Prepare for the Worst with a Business Turnaround Strategy

Many businesses have a life cycle that, as life cycles tend to do, concludes with a period of decline and failure. Often, the demise of a company is driven by internal factors — such as weak financial oversight, lack of management consensus or one-person rule.

External factors typically contribute, as well. These may include disruptive competitors; local, national or global economic changes; or a more restrictive regulatory environment.

But just because bad things happen doesn’t mean they have to happen to your company. To prepare for the worst, identify a business turnaround strategy that you can implement if a severe decline suddenly becomes imminent.

Warning signs

When a company is drifting toward serious trouble, there are usually warning signs. Examples include:

  • Serious deterioration in the accuracy or usage of financial measurements,
  • Poor results of key performance indicators — including working capital to assets, sales and retained earnings to assets, and book value to debt
  • Adverse trends, such as lower margins, market share or working capital,
  • Rapid increase in debt and employee turnover, and
  • Drastic reduction in assessed business value.

Not every predicament that arises will threaten the very existence of your business. But when missteps and misfortune build up, the only thing that may save the company is a well-planned turnaround strategy.

Five stages of a turnaround

No two turnarounds are exactly alike, but they generally occur in five basic stages:

  1. Rapid assessment of the decline by external advisors,
  2. Re-evaluation of management and staffing,
  3. Emergency intervention to stabilize the business,
  4. Operational restoration to pursue or achieve profitability, and
  5. Full recovery and growth.

Each of these stages calls for a detailed action plan. Identify the advisors or even a dedicated turnaround consultant who can help you assess the damage and execute immediate moves. Prepare for the possibility that you’ll need to replace some managers and even lay off staff to reduce employment costs.

In the emergency intervention stage, a business does whatever is necessary to survive — including consolidating debt, closing locations and selling off assets. Next, restoring operations and pursuing profitability usually means scaling back to only those business segments that have achieved, or can achieve, decent gross margins.

Last, you’ll need to establish a baseline of profitability that equates to full recovery. From there, you can choose reasonable growth strategies that will move the company forward without leading it over another cliff.

In case of emergency

If your business is doing fine, there’s no need to create a minutely detailed turnaround plan. But, as part of your strategic planning efforts, it’s still a good idea to outline a general turnaround strategy to keep on hand in case of emergency. Our firm can help you devise either strategy. We can also assist you in generating financial statements and monitoring key performance indicators that help enable you to avoid crises altogether.

An Implementation Plan Is Key to Making Strategic Goals a Reality

In the broadest sense, strategic planning comprises two primary tasks: establishing goals and achieving them. Many business owners would probably say the first part, coming up with objectives, is relatively easy. It’s that second part — accomplishing those goals — that can really challenge a company. The key to turning your strategic objectives into a reality is a solid implementation plan.

After clearly identifying short- and long-range goals under a viable strategic planning process, you need to establish a formal plan for carrying it out. The most important aspect of this plan is getting the right people involved.

Start with people

After clearly identifying short- and long-range goals under a viable strategic planning process, you need to establish a formal plan for carrying it out. The most important aspect of this plan is getting the right people involved.

First, appoint an implementation leader and give him or her the authority, responsibility and accountability to communicate and champion your stated objectives. (If yours is a smaller business, you could oversee implementation yourself.)

Next, establish teams of carefully selected employees with specific duties and timelines under which to complete goal-related projects. Choose employees with the experience, will and energy to implement the plan. These teams should deliver regular progress reports to you and the implementation leader.

Watch out for roadblocks

On the surface, these steps may seem logical and foolproof. But let’s delve into what could go wrong with such a clearly defined process.

One typical problem arises when an implementation team is composed of employees wholly or largely from one department. Often, they’ll (inadvertently or intentionally) execute an objective in such a way that mostly benefits their department but ultimately hinders the company from meeting the intended goal.

To avoid this, create teams with a diversity of employees from across various departments. For example, an objective related to expanding your company’s customer base will naturally need to include members of the sales and marketing departments. But also invite administrative, production and IT staff to ensure the team’s actions are operationally practical and sustainable.

