Business turnaround success doesn’t always follow a formula. However, in my experience, some commonalities run through each strategy I have put together.
The below list is by no means a hard and fast formula, but I’m sure if you implement them you’ll get a lot further quicker and with less pain. So without further ado, here are 6 steps to business turnaround success.
1. Understand the Finances of Your Business
The first step to achieving business turnaround success is to know the financial numbers. You can’t fix something until you know what’s wrong.
If you were sick, your doctor would look at test results, scans, x-rays etc to determine your physical health. You have to do the same with your company. Your company’s economic health can be determined by looking at three key statements:
Each one tells a very different story.
Profit & Loss
Profit & Loss (P&L) tells you how profitable (or not) your business is over a period of time. It’s the statement you look at after the game has been played. It tells you how well you and your team played. The result is what goes into the P&L.
There are different types of profit though. For example:
- Gross Profit
- Profit Before Tax
- Profit After Tax etc
By understanding each line on the P&L statement, you can quickly see where things are going wrong and where you can tighten up.
For example, you may see something that looks like this:
|Cost of Sales||£700,000|
By looking at the example above you can see that you are turning over a lot of money (£800K). However, look at the Cost Of Sales (COS) line. £700K is massive! As a result, you’re only making £100K.
Now, this is an extreme example, but you can quickly see that your COS line is way too high. By reducing your COS, you can increase your Gross Profit and have more to play with to help with other operating expenses.
Again, your gross profit might be really healthy but it might be eaten up by Operating Expenses that are way out of control.
Whatever the issue, by zooming into each line on the P&L you can get to work on improving margins across the board and move from a loss-making situation to a profit-making one.
Cash Flow Statement
This is quite simply, the flow of cash going in and out of the business. A key tip here is that a lot of businesses who are in a turnaround situation aren’t necessarily bad at generating income (i.e. raising an invoice), they are terrible at collecting the cash.
Invoices raised means jack unless that money hits your bank account.
On the cash flow statement, take a look at the net working capital cycle i.e. how long does it take for money to be generated and received into the business.
Most businesses operate off 30-day terms. However, in reality, we all know it’s usually around 45 days. Why? Because people pay late. Why do they pay late? Because of cash flow.
You may be able to fire the worst offending late-paying customers (especially if they don’t account for a lot of revenue).
You may be able to adjust your payment terms. Or you could even incentivise early payers with a discount on their next purchase.
Focus on your ability to collect cash.
The Balanced Sheet shows you the net worth of your business. Simply put it’s your assets minus your liabilities.
Interestingly it shows you how much you owe to other people and vice versa.
It’s always good to see what your current liabilities are (what you owe to other people). If that is significantly disproportionate to your business’ expectations or standards then there may be something fundamentally wrong.
How have you accumulated so much debt?
Who was supposed to be keeping an eye on it?
When is this figure reviewed? etc
By reviewing all 3 financial statements you get a clear picture of where the problems are and most importantly what to fix. Which nicely brings us onto our next step…
2. Draft the Business Turnaround Strategy (Short, Medium and Long Term)
Now you understand the numbers, you are ready to start identifying what needs fixing.
But hold on.
What you’ll quickly realise is, that there are too many things to fix. Some are quick fixes, some are longer-term and may require to be part of a project.
The best way to structure your business turnaround plan is to break it down into short-term, medium-term and long-term phases.
Depending on the finacial health of your business, your key deliverables will be broken down into clear sections.
Here are some examples of short and medium objectives:
- Reduce human capital costs from [X] to [Y] by [WHEN]
- Reduce operating expenses from [X] to [Y] by [WHEN]
- Increase turnover from [X] to [Y] by [WHEN]
- Decrease COS from [X] to [Y] by [WHEN]
Notice the formula I have used:
Move [X] to [Y] by [WHEN]
This is a great goal-setting formula taken from the book, “The 4 Disciplines of Execution: Achieving Your Wildly Important Goals” from the Franklin Covey Institute.
3. Create A Turnaround Plan
The third step to achieving business turnaround success is to create the plan. Once you have split the items into short, medium and long term then create a plan that reflects the above. This is a central plan that you and your team will work off going forward. It’s clear, concise and explains everything in detail as to what needs to be done.
