Turnaround Management situations must be considered as emergencies. In medical terms, the patient is down and bleeding to death. Immediate and aggressive treatment is needed to save the patient. This means that the race that the company is running must immediately change from a Marathon to a 100 Meter Sprint. Only after the patient is stabilized is it time to deal with their other health problems, such as high cholesterol and high blood pressure. It takes an experienced outsider with an established and tested process to make this transition happen.
Every turnaround situation is unique. Therefore, a game plan must be skillfully crafted for each situation. However, there are some common processes that are used in most turnaround situations.
- Cash is king in private companies, so we must first develop a 90-day rolling cash flow forecast.
- Reduce accounts receivables by collecting cash you are owed.
- Find out where every penny of cash goes. Every expense for the past quarter will be entered in a spreadsheet and scrutinized. Every bill will be scrutinized before it is paid. Every purchase order will be approved before it is issued.
- All contracts involving payments from the company will be reviewed and eliminated or renegotiated where possible.
- All leases will be reviewed and eliminated or renegotiated.
- Every line on the P&L will be analyzed.
- Real Gross Margins will be determined on all major products and services. Unprofitable products or services will be discontinued or prices will be raised.
- Eliminate any managers who do not get on board.
- Try to have one and only one “big” reduction in force.
- Present plan and negotiate with lending institution(s), vendors, etc.
- Turn inventory into cash.
- Implement employee incentive and communication plans.
- Once the company is stabilized, put in processes for long term performance improvement and profitability.
Why Can’t Your Current Team Turn Around Your Company On Your Own?
- Current management teams often rationalize their situation by blaming outside factors such as the economy, competition, their lending institution, politics, their management teams and or employees, raw material prices and suppliers, etc.
- They lack the required skills and experience needed in a turnaround situation.
- They are too emotionally involved make the clear-headed decisions that are necessary.
- Decisions are often dictated by company politics.
- Your management team will not act quickly enough.
- There are too many sacred cows in most companies, preventing management teams from making the tough decisions needed.
- An Outside expert adds credibility to the plan when negotiating with vendors, lending institutions and other creditors.
You and your management team can distance yourselves somewhat from the more unpopular actions that often accompany crisis situations.