Company take a wrong turn? How to navigate a turnaround
By Jenny C. McCune • Bankrate.com

Your company is headed in the wrong direction. The signs were there: slowing sales, disappearing customers, a cash-flow crunch. But you missed or ignored them.

Now what? How does your company execute a U-turn and get back on the road to profitability?

Start by admitting that your business is in trouble, says Duncan Bourne, a senior associate with Jay Alix & Associates, a turnaround firm based in Chicago.

"You have to agree that you have a problem and that you're will to make things happen to change that," Bourne says.

A cash-management road map
Bourne recommends looking at how you run your business from a whole new vantage point. Measure your acts by how much cash you will spend or will save upfront.

In other words, instead of thinking long-term, think short-term.

He suggests mapping out sales and disbursements. When do bills come due? Will you have the cash on hand to pay them? If not, what can you change to make cash available when a supplier bill comes due?

Your priorities will change when you manage for cash. For example, your company may receive a substantial discount for volume purchases of supplies. While this makes sense for the long-term, if you're in a cash crunch you may want to skip the discount in favor of freeing up more cash for the near term.

Fiscal triage
Charles J. Bodenstab, author of Information Breakthrough, likens it to triage. Prioritize what needs to be paid first or what sales you can move up.

"There an infinite number of things you can do, so you must figure out what is more important and do that first," Bodenstab says. "What you want to look for is things you can do with a modest effort and get a big return."

Look for ways that your company can quickly generate cash. Maybe some of your inventory has been sitting in a warehouse and sales are slow.

"Sell it to someone at a discount so you move it quickly," Bourne says. "Maybe you could make more money if you held onto it, but you don't have the luxury of time.

"Your immediate need is to get money in the door now."

Examine your expenses. Look at what you're spending on and what can be cut. Be sure to trim your business's fat, not the muscle. For example, many companies immediately reduce their marketing expenses. But marketing can increase sales, so although it's a big-line item, your company probably would be better off looking for other ways to reduce overhead.

A financial diet list
Start by making a list of every company expense. It's similar to dieters keeping a food diary.

Although big companies generally have an easier time finding painless ways to reduce expenditures, a small business owner should be able to find ways to curb expenses without hurting business.

"I once ran a group of magazines," says Mark Kramer of Kramer Communications, a marketing communications firm based in Downington, Pa. "We were spending $5,000 on subscriptions for 30 people. Some people were ordering magazines twice -- one for home and one for work -- so they wouldn't have to carry stuff home."

Kramer says he never would have discovered such excess if he hadn't looked carefully at every expense.

"Normally it would have been hidden under 'miscellaneous' and I never would have found it," says Kramer, author of Streetwise Small Business Turnaround.

Creative cost-cutting
Once you've located spending extravagances, get creative about cost cutting. Many companies get into a "death spiral" by cutting too much, too late.

Instead, look for ways your company can incrementally, and consistently, slice away at expenses. Reduce unnecessary travel. Stay in cheaper hotels. Hire part-timers. Forego the corporate membership at the local country club.

Paring your payroll is another way to reduce spending. Be sure to make an honest appraisal upfront about how many people must be laid off. One of the worst things a small business can do is to go through several rounds of layoffs. It's bad psychologically for those who leave as well as for your survivors.

"Your company will suffer death from a thousand paper cuts," Kramer says. "It's better to let people go from the start and then you can always hire them back if things improve."

Successful turnaround characteristics
Companies (and their owners) that are able to reroute impending business failure share many qualities, notes Fred Zimmerman, a professor of engineering and management at the University of St. Thomas in St. Paul, Minn.

He studied 16 companies in dire situations, tracking them for 20 years. Nine were successful in their turnarounds while seven failed. Zimmerman wrote about the study in his book The Turnaround Experience, detailing the common traits that separated the winners from the losers.

The companies that got back on track were experts at knowledge exploration. They would go out and learn about new markets, new ways of doing business and compare how they performed compared to other companies. "The unsuccessful relied on what they knew," says Zimmerman, "and it wasn't enough."

Similarly, although both winners and losers attempted to diversify, the winners took the time to really learn new markets rather than simply acquire a company in a new industry. "They made sure that they understood a new market before entering it," Zimmerman says.

The winners of the turnaround sweepstakes also made deliberate changes and practiced "fair play." They didn't lose their heads and rush into decisions, choosing to really reflect on what they were going to do, and what impact it would have on the company and employees, before plunging ahead.

Successful turnaround companies also had good rapport with customers. This helped in learning what customers wanted and in gaining their help in righting the business.

Personal and business components
And Zimmerman found that several of the successful companies initiated campaigns to reduce alcohol consumption.

"They drank less than the unsuccessful companies," Zimmerman says. While being a teetotaler doesn't guarantee success, the lesson here is that sometimes personal characteristics are important.

"It's not all strategic things, there is a lot of character and values that aid in turnarounds," says Zimmerman.

Kramer agrees that a nonbusiness component contributes to a successful company turnaround. "Stay physically and mentally fit," he says.

Go to the gym. Be sure to work a reasonable amount of hours. Require your employees to do the same. By taking care of yourself, you'll be mentally alert.

And when you're in shape, you're ready to tackle the necessary turnaround steps to get your company back on the road to success.

Jenny C. McCune is a contributing editor based in Montana.

Part 1: Warning signs and pre-emptive steps

-- Posted: Sept. 24, 2001