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,