How To Turn Around A Failing Business – 5 Steps
At the time of writing, COVID-19 has slowed the world down. Major businesses are failing and the SME’s are no better off. If you’re in the middle of a business turnaround situation then it’s important to know the steps to business recovery. In this post, I’m going to show you how to turn around a failing business based on my many years of experience.
Step 1 – Know Your Numbers
You need to know your starting point – and this means understanding the financial numbers. It is important to get a full financial picture and this will come from understanding the 3 financial statements:
Each statement tells a story. It’s your job to understand what each statement is telling you, and what story all three combined are telling.
The P&L shows you how profitable you are. The cash flow shows you how well you are able to move money through the business (how quickly you can collect money and pay invoices). The balance sheet shows your net worth (how much money you’re owed in the short/medium/long term, how much cash you have vs how much money you owe in the short/medium/long term).
In some instances, a business may look profitable on paper however, they may have trouble collecting money – this is a cash flow problem.
Some businesses collect money really well however they are not making enough sales and therefore may not be profitable enough (or at all) – this is a P&L problem.
And some businesses may have crippling debts which are hindering growth – this is a balance sheet problem.
Understand your business’ financials. Get your starting point.
Step 2 – Increase Turnover
In a failing business you have 3 options:
- Increase turnover
- Decrease expenses
- Do both
To increase turnover means you need more sales. This will require you to do an audit of all the Sales departments and understand what’s going on.
Ask key questions in your Sales audit such as:
- Are the Sales team calling the right people?
- Are the Sales team calling enough of the right people?
- Which customers generate the majority of our sales?
- Which customers are causing us the biggest headache (or even losing us money)?
- Does my Sales team know their numbers? (their monthly target, enquiry to conversion rate etc)
Quite often you’ll find some quick wins in these areas which can help you to increase sales fast.
Step 3 – Decrease Expenses
The biggest cost in most businesses is the wage bill. In a previous post, I talk in detail about how to fire people without feeling guilty. In that post, I talk about doing what is necessary. Your job is not to make friends. Your job is to keep the business alive and keep as many people in a job as possible.
If people aren’t pulling their weight, then get rid of them. Why would you carry dead weight? It just doesn’t make any sense.
By simply removing the bottom 5-10% of bottom performers you not only ease the pressure on the P&L but you send a clear message that you mean business. Those who continue to underperform simply don’t belong. The rest should step up their game. Isn’t that music to the ears of a failing business?…
Step 4 – Build A Strong Management Team
Now you’ve cleared the chaff. You should be left with your best people. A failing business needs a strong management team – hell, any business needs that! But in a turnaround, it becomes even more vital to your chances of fixing the failing business.
Ensure you have the key roles covered. In a previous post, I talk about the Business Triangle. These are the key areas of any business. You must have strong people overseeing all these 3 areas. Have clear job descriptions, responsibilities and make sure they know what they are accountable for.
Step 5 – Have A Clear Focus
‘The 4 Disciplines of Execution’ by Frankin Covey talks about setting wildly important goals. You can have 100 things to do, but which 3-5 things are the most important? Which things would have the biggest impact on your failing business? Now, if you could just get one thing right, what would have the biggest impact?
Having a clear focus build confidence in a turnaround. Narrow and intense focus on a few objectives is a tried and tested thing that has helped me turn around failing business after failing business.
Simplifying and narrowing the focus also ensures your team aren’t scattered. When teams are stretched, they rarely get movement and often do not execute to the required standard.
There you have it – how to turn around a failing business in 5 simple steps. Make no mistake, although the above 5 steps might look simple, there is a hell of a lot of work contained within each step. As long as you focus on quality execution of each step, you will see a difference.
