Monthly Archives: November 2017

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The Art of the Turnaround

016_Vermont Aerospace

A business turnaround is part art and part science.  The art portion can be timing, external factors, luck, ability to get people to change, etc.  The science part is the numbers, the forecasting tools, communication, fixing internal factors, and negotiation techniques.  I focus on the science part.

The fact is most businesses are not performing the way we expect them to.  We have high expectations for our businesses.  Why shouldn’t we?  Why be in business with all the challenges and headaches unless you’re going to make money, create value, and fulfill your mission.  If the business isn’t profitable, the business isn’t viable in its current state – something needs to change.  Profit and cash flow certainly makes things more fun and allow different opportunities for growth and excitement.

If the business isn’t performing the way we expect it to, we need to turn it around.  We need to go the other way.

So for me, the basic principle for turnarounds is: take decisive action to improve productivity with improved processes or systems and hold the team accountable.

I have lots of experience with turnarounds some good, some not so good.  Did I mention, I was recently awarded 2017 Turnaround of the Year!  The team did an excellent job addressing the issues with this company, and we had fantastic results.

The turnaround process is certainly challenging, it can be fun or it can be ugly.  As leaders, we are managing time, money, and people.  We need to focus on each.  In my observations over the years, I find there are several key leadership principles for turnaround success:

  • The CEO needs to be ready and confident. This is an opportunity for change.  The key is overall leadership with the need for immediate direction.  Leaders need the courage to make changes and call the shots.  It is time for quick decisive decision making
  • Pick your team. Remember, the people who got you where you are now may not be the people to get you where you need to go.  The core team needs to recognize whatever you’ve been doing is wrong and needs to change – you likely need to bring in professionals and assistance.  Redevelop your relationship on the floor – these people know what’s going on and what needs to be changed and improved.
  • Develop a written plan with short-term action and accountability. Need planning and accountability with solid dates – The plan should be 3-week/3-month viewpoints.  See my resources for a Turnaround Checklist.   If you don’t know where you’re going, any road will take you there – from George Harrison’s song “Any Road”.  Develop an operating plan with forecasted P&L, Balance Sheet and document assumptions and KPI’s.
  • Get the facts and face the facts – get the numbers and determine exactly where you are.  You need to know where you are and figure out where you want to go.  Be skeptical of the data. The fact is most underperforming companies generally have bad, inconsistent data.  Ensure you have accurate, timely data.
  • Know your numbers:
    • Understand your cash flow. Use a 13-Week Cash Flow Forecast Model.  See my resources for a template.  Make the weekly cash flow update meeting with your key team part of your process.  Keep a short-term approach focused on liquidity and cash.
    • Understand your profit – 80/20 customers and products – best if we can allocate all the operating expense to get true cost with activity based costing
  • Have regular key communication with vendors, banks, and employees
  • Be prepared for Chapter 11.  Liquidating assets is very bad for the bank and can be a powerful negotiating tool, but it can become a slippery slope.  If necessary, understand the process.

I would love to help you through your turnaround process.

Think profit and go long,

/jon

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Working with Experts

All CEO’s, business owners, and finance execs (CFO’s, VP Finance, and controllers) hire and manage outside experts.  Auditors, lawyers, turnaround consultants, IT consultants, sales consultants, business consultants, executive coaches, etc.  Anyone we hire as an independent contractor to do a specific task, project or someone who can add value when and where it’s needed.

Heck, I’m an outside expert generally hired to improve the company’s results and help free up a business owner’s time so they can focus on their strengths.  As an outside expert, it’s not always easy consistently performing above expectation.

Why it’s so important?  We all want to do a good job and perform at the highest level, but it’s easy for the hours to get out of control or for the project to go in a different than the planned.

I’ve been on all sides – most projects go well,  but some don’t.  I had a Sarbanes-Oxley project I was managing go extremely well.  The project came in on budget, on time and right on scope.  It was a pleasure working with the expert I hired to help with the project.  He was professional, showed up on time, handled the company’s employees well, and delivered a final product that made me look good.

I’ve had times that’s it’s been the other way.  The professionals don’t perform anywhere close to where I expected.  They embarrassed me with my client’s leadership team.  They gave me a bill that blew my socks off, and the project wasn’t complete – and not even close to what I expected.

As an outsourced CFO for the past 10+ years, I’ve learned how to be an effective outside resource – what works and what doesn’t.  I now have crystal clear objectives with weekly status meetings to ensure everyone is on the same page.  I drive my value delivery to 10-15 times my fee charge, and I try to continually quantify my value and ensure we are all clear on the go forward plan.

The key for me to be successful is a clear sense of the project and clear communication to re-visit the objectives and continually re-evaluate the situation.

Some tips for managing outsourced engagements.

  1. Have a clear engagement letter, statement of objections or memo/understanding.
  2. Have clear objectives.  Clearly, knowing the expectation on all sides.
  3. Consistent regular review of past, present, future priorities.
  4. Ensure all invoices are received and paid timely.  Be clear on pricing and don’t let invoicing get behind.
  5. Ensure value is being received.  For me, I try to show 10-15x my fee in revenue gain and better profits.

As an outsourced pro, we need to make doing business with us easy. Know what the client is looking for in the arrangement. Be clear with expectations from both sides – yours and theirs.

Other tips:

  • Invest time to get to know them.
  • Make them feel part of the team.
  • Give feedback on performance – positive or negative, provide continual feedback.
  • Understand their other projects – this happens to me all the time.
  • Pay them market or better – don’t skimp on paying what they’re worth.

Above all continual communication is the key. Have open and honest communication. If the projects focus turns – either agree on the new direction or get the project back on the correct trajectory.

Think profit and go deep,

/jon