Another common roadblock is running into money problems. Ensure your implementation plan is feasible based on your company’s budget, revenue projections, and local and national economic forecasts. Ask teams to include expense reports and financial projections in their regular reports. If you determine that you can’t (or shouldn’t) implement the plan as written, don’t hesitate to revise or eliminate some goals.

Succeed at the important part

Strategic planning may seem to be “all about the ideas,” but implementing the specific goals related to your strategic plan is really the most important part of the process. Of course, it’s also the most difficult and most affected by outside forces. We can help you assess the financial feasibility of your objectives and design an implementation plan with the highest odds of success.

Refine Your Strategic Plan with SWOT

With the year underway, your business probably has a strategic plan in place for the months ahead. Or maybe you’ve created a general outline but haven’t quite put the finishing touches on it yet. In either case, there’s a time-tested approach to refining your strategic plan that you should consider: a SWOT analysis. Let’s take a closer look at what each of the letters in that abbreviation stands for:

Strengths. A SWOT analysis starts by identifying your company’s core competencies and competitive advantages. These are how you can boost revenues and build value. Examples may include an easily identifiable brand, a loyal customer base or exceptional customer service.

Unearth the source of each strength. A loyal customer base, for instance, may be tied to a star employee or executive — say a CEO with a high regional profile and multitude of community contacts. In such a case, it’s important to consider what you’d do if that person suddenly left the business.

Weaknesses. Next the analysis looks at the opposite of strengths: potential risks to profitability and long-term viability. These might include high employee turnover, weak internal controls, unreliable quality, or a location that’s no longer advantageous.

You can evaluate weaknesses relative to your competitors as well. Let’s say metrics indicate customer recognition of your brand is increasing, but you’re still up against a name-brand competitor. Is that a battle you can win? Every business has its Achilles’ heel — some have several. Identify yours so you can correct them.

Opportunities. From here, a SWOT analysis looks externally at what’s happening in your industry, local economy or regulatory environment. Opportunities are favorable external conditions that could allow you to build your bottom line if your company acts on them before competitors do.

For example, imagine a transportation service that notices a growing demand for food deliveries in its operational area. The company could allocate vehicles and hire drivers to deliver food, thereby gaining an entirely new revenue stream.

Threats. The last step in the analysis is spotting unfavorable conditions that might prevent your business from achieving its goals. Threats might come from a decline in the economy, adverse technological changes, increased competition or tougher regulation.

Going back to our previous example, that transportation service would have to consider whether its technological infrastructure could support the rigorous demands of the app-based food-delivery industry. It would also need to assess the risk of regulatory challenges of engaging independent contractors to serve as drivers.

SWOT matrix
A SWOT matrix

Typically presented as a matrix, a SWOT analysis provides a logical framework for better understanding how your business runs and for improving (or formulating) a strategic plan for the year ahead. Our firm can help you gather and assess the financial data associated with the analysis.

Make Sure the Price is Right with Market Research

One way to help ensure that the new year is a profitable one is to re-evaluate your company’s pricing strategy. You need to devise an approach that considers more than just what it cost you to produce a product or deliver a service; it also must factor in what customers want and value — and how much money they’re willing to spend. Then you need to evaluate how competitors price and position their offerings.

Doing your homework

Optimal pricing decisions don’t occur in a vacuum; they require market research. Examples of economical ways smaller businesses can research their customers and competitors include:

  • Conducting informal focus groups with top customers,
  • Sending online surveys to prospective, existing and defecting customers,
  • Monitoring social media reviews, and
  • Sending free trials in exchange for customer feedback.

It’s also smart to investigate your competitors’ pricing strategies using ethical means. For example, the owner of a restaurant might eat a meal at each of her local competitors to evaluate the menu, decor and service. Or a manufacturer might visit competitors’ websites and purchase comparable products to evaluate quality, timeliness and customer service.

Charging a premium

Remember, low-cost pricing isn’t the only way to compete — in fact, it can be disastrous for small players in an industry dominated by large conglomerates. Your business can charge higher prices than competitors do if customers think your products and services offer enhanced value.

Suppose you survey customers and discover that they associate your brand with high quality and superior features. If your target market is more image conscious than budget conscious, you can set a premium price to differentiate your offerings. You’ll probably sell fewer units than your low-cost competitors but earn a higher margin on each unit sold. Premium prices also work for novel or exclusive products that are currently available from few competitors — or, if customers are drawn to the reputation, unique skills or charisma that specific owners or employees possess.

