Ten Steps to Improve your Company
This too shall pass and we will have sunny days again. But, for 2009, you, me, and the rest of the world are in for a tough ride. Now is the time to prepare. During my first business turnaround, my mentor tried to reassure me with a Freudian slip of; “It’ll get painful before it gets worse”. I know what he meant to say but we both realized the impending accuracy of his statement.
Since then I have returned five businesses to profitability and advised many others in distress. Yes, I began this path with self-pity, denial, fear and anger. But, along the way, I learned many tricks and have seen the same patterns again and again. They say; “the burnt hand teaches best”, but you can’t afford to learn every lesson this way. Hopefully my experience will give you some ideas to help you through the coming year.
1. Hoard your Cash – For 2009 cash is the new black. Well run businesses will make it their absolute #1 business priority. When times are tough Cash is the only thing that matters - more than profits, vision, strategy, stakeholders, new products, etc, etc. Years ago I had my core revenues drop 75% in 3 years and the only thing I had left was cash – and a business - and a future.
Manage your Cash with two simple rules – Rule #1 – take back your checkbook and your PO book. Yep, there is no quicker way to understand your business than to control the flow of cash. Rule #2 – call every single customer who owes you money and get paid quicker. A friend of mine has distilled 35 years of experience fixing small businesses into one simple rule – Never spend more this week than you started with on Monday. No exceptions. It sounds overly simplistic but it can be.
2. Find your Core – Somewhere, underneath years of accumulation, you have a profitable little business glowing like an ember in the coals. Find that ember and tend to it. This is now your business and you need to keep it alive and feed it slowly. I’m sorry to tell you, but everything that is unprofitable now will probably remain that way 12 months from now. You can cut the losses now or see what happens until you do.
3. Take care of yourself – Mentally, Physically and Financially. I’ve seen business owners suffer nervous breakdowns and others lose their health in a turnaround. I’ve also seen business owners end up totally bust – having never protected their savings. There are proven techniques for preserving your mental, physical and financial well-being. I suggest learning and utilizing them now.
This is not the time to go it alone – You may have gotten into trouble without the help of experienced professionals, but it is unlikely you will get out of trouble that way. During my first turnaround I found humor and direction from an old Will Rogers quip… “If stupidity got us into this mess, why can’t it get us out?”.
4. SKU Rationalization – Pareto was brilliant because 80% of everything really does come from about 20% of something else. Very few of your skus are paying their way and need to be cut quickly. In most businesses, any (ANY) product that is not paying for itself within 6 months is a dog. In good times we have all sorts of strategic reasons for carrying extra items; positioning, defensibility, etc. Now is the time to find your profitable core and stay there.
5. Gross Margins – There is no number more important to your sustainability. Gross profit margins are what’s left to pay everything after the raw cost of your products or services. The bigger that percentage is, the more you have left to pay the bills and keep some profits. And the more you will enjoy life. As in any problem, you should always attack the big numbers first and this is your #1 big number.
6. Use the Phone – Call your customers. Find out what’s really going on, why they haven’t purchased from you lately, why they are paying slower, are they closing down, what might spur them to go deeper in your products now. You have begun to take back control of your business and your customers are the most important part. Please don’t outsource your customer relationships – very few people end up happy with the results.
7. Hold your Prices – dump your inventory. Absolutely contradictory advice. Let me try to clarify, if an item hasn’t sold in 6 months, dump it. Be known for hot new product that sells through quickly – and always offer your elite customers first dibs at the best deals.
8. Plan and time your promotions – Smart companies work hard and spend plenty of money to promote their products. Really smart companies orchestrate the type, timing and nature of their promotions to get vastly greater results for the same efforts. This is simply working smarter not harder and is critical when cash is tight.
9. Study – There are copious books, articles, and courses to help guide you through the process. I’ve recently been recommending a new online turnaround course to friends of mine. Also, there are five stages of a turnaround and they provide encouraging guideposts along the way.
10. Poise – “Adversity doesn’t build character, it reveals character”. Trust me on this. No matter how hard it is, maintain your poise. I recently watched a CEO lash out at employees days before significant layoffs. In 20 minutes he burned the respect of those who would be leaving and the commitment of those who stayed.
Hang in there. It may indeed get painful before it gets worse. Find your ember of hope and profitability and protect it at the cost of anything else. Brighter days are ahead if you make the right moves now.
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Jeff Sands is a Director with Dorset Partners LLC, (www.DorsetPartners.com), an advisory firm specializing in corporate turnarounds, financial restructuring, revenue revitalization and profit improvements. The team at Dorset Partners has guided hundreds of business turnarounds in dozens of industries over the past 35 years. Much of this knowledge is outlined in the recently published Turnaround Roadmap™ which is available as a Free download on their website.
