Prevailing wisdom suggests that no matter how hard you work at your business, success is never assured. Unfortunately, the flip side is also true; making a mistake can bring your company’s downfall.
The key is to recognize problems as they arise.
Here are turnaround specialist Donna Nowak’s eight signs of a troubled business:
1. Market lag
– sagging sales and lost market share
– technology deficiency; obsolete equipment
2. Lack of operating controls
– inadequate reporting mechanisms
– inaccurate information
3. Overdiversification or explosive growth
– spread too thin
– overunning the “people capacity” (multiple locations, higher level demands)
4. Family vs. business plan
– emotional decision-making
– divorce or death can leave a business in fragments
– nepotism can force out skillful managers
5. Operating without a business plan
– lack of focus, change overnight
– decisions subject to individual interpretations
6. Ineffective management style
– poor delegation
– high turnover
7. Precarious customer base
– vulnerability due to too many eggs in one basket
8. Poor lender relationship
– hiding information from the bank
– failing to return phone calls
– inconsistent reporting
When to call in a turnaround specialist
The business is clearly in trouble, but when is it time to call in a professional?
Here are turnaround specialist Donna Nowak’s portents:
1. The top manager is autocratic.
2. The company has poor communication.
3. The goals are not understood or achieved.
4. The business is deteriorating.
5. Inadequate analysis has been performed.
6. There is a lack of timely information.
7. There is a history of failed expansion plans.
8. Growth is uncontrolled or mismanaged.
It’s not unusual for management to redirect the responsibility for the problems on:
- The economy
- Legislation
- Labor issues
- Litigation
- Market decline
- Increase in the cost of raw materials
The turnaround professional
The turnaround specialist, an individual who temporarily takes over the decision-making processes and guides a company toward profitability and safety, is a relatively new breed in the business world.
With rising foreign competition, fast-changing technology and shifting financial markets, they are more and more in demand.
The advantages
- A fresh eye and complete objectivity to spot problems and create new solutions
- No political agenda or other obligations to color decision-making; able to take unpopular but necessary steps for survival
- Industry experience of little value when company is facing bankruptcy and loss of millions in revenue
- Makes critical decisions quickly
- Deals equitably with angry creditors, scared employees, wary customers, nervous board of directors.
Alternatives
- Consultant vs. interim manager
- Functional expertise vs. general management
- Individual or team
- Full time or part time
- Short term or long term
Source: Donna Nowak, CTP
5 steps to a turnaround
1. Change the leadership
2. Check the vital signs
– determine crucial problems
– develop an action plan
3. Develop a survival plan
– temporary freeze on A/P
– organizational restructuring (layoffs, elimination of departments, divisional sell-off, etc.)
– management pay cuts
4. Survive the crisis
– sustain profitability
– ensure smooth operation of existing facilities
– withdraw from certain markets or move into new niches
5. Return to profitability
– add new products
– improve customer service
– shift from cash flow to focus on balance sheet and return on investment
– rebirth the corporate culture
