One of the key things I get asked as a business turnaround expert is, “How do I create a business turnaround plan?” or, “What’s the business turnaround process?” In all my years of working with businesses, I have come up with a simple 3 step process for any type of business turnaround.
BUSINESS TURNAROUND PLAN STEP 1: The Numbers
Understand the Financial Numbers. It’s the starting point for any business turnaround plan. Knowing your numbers is crucial to any business turnaround. You can’t begin to fix things unless you know your starting point.
To understand the business’ financials, you need to understand the 3 financial statements:
- Profit and Loss Statement (P&L)
- Cash Flow Statement
- Balance Sheet
The profit and loss tells you how profitable (or unprofitable) your business is. For more detail on the profit and loss, check this post out.
The cash flow tells you how well you move cash through the business i.e. how well do you collect money owed to you and how do you pay money out? The end result should be a surplus. For a more in-depth look at the cash flow, check this post out.
The balance sheet tells you your net worth as a company by totalling all your assets and money you’re owed then subtracting all the money you owe to others. To understand a balance sheet, check out this post.
DREAM POSITION: Paint a New Financial Picture
Once you understand the financials, it’s time to start painting a new financial picture. For each financial statement, you should have a clear picture of what numbers you want to see. It doesn’t matter how bad the situation is right now; we’re just allowing ourselves some hope.
On the profit and loss – what net profit do you want?
On the cash flow – what amount of surplus do you want?
On the balance sheet – what do you want the shareholder equity to be?
There’s many more questions to ask, but these will get you started. Dare to dream.
MAKE THE DREAM A REALITY: Set Financial Goals
Now you’ve dared to dream, it’s time to start making the dreams become a reality. Remember, a dream without goals are just dreams. Things don’t magically just happen; you have to make them happen.
I always advocate using the goal-setting formula found in the brilliant book, ‘The 4 Disciplines of Execution’ by Franklin Covey. In this book, the authors show a fantastic goal-setting formula which I have personally used in many a business turnaround plan.
Move [X] to [Y] by [WHEN]
BUSINESS TURNAROUND PLAN STEP 2: Define the Few Most Valuable Goals
The biggest temptation in a business turnaround plan is to try and do too many things. It seems counterintuitive but once you understand the principle of doing fewer more high-value tasks, your stress comes down and your team are able to execute to a higher level.
Think about it – when you have too many things on at once, you become stressed and you inevitably drop a ball. In a business turnaround, you don’t have the luxury of dropping a ball; the margin for error is 0!
The Business Triangle
I always show people this diagram of The Business Triangle. The 3 core components of any business are:
- Sales & Marketing
It doesn’t matter if you’re a local baker or a global world-changer, the 3 core elements remain the same. In a business turnaround plan, it’s vital to zoom into these 3 areas first. Because they are the core, they are the most important. In every business turnaround plan I have set, the majority of the goals revolve around these 3 areas. As long as these 3 areas are strong, then the rest usually falls into place. For more on the Business Triangle check this post out.
The Big 3
In his bestselling book, ‘Free to Focus’ author Michael Hyatt talks about a revolutionary way to prioritise and focus – the Big 3. Let’s say that whilst writing your business turnaround plan you have 20 initiatives. Now, what are the 3 most important ones? If you could only do 3, which ones will have the biggest impact?
By answering this question, you now are able to prioritise your turnaround plan. Not only that, but your team will be more focused and will most likely execute those 3 initiatives to a very high level. Notice, it doesn’t have to be ‘3’, but you get the idea. You have to chunk things down to the few highest value items. The other thing to remember is that your Big 3 might very well be ‘big’ and take a long time to execute. For example, if you wanted to increase your gross profit by reducing your cost of sale, then that might entail months of renegotiating with your current suppliers, finding new ones, testing new ingredients or raw materials.
BUSINESS TURNAROUND PLAN STEP 3: Execution
I have said it many times in this blog – most businesses are fine when it comes to business strategy or planning. They don’t have a strategy problem, they have an execution problem. Execution of a plan is the single-most valuable ability in modern-day business. You can have the best plan in the world, but if you can’t get the job done then it’s worthless.
According to the bestseller, ‘Extreme Ownership’ by Jocko Wilink and Leif Babin, execution is best when the plan is simple, you explain why you’re doing it that way and do few things well.
This is a very simple business turnaround plan. There are of course many more components to this, but the 3 steps above should get you started. If you didn’t know, we now provide a virtual business turnaround consultancy service. All you have to do is click the button below and we’ll be more than happy to have a chat with you. Good luck!