Unless deemed essential — think banks, food retailers, hospitals, and pharmacies —there’s a strong likelihood that COVID-19 turned many companies upside down. Employees went remote, workforces may have been trimmed, and some businesses were forced to temporarily (or permanently) shutter altogether.
There were obvious first steps for struggling businesses, including taking advantage of SBA loans such as the Payment Protection Program (PPP) and Economic Injury Disaster Loan Emergency Advance (EIDL), but stimulus packages aren’t bottomless and for many, bankruptcy appeared to be the only way out.
The effects have been devastating and seemingly irreversible, but as InterimExecs RED Team executive Yoav Cohen explains, “You almost always have a way out if you act quickly and decisively.”
We asked Cohen to break down turnaround strategies for businesses in crisis or distress and a step-by-step action plan to execute in our murky marketplace.
1. Create a roadmap
It’s all about a macro-micro view. Give your business a thorough and honest evaluation to develop a turnaround plan: What are the challenges and potential solutions? What is the workflow and workload within each department? How can you prioritize the steps to reach your solutions and what are the costs involved at each step? Do you qualify for any of the IRS employer tax credits? Focusing on this degree of detail creates a clear picture of what’s to be done.
“Many business owners think that simply maintaining a spreadsheet with a budget is enough to keep them out of trouble, but nothing is further from the truth,” Cohen says. “In these situations, you need to evaluate all areas of your business, look at what your competitors are doing, and evaluate your product or service offerings and the value you offer to your customers. Going beyond just a spreadsheet and into the details is extremely important.”
2. Cut costs — then cut some more
Cash is king, and the saying is never more true than when a company is facing financial distress. Weekly cash reports fly in “normal” times, but when you’re facing significant distress, creating a daily cash-flow report is a must, he says.
It’s also critical to approve expenses beforehand, and collect accounts receivable as soon as possible with an offer for a cash discount for faster payment (typically cheaper than paying the bank for a line of credit).
Since everyone is feeling the pandemic pinch to some degree, it’s also a good time to delay vendor payments. “Most of your vendors will be in the same boat, so work out a payment plan that both sides can live with,” Cohen suggests. “And consider switching to lower-cost vendors for essential services and supplies.”
When looking at your product, review inventory and cut anything that’s been proven unprofitable or costly in terms of product or delivery. As difficult as it may be, the same applies for staff. It’s key to make the tough but necessary shifts — keeping only the employees who are bringing in revenue, and the employees who have a versatile skill set and can fill in the gaps created by the staff reduction. Be honest and upfront with your staff, asking them for support, and understand that emotions can run high. During this time, it can be helpful to form an advisory board who can guide owners through the turnaround.
Cohen cites the example of a $50 million public telecommunications company that went from a $4.5 million loss to a $2 million then $2.8 million profit in two years by eliminating unprofitable products, negotiating with suppliers to reduce the cost of goods sold, restructuring their accounting department, and implementing a more efficient software system among other tactics.
3. Get ahead of the news
Just like you need to be upfront with your employees, it’s just as important to be upfront with stakeholders, from customers and suppliers to tax authorities and bankers.
“This can be difficult to do for a variety of reasons, but swallowing your pride and having tough conversations with outsiders is crucial for a successful turnaround,” Cohen says. “In this era of self-quarantine and business closures, you may find that most people would be more sympathetic to your situation and willing to support your business. No one likes to be surprised, and customers will usually cooperate if you keep them well-informed.”
Cultivating a support network is one of the most important steps in maintaining key relationships in difficult times. He recommends informing customers and vendors about the situation and your action plan to course-correct. That likely means working out extended payment terms for new orders or possibly finding new suppliers who might offer better terms since they’re not entrenched in your current cash-flow issues.
“Even if they run a credit check and ask you to pre-pay, that may still be better for your cash flow than working with your current suppliers, who may ask for cash on delivery and payment toward your old debt,” he says.
When it comes to bankers, a real conversation — video conferencing in the era of COVID-19 — is a must. Outline the challenges as well as your roadmap for a turnaround, which may include asking them to restructure your line of credit.
“Appear confident and reassuring, and be specific with your request for assistance,” he says. “Bankers also have skin in the game, so they will cooperate if you are up-front and honest with them.”