Sometime, no matter how well you think you manage, your business will face a crisis. Lose a major contract, have a distributorship canceled, be bypassed by emerging technology, run into some plain bad management....
Your business goes into the tank. Crisis looms. Panic sets in. Fear dominates thought processes, causing tunnel vision and a sense of despair. People “hunker down."
In spite of all the bad signs, usually these situations can be fixed. If the business has an economic reason for existing, and has not waited too long before seeking help, it can be made to work again.
Here’s what was done in a recent crisis in a small business.
It was necessary to insure we had enough cash to operate the business. Projected cash receipts were examined and measured against cash needs; and and then a plan was made to fill the gap. In most of these situations there isn’t enough cash for everything. If not enough cash, tough decisions are required. In this case it was decided to pay only those bills that would keep the doors open, the lights on, the phones working, insurance in force, vehicles running, raw material flowing and wages paid. Nothing else was paid.
In addition to conserving cash at every turn, as much new cash as possible was raised by aggressively collecting old receivables and selling off unused assets.
Then creditors were advised they would not be paid for a while. Management asked their forbearance while a plan was developed to get out of trouble. As we communicated with creditors -- openly and honestly -- most of them were cooperative. Naturally, some were not, but the plan remained the same. Conserve cash to turn the business around -- then start paying the old bills.
Once the “keeping the doors open” crisis passed, rebuilding the company into a profitable one began. Four big problems emerged.
- Low gross margin. The company sold product for only slightly more than its cost -- creating not nearly enough margin to cover the overhead expenses. So, up went prices. That’s hard to do, especially in the face of existing contracts and stiff competition. Perseverance, hard work, good selling and the passage of several months, though, have led to improving margin. Remember, many customers would rather have you remain in business than go out, even if you charge higher (but reasonable) prices while providing good products and good service.
- Excessive costs. Costs were cut to the bone. Nothing was sacred. Salaries, perks, expenses of all types -- all fell under scrutiny. Every expenditure was justified, and then re-justified. Only those that stood up to the test of immediate need remained. Unfortunately, the work required several painful decisions about restructuring both the work force and executive group, and layoffs resulted.
- Disorganized management. A leaner organization emerged, with clearly defined areas of activity and responsibility. Decision making became crisper. Leaders emerged who are willing to make solid commitments to achieving needed results. Positive thinking and teamwork slowly returned as people saw the business could be saved.
- Lagging sales. In some products sales were far below needed levels. Focus, emphasis, new programs, and aggressiveness are turning the problem around.
With increased sales, increased margin, reduced cost and crisp management -- a future began to emerge. As a result, a new lending institution came on board. This was a life-saver. More money, at lower rates, became available. Raw material flow eased and sales increased even more.
This business will survive.
Charles R. Schaul, Partner of SixPillars Research Group, focuses on increasing business profits by resolving the problem of customer attrition. Aligning companies with their customers; generating and implementing strategic initiatives; and promoting employees’ customer focus through commitment, responsibility and accountability combine to achieve the result.
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