3 Powerful Questions To Ask In A Business Turnaround

When a business is struggling it can feel overwhelming. People are panicking, things are going wrong all around you, issue after issue keeps hitting your email inbox, you’re firefighting and you have hardly any time to breathe. This is the typical state of affairs in a business turnaround.

Sound familiar?

No matter the business situation, I am a strong advocate of asking good questions. Asking questions is an art form in itself. Ask the right questions and you’ll get the right answers. The problem most of us face is what is the good question I should be asking?

In this post, I am going to show you 3 simple but powerful questions that you should ask if you are in the middle of a business turnaround. Are you ready? Let’s dive right in.

QUESTION 1: What is the financial picture of the business?

The full financial picture can be determined using all 3 financial statements:

• Profit & Loss (P&L)
• Cash Flow Statement
• Balance Sheet

Each statement tells you a different story and is put together at different points in time. Let’s take a quick look at each statement:

Profit and Loss

Purpose: The P&L is used to measure how profitable (or unprofitable) a company is.

Read my post on Profit Loss 101 for a more in-depth look.

PROFIT & LOSS TIP 1: P&L’s can be measured in 2 ways

Accruals-Based Accounting

The Accruals method is recognising Sales and Expenses when they are incurred, not when they actually happen.

For example, let’s say you make a sale for £1,000. You raise the invoice but does the money come in your account straight away? Very rarely, especially as invoice have different payment terms (30/60/90 days). This is money that is owed to you but hasn’t hit your bank account yet. But it’s still a sale – it just needs to come in. On the P&L we would recognise this is ‘Turnover’. We’re saying that we’ve made a sale of £1,000 and it will come in at some point. 

The same applies to expenses that you may have to payout. You might not have paid them yet, but you will be at some point according to payment terms.

Accruals is the most popular type of accounting used by most SME’s.

Cash-Based Accounting

The Cash method of accounting is recording things as and when they happen. So, using the above example, if you made a sale of £1,000 you wouldn’t record it on the P&L until you have received the money. This method is mainly used by smaller or micro-businesses.

PROFIT & LOSS TIP 2: There are different types of profit

You may have heard the old phrase, “Turnover is vanity, profit is sanity.” That is very true. I take this a bit further in that whenever someone talks to me about profit, I always clarify which type of profit they are referring to.

Here are the different types of profit:

• Gross Profit (Check out this post where I show you how to increase Gross Profit).
• EBITDA (Earnings before interest, tax, depreciation and amortisation)
• EBIT (Earnings before interest and tax)

Each one tells you a different type of profit. Depending on your business, you may focus on one more than the others – it just depends on your goals. 

Cash Flow Statement

Purpose: The Cash Flow is used to determine how well you move cash through business (collect money that’s due to you and paying out expenses). The result should result in a Surplus (you’ve got money left over) or a Deficit (you don’t have any money left over)

Read my post on Cash Flow Statement 101 for a more in-dpeth look.

Cash Flow Tip: Check your Expenses regularly

It never ceases to amaze me how many business owners do not regularly check their expenses. As with any business, things change and you may not require certain things any more – for example, software and licenses. You may also be able to reduce your payments with some good negotiating. Never be afraid to ask for a discount! You’d be surprised how much you could save if you regularly check and scrutinise your expenses.

Balance Sheet

Purpose: To determine your overall net worth as a company. (Calculated by Total Assets minus your Total Liabilities)

Read my post on Balance Sheet 101 for a more in-depth look.

The Balance Sheet is a snapshot of what you own and what you’re owed (assets) vs what you owe to others (liabilities). The net result should mean that your company is worth something.

Balance Sheet Tip: Review your liabilities and get your debt under control

Just like in our personal lives with credit card debt, bank loans etc our finances can get away with us and we can succumb to crippling debt. A business is no different. Review your liabilities section and figure out where you owe debt and who you owe it to. Once you have that as a starting point, you can start to plan about how you’re going to tackle it. I have been in Finance Meetings where the Finance Director has stated that the only way for them to get out of the financial hole is to borrow more debt. However, when looking at the Balance Sheet, the business already couldn’t afford the debt they had. This was piss-poor Financial Management and I subsequently got rid of that FD.

By combining the picture of all 3 statements you will understand the financial picture and therefore be able to plan accordingly.

[RESOURCE] ‘Finance for Non-Financial Managers’ by Gene Siciliano

QUESTION 2: What are the few highest important goals to turn the picture around?

Amid a business turnaround, you will naturally have 100 things that need fixing. It always amuses me when I advocate only doing a few things out of the hundred. People look at me in disbelief. They think that I don’t get it or that I’m crazy. 

In his book, ‘Free To Focus’, author Michael Hyatt talks about the importance of prioritising using something called, ‘The Big 3’. In the book, Hyatt says that we need to come to terms with certain truths. One of those truths is that there will always be more for us to do than can be done. No matter how many things you accomplish in a day, week, month or year, there will always be more left over. You can’t do everything at once. Even if you tried, your attention would be spread so thinly that you wouldn’t be able to execute to a high enough standard.

The Big 3 is a structure to help you prioritise your day, week, month quarter or year. I have a Big 3 for each of these periods. By doing this, I know that I am adding value because I’m working on the right things.

Prioritise the few things that will have the biggest impact. It’s quality, not quantity. Don’t get me wrong, just one of the initiatives may take a year or more to complete. 

It’s not about the number of things you’re trying to do, it’s about doing things that will drive the numbers.

Once you understand the financial picture of the business, ask yourself, “What are the few things we could do that will make a massive impact?”

[RESOURCE] ‘Free to Focus’ by Michael Hyatt

QUESTION 3: What’s the ONE thing that, if we got it right, would have the highest impact?

The final question in a business turnaround. Let’s focus this down even further. In the book, ‘The One Thing’, author Gary W Keller takes prioritisation to another level. So let’s say you’ve adopted the Big 3 for your business turnaround, now ask yourselves the question, “If we could only get ONE thing right? What would have the biggest impact and turn the business around?”

The reason this is so powerful is that it forces you to think and determine the real priority. Not all priorities are created equal. When “everything” is a priority, then nothing is a priority.

By understanding the one thing, you will then be able to focus your team’s diaries, meetings and efforts on the initiative that will have the biggest impact on your business turnaround. The one thing cuts through all the noise and BS and gets you to the core of what ‘value’ is for your business.

Once you have the one thing defined, it’s your job to then communicate that to your team. They need to know it’s the most important thing. They need to make sure that their diaries, meetings and projects all revolve around the execution of the one thing. If you were to randomly drop in a meeting, would they be talking about the one thing? If not, then they are not prioritising it, they are not giving it the attention it deserves and there is a risk it will not be executed.

I’m a big advocate of rolling out strategies and plans in person. I don’t like doing this by email – something gets lost, it’s impersonal and you don’t have the opportunity to do Q&A over email like you would in a room full of people. By rolling out the one thing in person, you are showing your team that this is important. If you’ve scheduled a meeting to go over it in detail and take a Q&A then it must be important. Take the opportunity to hammer home the importance of the one thing, do checks of understanding to make sure that people ‘get it’ and that they understand the importance of working on it.

[RESOURCE] ‘The One Thing’ by Gary W Keller

Final Thoughts

The above is a very simple approach I have used for years in a business turnaround situation. It may look simple, but you’d be surprised how powerful the answers to these questions are. Remember, if you ask the right questions, you get the right answers. I have come about these questions through trial and error so that you don’t have to. They have served me well over the years and I hope they serve you well too.