Going in low

Sometimes setting a low price, at least temporarily, does make sense. It can drive competitors out of the market and build your market share — or help you survive adverse market conditions. Being a low-cost leader enables your business to capture market share and possibly lower costs through economies of scale. But you’ll earn a lower margin on each unit sold.

Another approach is to discount some loss leader products to draw in buyers and establish brand loyalty in the hope that customers will subsequently buy complementary products and services at higher margins. You also may decide to offer discounts when seasonal demand is low or when you want to get rid of less popular models to lower inventory carrying costs.

Evolving over time

Do your prices really reflect customer demand and market conditions? Pricing shouldn’t be static — it should evolve with your business and its industry. Whether you’re pricing a new product or service for the first time or reviewing your existing pricing strategy, we can help you analyze the pertinent factors and make an optimal decision.

Does Prepaying Property Taxes Make Sense Anymore?

Prepaying property taxes related to the current year but due the following year has long been one of the most popular and effective year-end tax-planning strategies. But does it still make sense in 2018?

The answer, for some people, is yes — accelerating this expense will increase their itemized deductions, reducing their tax bills. But for many, particularly those in high-tax states, changes made by the Tax Cuts and Jobs Act (TCJA) eliminate the benefits.

What’s changed?

The TCJA made two changes that affect the viability of this strategy. First, it nearly doubled the standard deduction to $24,000 for married couples filing jointly, $18,000 for heads of household, and $12,000 for singles and married couples filing separately, so fewer taxpayers will itemize. Second, it placed a $10,000 cap on state and local tax (SALT) deductions, including property taxes plus income or sales taxes.

For property tax prepayment to make sense, two things must happen:

  1. You must itemize (that is, your itemized deductions must exceed the standard deduction), and
  2. Your other SALT expenses for the year must be less than $10,000.

If you don’t itemize, or you’ve already used up your $10,000 limit (on income or sales taxes or on previous property tax installments), accelerating your next property tax installment will provide no benefit.

Example

Joe and Mary, a married couple filing jointly, have incurred $5,000 in state income taxes, $5,000 in property taxes, $18,000 in qualified mortgage interest, and $4,000 in charitable donations, for itemized deductions totaling $32,000. Their next installment of 2018 property taxes, $5,000, is due in the spring of 2019. They’ve already reached the $10,000 SALT limit, so prepaying property taxes won’t reduce their tax bill.

Now suppose they live in a state with no income tax. In that case, prepayment would potentially make sense because it would be within the SALT limit and would increase their 2018 itemized deductions.

Look before you leap

Before you prepay property taxes, review your situation carefully to be sure it will provide a tax benefit. And keep in mind that, just because prepayment will increase your 2018 itemized deductions, it doesn’t necessarily mean that’s the best strategy. For example, if you expect to be in a higher tax bracket in 2019, paying property taxes when due will likely produce a greater benefit over the two-year period.

For help determining whether prepaying property taxes makes sense for you this year, contact us. We can also suggest other year-end tips for reducing your taxes.

Does Your Supply Chain Have a Weak Link?

In an increasingly global economy, keeping a close eye on your supply chain is imperative. Even if your company operates only locally or nationally, your suppliers could be affected by wider economic conditions and developments. So, make sure you’re regularly assessing where weak links in your supply chain may lie.

Three common risks

Every business faces a variety of risks. Three of the most common are:

1. Legal risks. Are any of your suppliers involved in legal conflicts that could adversely affect their ability to earn revenue or continue serving you?

2. Political risks. Are any suppliers located in a politically unstable region — even nationally? Could the outcome of a municipal, state or federal election adversely affect your industry’s supply chain?

3. Transportation risks. How reliant are your suppliers on a particular type of transportation? For example, what’s their backup plan if winter weather shuts down air routes for a few days? Or could wildfires or mudslides block trucking routes?

Potential fallout

The potential fallout from an unstable supply chain can be devastating. Obviously, first and foremost, you may be unable to timely procure the supplies you need to operate profitably.

