments in the business that are generating cash versus burning cash.

Once you have identified the key root causes of the current situation, identify short and medium term actions strategies to resolve the issues.

Short Term Strategies

The objective is to gain control of the situation, particularly the cash flow, and establish break-even. If you stop the cash bleed, you enable the business to survive. It’s imperative leaders identify quick wins. This can help to materially improve the bottom line while creating a shift in the business the employees and external stake holders feel.

●  Reducing unnecessary cost thereby reduce operating expenses
●  Cutting products
●  Identifying what products and business segments are most profitable, particularly at the gross margin level
●  Eliminating weak and non performers
●  Adjusting services provided

●  Limiting travel expense
●  Selling off some of your fixed assets to raise immediate cash
●  Applying lean concepts (e.g. 5S) across the business to drive efficiency
●  Improving quality
●  Reducing cost

Medium Term Strategies

This includes merging with competitors, bringing on new products, vertically integrating the business, and offering services to customers who bring you closer to their business. It could be a good idea to realign the product portfolio to include innovative high margin solutions. Consider the organization structure. Is there a more efficiency way to organize? Are there options to partner with other specialists who will reduce overhead and increase quality and differentiation? Dispose of unprofitable business units, real estate, and unutilized assets. Restructure debt to balance the amount of interest payments with the level the company can afford. Consider alternative funding sources to enable the strategy. This could include issuing shares, angel investors, bank loans, factoring, hire purchase, equipment leasing, etc.

Develop a 90 day action plan based on the short and medium term strategies. Be clear and focused on what you’re good at and how you make money. Develop a rolling year budget, which is a three months detailed budget, so there is up-to-date information of the liquidity of the business. This should be aligned with outstanding debt, credits, and future sales. Don’t be overly optimistic in the plans and projection, since we all know challenges do pop up!

This plan needs clear action, accountability, and delivery dates. It should also be managed with performance meetings at least on a weekly basis. At the performance meetings, the previous week deliverables are presented and the next weeks deliverables are made clear. These deliverables need to be aligned with the income statements and cash flow to ensure they have the appropriate impact. Then, monitor the progress and make changes where necessary.

Sometimes word travels faster than you are able to alert the appropriate stakeholders about your problems. Therefore, you need to develop a communication plan that outlines the problems and how you plan to deal with them. Inform your employees, investors, customers, and vendors about your situation, and tell them how you plan to enhance the business. They need to see the urgency, where they fit in, how they can help, and to share suggestions based on their expertise that will help the business succeed.

Leadership needs to drive the action plan and adjust as needed to transform the business. There will be new ideas, options, and challenges, and it’s the leaders responsibility to steady the ship. The variances need to be filtered to ensure there are limited distractions from the ultimate goal that has been defined.

If you treat the turnaround like a crisis, without a crisis mind-set, you may get a stable business’s response to change. It is essential to eliminate obstructionists who may hamper the process. Ensure you have the right people in the right places to address your problems. These people are going to make the changes. They don’t happen on their own. Experience tells me most successful turnarounds involve changing out one or two senior members of the leadership team.

Your objective is to institutionalize the changes in your business culture to emphasize profitability, ROI, and return on assets employed. Make sure to ensure the competitive edge has transformed you out of the crisis and is entrenched and sustained in the business. One way to achieve this is by implementing processes and systems that will ensure your new way of doing business is lived on a daily basis. Complementing this, implement reporting systems to highlight each revenue center, cost center, profit center, and cash center.

Reflect on your last experiences. Implement a continuous improvement program so your business does not stagnate and will rapidly grow in a competitive way. Furthermore, ensure there is a cyclic process to reflect on the business strategy to ensure it’s robust in all foreseeable situations.