By Scot Lund, CEO and president of Genesis Turnaround.
Companies fail for many reasons. The most common problem (not the reason) is that you run out of money. You probably borrow money as a normal part of your business, and when times get tough, you draw on the funds available from your lending institution. When you expend those funds, you stick your head in the sand hoping business will get better. Unfortunately, when you do get additional business, you will likely not have the funds to complete the work.
On September 11, 2001, America suffered a great attack. At the time I owned a very large Mechanical Contracting firm with more than 200 employees. Within weeks of the attack we had more than US$9 million in construction projects stopped due to fear in the economy. In the following months we worked hard to replace the lost work, and yet we did not reduce our overhead staff accordingly. As a result, within five months I closed the doors with profits on the books and a large backlog of work. We simply ran out of cash.
What did I learn? Procrastination and ignorance is never the answer. If you procrastinate it can cost you your company. If you have a healthy company, than these practices will only make you stronger and help keep you out of trouble. As a Turnaround Specialist, I quite often hear business owners tell me it is the economy’s fault. Nothing could be further from the truth. You are responsible for the situation you are in. As the economy changed you could have read the tea leaves, made some moves and still been in a relatively solid position. Instead you ignored the signs. Here are some tips on how to get your business back on top:
- You might start by creating a 13-week cash flow report that encompasses all revenues and expenses of the company. This is your bible. Use it and update it every day. Teach your management staff how to view and use this tool as well.
- Get everyone involved. When troubled comes most entrepreneurs do not seek the help of their team or professional help, but instead try to solve the problem themselves. They usually make the wrong moves or no moves at all.
- Create a short-term strategic plan with daily, weekly and monthly milestones to be measured and reported.
- Right-size your company. Do you know what your revenue per employee is? Do you know what it should be? If the staff or assets are not used to help you accomplish the goals outlined in the strategic plan above, then you should lay them off or sell the asset. Keep only those assets that help you achieve your short-term strategic plan.
- Get additional financing if needed. Professional help will get you a great chance of finding additional funds.
My experience has taught me that time is not our friend. By waiting for things to turn around, I lost my company. We all have the ability to act if we choose to do so. My life’s lessons have made me a very effective Turnaround Consult. They have taught me to be highly judgmental, get the numbers and take action quickly. When I engage with a new client, we quickly gather the required information, make a short-term plan and begin to make changes within a few days if not sooner.
If your company is in trouble or you simply are having a hard time managing cash flow, then you have a problem. I encourage you to act now. If you can’t do it yourself, then get some professional help. Don’t procrastinate, act!