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Ten Commandments of a Turnaround
I. DON'T RUN OUT OF CASH!
It is likely that
you will be COD with some suppliers and that your bank will be nervous
enough without daily overdrafts. Get your Accounts Receivable collected
NOW. You're probably tight for cash so consider offering a discount to
some customers to get the cash in. If your Accounts Receivable aren't
pledged and you really need the cash, sell your invoices to a factor.
While it is not an Inexpensive way to finance, it is immediate and
somewhat hassle free.
II. PAY YOUR FEDERAL AND STATE TAX DEPOSITS FULLY AND ON TIME!
Don't kid yourself Into believing that II you can make It up next week
or next month. Every time you dip into Uncle Sam's line of credit, it
costs you at least ten percent of what you fall to pay and deposit. You
also need to give creditors a sense of security about your plan actually
working. Federal Tax liens and bank account levies don't tend to promote
confidence.
III. WHOEVER IS LEADING THE TURNAROUND APPROVES EVERY CHECK, EVERY
PURCHASE ORDER AND EVERY SETTLEMENT AGREEMENT
No matter how big or
small. You must know at all times how much cash you have in the bank and
what cash flow has been obligated in order to live up to your word with
stakeholders.
IV. NO OWNER OR OFFICER GETS PAID BEFORE THE RANK AND FILE EMPLOYEES,
THE TAXES, NECESSARY INSURANCE'S OR KEY SUPPLIERS.
It does very
little good to have a paycheck this week only to be put out of business
next week by an angry creditor or a significant uninsured loss.
V. FIRE ANY CUSTOMER THAT YOU ARE NOW DOING BUSINESS WITH WHOSE
ACCOUNT HAS NOT PRODUCED A PROFIT IN THE LAST THREE MONTHS.
Check
with your attorney when a contract Is Involved, but It is often cheaper
to pay a financial penalty for early termination then to continue to
service the account on the hope of some future profit.
VI. CLEARLY IDENTIFY AND CHARACTERIZE ALL ASSETS AND LIABILITIES AND
PERFORM A PHYSICAL INVENTORY.
At the end, you will know exactly what
you are dealing with, what assets you may be able to dispose of, what
creditors you may be able to settle with, what litigation really needs
to be handed over to an attorney. In most companies, there are assets
that are not producing income or protecting the investment. Find them,
value them and sell them for cash or barter. Even if all assets are
secured by a lender, it is better to pay down some debt and beat the
interest clock than have assets sitting around collecting dust.
VII. LAY OFF ANY EMPLOYEE WHOSE FUNCTION DOES NOT DIRECTLY RELATE TO
GETTING THE COMPANY TURNED AROUND OR PRODUCING YOUR PRODUCT OR SERVICE
AND REPLACE ANY MANAGER WHO CANT GET THE JOB DONE THE WAY IT HAS TO BE
DONE, NOW.
This has got to be one of the toughest things for most
business owners and long term managers to do, but the survival of the
business depends on having the right people working on the solution. It
does not do an employee any long term good to have a paycheck today if
it won't be there in a month. Key managers must be willing and able to
do the job now YOUR WAY in order to make it work.
VIII. KNOW YOUR INCOME AND EXPENSES DAILY, GET FINANCIALS DONE WITHIN
THREE DAYS OF THE END OF THE MONTH AND SUMMARIES COMPLETED WEEKLY AND
USE THEM TO RUN THE BUSINESS.
You must have accurate financial
reporting at all times so that you can run the business BY THE
NUMBERS. But if you don't read them and do what they tell you to do,
you may as welt quit now. Don't wait for your outside accountants to get
back to you. Don't accept excuses for not having the Information or for
not acting on what the numbers say. If your accounting people don't
produce or if you don't listen, get someone who will.
IX. HIRE WHATEVER OUTSIDE SPECIALISTS YOU NEED TO GET THE JOB DONE
MOST EFFECTIVELY.
For example, you cannot expect your attorney to be
fully versed on all areas of the law. If you have many issues to deal
with, the sole attorney may not be able to commit enough time to handle
all your needs. If it's a tax issue hire a tax attorney, if it's a
merger hire an attorney that practices this kind of law. Seek out the
advice and counsel of whomever you feel may have the expertise you need
to get the job done. If you don't believe that you can manage the
turnaround, GET SOMEONE FROM THE OUTSIDE THAT CAN. Just remember
that it is the job of management to make business decisions. Management
alone is responsible for the success or failure of a turnaround.
X. PLAN YOUR WORK AND WORK YOUR PLAN.
Know what the objectives
are before you start. If, after evaluating all the facts, you determine
that the company can be saved, great. But If the facts conclude that
success will be an orderly liquidation that saves the owner from
personal bankruptcy, so be it. The facts are the facts. Whatever the
objectives are, devise a plan to accomplish that and then work it. Write
it down in clear and certain terms, even if its only one page long.
Remember, DON'T SHOOT THE MESSENGER! The person bringing you bad
news may or may not be at fault. It's better to have someone who can
admit their mistakes and do something about it then someone who is
afraid to tell you the truth for fear of reprisal. Management must be
willing to honestly recognize the problems, to go the extra mile, to
make the HARD decisions, to work evenings and weekends and to accept
responsibility for making and working a plan.
Remember these twenty words.
Business basics first. Nothing happens without sales. Sell only at a
profit.
Stop discretionary spending. Know what business you're in.
Excerpted from a presentation made
by James W. Cornell
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