Your plan needs to be clear. Define exactly what it is you are trying to achieve. As per Lean 6 Sigma and ‘Getting Things Done’ by David Allen, a great question to ask on each objective is “What does good look like?” By defining what a successful outcome looks like, you have clarified the goal. You can’t hit a target you can’t see. Vague goals won’t work.
“Increase sales” for example, is not a good goal.
“Increase sales from £10K per month to £20K per month” however is a really clear goal. ‘Good’ looks like £20K per month.
4. Communicate the ‘Why’ To Your Team
You may have the best plan in the world to turn your business around. However, if your team aren’t bought into it then it’s worthless. Remember, you can’t turn the business around by yourself. You need your team to help you execute it.
According to ‘Extreme Ownership’ by Jocko Willink and Leif Babin, the best way to create buy-in for a plan is to go through the ‘why’ behind the plan. Of course in a business turnaround, the obvious ‘why’ is that you don’t want to go out of business.
But what about the ‘why’ behind some of your (unpopular) decisions in the plan?
What is the ‘why’ behind reducing human capital costs?
What is the ‘why’ behind firing late-paying customers?
What is the ‘why’ behind implementing Finance Meetings?
If your team don’t understand ‘why’ then will not get behind the plan, they will not drive the plan and they will not execute the plan.
Hold a formal meeting to go through the turnaround plan and explain the ‘why’ behind each item. Welcome questions openly and encourage people to come to see you for further clarity if they feel they need it. Be open.
5. Set Strong Comms
It has been said that the number one reason for projects failing is communication breakdown.
Communication is vital to business turnaround success.
You may feel the need to communicate all the time and hold lots of meetings. Resist this temptation.Comms must be simple and fluid.
Here are some tips and tools I recommend for any business to use.
Formal Communication – Email
Email is by far the best way to formally document something. My advice is to keep email comms to a minimum. Only reserve email communication for things like:
- Formal instructions
- Formal requests
- Formal changes to the plan
- Formal updates on serious matters (e.g. contracts, HR notes on exiting people etc)
Day To Day Communication – Slack
Slack is a communication app that has exploded in the business world. I have used Slack in various companies to great effect. In effect, it’s like WhatsApp but for business. (PS – if you use WhatsApp for business use, it’s highly insecure. Better change quick!)
On Slack, you can set up ‘channels’ which are the equivalent of a WhatsApp group. It has great features like tagging people, setting automatic reminders and it syncs in with other apps like Evernote, ToDoist, your calendar etc.
Slack should be used for day-to-day communication:
“Have you got [x] document?”
“Can someone send me [x] file?”
“What time’s the scrum today?”
“Can everyone please send me their Finance Meeting prep by 1700 today”
Imagine getting all that on email! imagine the length of the email thread! Actually, I’d rather not.
Project Updates – Asana
I have used many project management software tools (Trello, Monday) but Asana is by far the best one I’ve ever used. Most importantly, the people I’ve worked with and coached over the years feel the same way.
There’s just something about Asana. It’s easy to use, it has amazing features and it just works!
As part of your turnaround plan, if you have bigger projects that will be delivered medium-long term then formally classify it as a project and put it on Asana.
The project team can show progress on each part of the project clearly.
6. Eliminate Meetings – Set Scrums
If you clog up your team’s diaries with constant meetings, when are they actually going to do the work? Scrums are a great alternative to meetings as they are fast-paced, well-organised, take less time and much more effective.
Here’s a brief overview of a scrum:
- Everyone stood up in a circle
- Timer set (anything up to 10 minutes)
- Appoint a Scrum Master
- Have a clear agenda
- Everyone has to prep updates beforehand
- When the timer goes off, everyone leaves. No more talking.
This set-up forces people to be well prepared and get to the point. It’s fast, it’s effective, it saves you time.
Eliminate meetings and set up scrums.
Hopefully from the above, you can see that business turnaround success is more than just ‘having a plan’. There are of course way more variables and things to do but if you get these 6 things right, you are well on your way to turning your business around.