Beyond that, high-risk supply chains can also affect your ability to obtain financing. Lenders may view risks as too high to justify your current debt or a new loan request. You could face higher interest rates or more stringent penalties to compensate for it.

Strategies to consider

Just as businesses face many supply chain risks, they can also avail themselves of a variety of coping strategies. For example, you might divide purchases equally among three suppliers — instead of just one — to diversify your supplier base. You might spread out suppliers geographically to mitigate the threat of a regional disaster.

Also consider strengthening protections against unforeseen events by adding to inventory buffers to hedge against short-term shortages. Take a hard look at your supplier contracts as well. You may be able to negotiate long-term deals to include upfront payment terms, exclusivity clauses and access to computerized just-in-time inventory systems to more accurately forecast demand and more closely integrate your operations with supply-chain partners.

Lasting success

You can have a very successful business, but if you can’t keep delivering your products and services to customers consistently, you’ll likely find success fleeting. A solid supply chain fortified against risk is a must. We can provide further information and other ideas.

Get SMART When Setting Strategic Goals

Strategic planning is key to ensuring every company’s long-term viability, and goal setting is an indispensable step toward fulfilling those plans. Unfortunately, businesses often don’t accomplish their overall strategic plans because they’re unable to fully reach the various goals necessary to get there.

If this scenario sounds all too familiar, trace your goals back to their origin. Those that are poorly conceived typically set up a company for failure. One solution is to follow the SMART approach.

Definitions to work by

The SMART system was first introduced to the business world in the early 1980s. Although the acronym’s letters have been associated with different meanings over the years, they’re commonly defined as:

Specific. Goals must be precise. So, if your strategic plan includes growing the business, your goals must then explicitly state how you’ll do so. For each goal, define the “5 Ws” — who, what, where, when and why.

Measurable. Setting goals is of little value if you can’t easily assess your progress toward them. Pair each goal with one or more metrics to measure progress and success. This may mean increasing revenue by a certain percentage, expanding your customer base by winning a certain number of new accounts, or something else.

Achievable. Unrealistically aggressive goals can crush motivation. No one wants to put time and effort into something that’s likely to fail. Ensure your goals can be accomplished, but don’t make them too easy. The best ones are usually somewhat of a stretch but still doable. Rely on your own business experience and the feedback of your trusted managers to find the right balance.

Relevant. Let’s say you identify a goal that you know you can achieve. Before locking it in, ask whether and how it will move your business forward. Again, goals should directly and clearly support your long-term strategic plan. Sometimes companies can be tempted by “low-hanging fruit” — goals that are easy to accomplish but lead nowhere.

Timely. Assign each goal a deadline. Doing so will motivate those involved by creating a sense of urgency. Also, once you’ve established a deadline, work backwards and set periodic milestones to help everyone pace themselves toward the goal.

Eye on the future

Strategic planning, and the goal setting that goes along with it, might seem like a waste of time. But even if your business is thriving now, it’s important to keep an eye on the future. And that means long-term strategic planning that includes SMART goals. Our firm would be happy to explain further and offer other ideas.

A Midyear Review Should Go Beyond Financials

Every year is a journey for a business. You begin with a set of objectives for the months ahead, probably encounter a few bumps along the way, and reach your destination with some success and a few lessons learned.

The middle of the year is the perfect time to stop for a breather. A midyear review can help you and your management team determine which objectives can still be met and which ones may need tweaking or perhaps even elimination.

Naturally, this will involve looking at your financials. Various metrics can tell you whether your cash flow is strong and debt load manageable, and if your profitability goals are within reach. But don’t stop there.

3 key areas

Here are three other key areas of your business to review at midyear:

  1. HR. Your people are your most valuable asset. So, how is your employee turnover rate trending compared with last year or previous years? High employee turnover could be a sign of underlying problems, such as poor training, lax management or low employee morale.
  2. Sales and marketing. Are you meeting your monthly goals for new sales, in terms of both sales volume and number of new customers? Are you generating an adequate return on investment (ROI) for your marketing dollars? If you can’t answer this last question, enhance your tracking of existing marketing efforts so you can gauge marketing ROI going forward.
  3. Production. If you manufacture products, what’s your unit reject rate so far this year? Or if yours is a service business, how satisfied are your customers with the level of service being provided? Again, you may need to tighten up your methods of tracking product quality or measuring customer satisfaction to meet this year’s strategic goals.

