A company turnaround doesn’t necessarily just need to happen if it’s in trouble. It could be that the business has been stagnant for many years or simply that the management team decide that they want to futureproof or prepare for growth.
The issues at hand decide the order that the following must be reviewed, or they can be done in tandem, but here are the basic steps to a successful company turnaround:
Most businesses are focussing their efforts into the wrong places, be it services, clients, products or whatever. Generally, to quote a fabulous client of mine, efforts are concentrated in the 80% of clients who give you 20% of the benefit. The key to a successful business model is to flip it so that you’re focussing on the clients that make up 80% of the benefit. There is no point to putting all your efforts into the sales that don’t give you the adequate reward.
Likewise, many businesses spread themselves too thinly by offering too many products and services because they think a splatter gun approach will give them more money. However, the opposite is often true. My honest belief is that we have grown as much as we have because we don’t try to be all things to all people. Yes, we can do year end and tax, but honestly, you’re better off going to a dedicated financial or tax accountant for that and we are more than happy to tell you that. We specialise in the strategic side of accounting that enables us to work closely with owners to build better businesses, and we’re good at it, and we continue to get better at it. Specialising can often draw more revenue than the splatter gun approach.
What’s the point in selling if you’re not making any money out of it? Gross profit is your sales, minus the costs that relate directly to those sales (products that you buy to sell, staff that service customers etc). The sales minus direct costs number needs to be higher than the overheads (see next point), otherwise you won’t have a business for long.
Review the costs that relate to each of the things you sell. Are they more than you’re selling for? Are there things you’re selling that are less profitable than others? If so, now is the time to either review your sales prices and/or costs, or just get rid of the less profitable bits altogether, giving you time and resource to concentrate on the things that give you the most benefit.
Overheads are the things you have to pay for just to open the business, whether you sell anything or not. This could be rent, software, certain members of staff, etc. Review each of your costs carefully. Are they money well spent? Are you getting the value from them? Are you using all the phone lines or software licences? Chances are there will be some costs that can be stripped out to put more cash in the bank.
Staff are often the biggest overhead or cost to a business (particularly service based, such as a creative agency). I know it’s not nice, but each member of staff should be reviewed carefully and dealt with if changes need to be made.
Are they right for the role they’re in, as well as the business as a whole, or are they a weak link that will stifle your growth?
Are they paid the correct amount, or does it need to be amended, or hours changed to make them more suitable for the business need?
A good place to start is to put together an ideal organisational chart. This ignores your current structure, but let’s you plan what you want the structure to look like. Then for each of the roles, put together a job description with roles and responsibilities. Once you’ve done that, take your current team and plot them into that organisational chart based on their strengths, weaknesses and personal goals. This allows you start thinking about their training needs, move people around if necessary, and get rid of the ones who maybe aren’t right for the future of the business.
Systems and Processes
If you’re inefficient in what you do, but your staff are working to capacity, you’re throwing time and money down the drain. Efficiency is key for business growth. Review your systems and processes. Do your systems talk to each other? Can you get the data you need to make decisions from your ways of working? Do they make yours and your staff’s lives easier? Are you still doing everything in books or on paper (you should not be doing this in 2021!)? There really is no excuse for not using automation anymore and it can be the key to profitable growth of the company.
Sorting all of the above will result in an increased cash balance over time. However, in the short term, there may be funding needs while you implement and carry out the turnaround. Just reviewing your costs and overheads and stripping out the dead wood may be enough, but if not, then you want to make sure you’ve got the funding in place before you start making changes that will need to be paid for.
Creating a cashflow forecast, showing all incoming and outgoings, and understanding the cash position is imperative, otherwise you could run out of cash before you’ve even got started building a better business.
To find out more about Cornerstone FD, call 01908 429294 or visit the website www.cornerstonefd.co.uk