How To Fix Your Small Business
By Van Lanier
The country's 25 million small business owners are entitled
to the same turnaround help as the Fortune 500. Unfortunately,
they don't receive it because turnaround consultants are expensive
and their methods are not readily known by small business
owners. A turnaround roadmap can remove some of the mystery
about turnarounds and provide a guide for small business owners
to fix their companies by themselves.
Like GPS, a turnaround roadmap uses waypoints to help the
user navigate from here to there. The seven major waypoints
on a turnaround roadmap are listed below. If you can follow
a map, you can turn your business around.
1. STABILIZE - The first action in any crisis is to stabilize
the environment so you can make good decisions. The key to
stabilizing a small business is to maintain a positive cash
balance at all times. Never spend more in a week than you
had at the end of the previous week. This simple cash control
budget works like a tourniquet; it keeps you alive while you
determine what went wrong and what to do about it.
Control the cash by personally signing every check that leaves
the building. Also, sign every purchase order so you don't
buy anything you don't absolutely need. Prepare a cash flow
budget for 13 weeks. It usually takes this long to diagnose
the problems and reorganize your business. You must create
enough cash to move through this phase.
Persons inside and outside your business will look to you
for leadership. Step up and lead by example, manage by walking
around and talking with people, know your numbers and business
processes, and be solution oriented.
2. DIAGNOSE -- There could be a number of reasons why your
business is in trouble, but generally one of the following
is the culprit: 1) sales are down, either taken by new competitors
or lost to a decline in market demand caused by an economic
downturn, 2) gross margins declined while fixed costs remained
the same, or 3) the business has become top-heavy from an
acquisition, or from adding new plant and equipment.
You can quickly isolate the causes through financial analysis.
Look at your company's performance ratios for the past three
to five years. Next, compare your ratios to those of other
companies similar to yours. You can purchase this information
from the Risk Management Association (formerly Robert Morris
Associates). Study the numbers and variances. You'll see where
others are doing well and you are not. Close the gaps.
Once you've analyzed your company, review your industry and
what's going on with your competitors. The results of this
company and industry analysis will help you determine what
caused your cash crisis and what you must do to fix it. Remember,
the lack of cash is an effect, not a cause. As you move on
the next waypoint, you begin eliminating the causes.
3. REORGANIZE -- Every sustainable business has a core division,
product or service that produces positive cash flow. Rank
your units in descending order by the amount of positive cash
flow each produces. Draw a line where the cash flow turns
negative. The products or services above the line become your
new turnaround company. Everything below the line is discarded.
That means facilities, inventory, and people. The rule is:
if it produces positive cash flow it stays; if not, it goes.
4. PLAN - Write a simple turnaround plan to get through the
next year and convince your creditors to stick with you. State
your objectives in measurable terms. Describe your core business,
sales plan, staff reductions and cost saving actions. Include
a cash budget and a set of monthly financial projections.
Prove that you can stay in business while you turn things
around.
Be brutally honest in your assessment of how you got into
this situation and how you intend to get out of it. This will
help restore your credibility. You will need this to obtain
concessions from your creditors.
5. NEGOTIATE -- Sort your creditors into two groups: Group
A creditors (those you need to do business with in the future,
like banks and critical suppliers), and Group B creditors
(those you can replace and don't need to survive).
Meet with Group A creditors and sell them on your turnaround
plan. Be factual and positive. Show them how they will be
repaid from your successful turnaround. Most will go along
with you. Don't waste time with Group B creditors. Hire a
debt negotiator to obtain a settlement for you and move on.
6. EXECUTE -- Once most business owners get past the crisis
and calm their creditors down, they fail to execute.....and
the wheels come off the wagon. Don't let this happen to you.
Set up a weekly agenda and stick with it religiously. Do all
the tasks called for in your turnaround plan and remain accountable.
Success is won or lost through execution.
7. GROW (or Sell) - If you like what you do and can you see
yourself happily doing it for another three to five years,
you should keep your company and grow it. You now have a profitable
company and staying on course should be easier this time around.
You certainly know what to avoid.
If you are tired, you probably should sell this company and
do something else. The good news is your company is now worth
something, whereas before you turned it around, it was worth
little or nothing. Manage it well while you have it on the
market.
Any business owner who chooses can learn how to fix his business,
keep his job, and protect his home. Use a turnaround roadmap
to guide you.
By: Van Lanier
Van Lanier is a turnaround consultant and creator of the
Turnaround Roadmap System. In addition to his consulting practice,
Van writes and speaks on small business turnaround issues
for the World Bank and other organizations. Learn more at
http://www.HowToFixYourBusiness.com
Article Source: EzineArticles.com
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