Necessary adjustments

Don’t wait until the end of the year to assess the progress of your 2018 strategic plan. Conduct a midyear review and get the information you need to make any adjustments necessary to help ensure success. Let us know how we can help.

Ask the Right Questions About Your IT Strategy

Most businesses approach technology as an evolving challenge. You don’t want to overspend on bells and whistles you’ll never fully use, but you also don’t want to get left behind as competitors use the latest tech tools to operate more nimbly.

To refine your IT strategy over time, you’ve got to regularly reassess your operations and ask the right questions. Here are a few to consider:

Are we bogged down by outdated tech? More advanced analytical software can eliminate many time-consuming, repeatable tasks. Systems based on paper files and handwritten notes are obviously ripe for an upgrade, but even traditional digital spreadsheets aren’t as powerful as they used to be.

Do we have information silos? Most companies today use multiple applications. But if these solutions can’t “talk” to each other, you may suffer from information silos. This is when different people and teams keep important data to themselves, slowing communication. Determine whether this is occurring and, if so, how to integrate your key systems.

Do we have a digital asset-sharing policy? Businesses tend to generate tremendous amounts of paperwork, but hard copies can get misfiled or lost. Sharing documents electronically can speed distribution and enable real-time collaboration. A digital asset-sharing policy could help define how to grant system access, share documents and track communications.

Do we have a training program? Mandatory training and ongoing refresher sessions ensure that all users are taking full advantage of available technology and following proper protocols. If you don’t feel like you can provide this in-house, you could shop for vendors that provide training and resources matching your needs.

Do we have a security policy? A security policy is the first line of defense against hackers, viruses and other threats. It also helps protect customers’ sensitive data. Every business needs to establish a policy for regularly changing passwords, removing inactive users and providing ongoing security training.

Do we evaluate user feedback? A successful IT strategy is built on user feedback. Talk to your employees who use your technology and find out what works, what doesn’t and why.

Answering questions such as these is a good first step toward crafting a total IT strategy. Doing so can also help you better control expenses by eliminating redundancies and lowering the risk of costly mistakes and data losses. Let us know how we can help.

How Competitive Is Your Business?

Every business owner launches his or her company wanting to be successful. But once you get out there, it usually becomes apparent that you’re not alone. To reach any level of success, you’ve got to be competitive with other similar businesses in your market.

When strategically planning, one important question to regularly ask is: Just how competitive are we anyway? Objectively making this determination entails scrutinizing key factors that affect profitability, including:

Industry environment. Determine whether there are any threats facing your industry that could affect your business’s ability to operate. This could be anything from extreme weather to a product or service that customers might use less should the economy sour or buying trends significantly change.

Tangible and intangible resources. Competitiveness can hinge on the resources to which a business has access and how it deploys them to earn a profit. What types of tangible — and intangible — resources does your business have at its disposal? Are you in danger of being cut off or limited from any of them?

For example, do you own state-of-the-art technology that allows you to produce superior products or offer premium services more quickly and cheaply than competitors? Assess how suddenly this technology could become outdated — or whether it already has.

Strength of leadership team. As the owner of the business, you may naturally and rightly assume that its management is in good shape. But be open to an objective examination of its strengths and weaknesses.

For instance, maybe you’ve had some contentious interactions with employees as of late. Ask your managers whether underlying tensions exist and, if so, how you might improve morale going forward. There’s probably no greater danger to competitiveness than a disgruntled workforce.

Relationships with suppliers, customers, and regulators. For most businesses to function competitively, they must rely on suppliers and nurture strong relationships with customers. In addition, if your company is subject to regulatory oversight, it has to cooperate with local, state and federal officials.

Discuss with your management team the steps the business is currently taking to measure and manage the state of its relationships with each of these groups. Have you been paying suppliers on time? Are you getting positive customer feedback (directly or online)? Are you in compliance with applicable laws and regulations — and are there any new ones to worry about?

Loss of competitiveness can often sneak up on companies. One minute you’re operating in the same stable market you’ve been in for years, and the next minute a disruptor comes along and upends everything. Contact us for more information and other profit-building ideas.