By Clive Birnie, Chief Executive, Severn Delta
The key to a successful turnaround is cash. Businesses get into trouble because they run out of cash. The order book can be bursting, forward growth may look good but that counts for nothing if the cash is not available to finance the growth.
Similarly if a business is shrinking the same can be true. Revenue drops below the danger line and the cash pressure starts. Step one is to recognise the problem and start to deal with it. If you have more orders than you can finance - turn some away. Prioritise. Fulfil the ones with the shortest payment terms first. Fulfil the high margin ones next. Don't sit in denial and wait and hope for something to come around the corner. Get a grip and tackle the problem.
Adopt a Receiver mindset. Think and act like the Receiver because if you don't there is going to come a day when the Receiver is doing it in your place. The Receiver is there to receive, not spend. If you are running out of cash STOP SPENDING. Stamp on every cost you can see.
I assure you there is money leaking out of your business everyday that you can stop. It is like a leaky pipe going drip drip drip. Ban all purchasing without your authorisation and then put off every spending decision until the critical last minute. Stop all discretionary spend. If you can put it off put it off. If you can cancel it, cancel it. Stop development projects. If it is not related to getting orders fulfilled and the invoice raised - stop doing it, for now at least, and come back to it when the crisis is over.
What is the point of spending money on something that won't pay back until next year if there is a risk you won't be here next year. How is your credit control? How many customers are overdue? Get on it. Get on it NOW. Start tackling known offenders before payment is due. Get on the phone. "I am just checking there is no problem and that this invoice will be paid on time." If it doesn't land the day it is due - follow it up. Apply pressure and apply it every day until they pay. Stop further orders being fulfilled until outstanding debts are paid. Threaten to withdraw credit. Negotiate shorter terms or offer incentives for early payment. Companies who proactively manage credit control rarely have cash problems. It helps build a mindset that pervades the business.
Next is the tough one. You are going to have to cut overheads. Better to save the jobs you can save than lose them all when the business fails. Swallow your pride, follow the rules and start early. This takes time to do properly and fairly. The bottom line is that if you are trading beyond your cash limit you have to shrink to survive so you have to cut costs. All costs. Believe me you can do everything for less - you just haven't worked out how yet. That last statement is engraved in the DNA of my business. It needs to be engraved in yours as well.