“Help! My business is failing.” These cries for help are going to become more and more familiar. The world is experiencing severe supply chain disruption and the worst downturn since the Great Depression.
Few industries will be spared while most will have to get lean, at least for the time being. Business turnaround opportunities will be possible, but one must be quick, let go of the emotional baggage and do what is right to save the organization so all its constituents and employees have a place to come back to.
During this time, we will see catastrophic failures and we will see organizations emerge from the ashes ready to seize the day. If the latter is true of your company, you will need to act fast to employ crisis management strategies as soon as you start noticing signs of a failing business.
We employ many of these strategies in our Business Crisis Consulting practice. We have found that the best way to save a failing business is to first identify the key areas of crisis, and then move quickly to manage turnaround and growth.
Breathing New Life Into Companies In Crisis
We quickly identify the highest priority issues, determine short-term stabilization solutions, create action plans and act immediately.
Are you wondering what you can do to not only stay afloat but thrive? Keep reading to learn more.
4 Tips for Saving a Failing Business
1. Acknowledge Early Signs of Distress
Before you can save a business, you’ll have to acknowledge the early signs of business distress. One sign is, of course, a repeated shortage in cash flow. You should also be on the lookout for extended payment days and defaulted payments. If there’s an increase in interest payments, this can be a serious problem for your cash flow.
Other signs include:
- Resignation of key finance staff
- Difficulty raising capital
- Inability to file financial statements
- Accounting restatements
- Declining stock or bond price
- Decreased closed sales
- Large contingent liabilities
- Unresolved near-term debt maturities
- Increase in accounts receivable aging
- Increase in outstanding accounts payable
- Shrinking EBITDA/margin
- Management & talent turnover
- Large unplanned layoffs
- Decreased repeat customer base
- Increased returns and product discounts
- Low customer rating
2. Assess the Situation
The financial restructuring and operational restructuring process should begin with an assessment of the current situation. One analysis you may need to complete is a SWOT analysis. SWOT stands for strengths, weaknesses, opportunities, and threats. When you analyze all these factors, you’ll be able to identify exactly what’s working and what’s not.
Analyses like this enable you to capitalize on your strengths and identify the weaknesses that are holding you back. You may be able to turn these weaknesses into strengths and increase your cash flow.
Opportunities are external factors that you may be able to take advantage of to complement your forecasting strategy. Threats are also external. You’ll need to keep a close eye on any outside factors that can put your company at risk.
Other analyses you might conduct include a value stream analysis, KPI measurements and benchmarking.
3. Create an Action Plan
A plan must be put in place to quickly triage and stabilize the company. This plan should follow the SMART criteria. You can do this by making each goal in your plan specific, measurable, achievable, relevant and time bound.
When your plan is dictated by these principles, it ensures you and your employees are on the same page. Alignment is crucial as you fight against financial distress.
With each step in your plan, you should also consider how much time you need to accomplish it. Delegating will be an important part of the process. The resources you have shouldn’t be spread too thin, but they shouldn’t be wasted either.
You must relentlessly implement the planned courses of action by funding the process and building a team to carry it out. Then, monitor your progress and make changes where necessary. During this time, operations management consulting likely will be necessary.
4. Cut Costs
Before you start thinking about liquidation scenarios, you can do a lot for the survival of your business by reducing costs wherever possible. This is one strategy we use as part of our financial restructuring services.
When cutting costs, it’s important to identify expenses that are superfluous or discretionary and cut them out. This is where you’ll need to take a magnifying glass to your financial statements.
Those statements are not the only aspect you should focus on. There are plenty of other business factors that need to be taken into account. For example, reliable metrics and governance are necessary for management to remain informed and make tough decisions early, like cutting the waste and reassigning resources to the most important activities.
As you cut costs, you can also look into renegotiating contracts, such as your office lease. You might have to make some uncomfortable sacrifices, but it’s necessary to adapt while you still have the option. Otherwise, looking for exit opportunities may be the only task on your agenda.
A Failing Business Means a Variety of Constituent Needs
Lenders want a return of their invested capital or at least be paid back. Creditors want their money in exchange for goods and services. Original investors hope to recover their capital. Owners want to avoid guarantees and recoup some of their equity. Employees want their jobs. Directors want to avoid risk and litigation.
These needs can often be at odds with each other and create bias and paralysis, but at the end of the day, the entity must survive.
If you’d like failing business consultants on your team who know how to stabilize and grow struggling companies, request a free consultation below.