How to Turn Around a Failing Company

Apr 27, 2012

Stressed? Worried about this year’s numbers? Apprehensive over changing technologies?  Concerned with competitors determined to undercut your pricing? Business owners and executives that answer yes to any of these questions are… completely in the norm, and certainly not alone.

Rare is the business that succeeds without hitting any potholes, or without experiencing some serious rough patches. Competition, evolving technologies, marketplace shifts and even changing customer preferences can sometimes spell trouble. When a company experiences substantial declines, business owners and executives can take one of two actions: 1. Pack it in; or 2. Make changes. For businesses in trouble, and even those just keeping their heads above water, there’s no time to waste in starting on the road to recovery.

Determine the Problem
The first step is determining the problem or problems that created the business’ descent. An analysis of the financial statements is a good place to start. They can help pinpoint an issue beyond just “declining sales” or “increased expenses.” They can show if a specific product is not selling or if increasing labor costs have swallowed profit margins. But most times, digging deeper into the numbers with a professional’s assistance is critical.

Part two of the analysis involves looking at the marketplace. Are sales being lost to competitors?  Has the size of the market simply shrunk? Has technology eliminated the need for your product or services? Are government regulations affecting the business?

Although an extra expense is the last thing a business owner needs, it’s often helpful to bring onboard an outside consultant to provide an experienced perspective, deeper industry insight and research. A consultant can interview key employees—as well as customers and former customers—to determine what changes can and should be made.

Make Changes
The key to a successful turnaround may lie in operational changes or be based on strategic changes in direction. Usually, it requires both, but in varying degrees. Firms should always be looking for operational improvements, improved cash flow management, and efforts such as cutting unnecessary expenses, trimming inventory as much as possible, and cutting staff as necessary.

In the same way, companies these days should always be “pivoting,” that is changing direction, at least slightly. Turnaround situations are typically created when a business hasn’t pivoted in a long time. In these instances, major re-adjustments are often needed.

These re-adjustments or pivots begin with hands-on management. The business owner needs to be present and “minding the gold.” Gold can be defined as customers, cash flow, revenue, or whatever is most important to the business’ success.  

It’s possible that a new mission statement and/or new business plan should be created, and communicated to the entire staff. Pivoting may call for changes in:

  • Products or services offered
  • Geographic areas targeted
  • Staffing
  • How employees are compensated
  • Types of customers being pursued
  • Facilities
  • Merger or acquisition targets

Specialty Market Turns Around
I had the opportunity to help turn around an independently owned specialty market. The market had negative cash flow, and the owner was funding the business himself while unsuccessfully trying to figure out where the issues were.

We looked at the financials for the various departments within the market to analyze each one’s profitability. We reviewed the square footage for each department, labor costs, volume, and sales to determine not only profitability, but profitability per square foot. Store hours and staffing were analyzed, and the competition was researched for comparisons.

There was no one solution, but rather a series of changes that led to the specialty market’s turnaround and a 25 to 30 percent increase in the bottom line. Several overstaffed departments had personnel reassigned or laid off. Several employees in successful departments were given raises, and performance bonuses were created. It was determined that prices could be raised on certain products. Store hours were changed. Cash controls were put into place and point-of-sale systems were updated.

With an increase in profitability, the owner was able invest in new equipment, enhance the market’s aesthetics, and sold the business two years later at a premium price.

Whether it’s a minor decline or an all-out free-fall, it’s possible to turn around just about any business with the right effort and approach.  It takes the ability to admit mistakes and to embrace change. In an ever-changing world, that’s a necessary component on survival.

 Corey L. Massella, CPA, is a partner with the accounting and business consulting firm Citrin Cooperman, and is the CEO of the firm’s SEC Solutions Group. He brings more than 20 years experience in counseling entrepreneurs in financial and business strategies,  including structuring, negotiating and executing mergers and acquisitions, completing due diligence and preparing companies for public offerings. He is also a board member and sponsor for the Financial Executives Institute (FEI), Keiretsu Forum and the Long Island Capital Alliance.  He can be reached at 212/697-1000 or cmassella@citrincooperman.com

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