In my practice, I meet many business owners and CEOs that, unfortunately, didn’t spot the signs that led to their company being on the verge of insolvency or bankruptcy. There are several signs that a company may be in distress, including strained financial resources, demoralized senior management, fearful employees, unhappy customers, tense bankers, angry investors, and competitors waiting to pounce.
Stressing and worrying about the situation may keep you from saving your company. It’s important to know that bankruptcy isn’t always the right answer and that you almost always have a way out if you act quickly and decisively.
So what steps can you take in order to avoid bankruptcy and fix your company?
Evaluation, Damage Control and Action Plan
First, list the challenges you face and solutions you can think of. Then, map the workflow and workload in each department, prioritize the steps you have to take, and re-evaluate the costs and benefits of each step. Having a detailed written business plan or a roadmap is key. Remember, it must include information on sales and marketing, operations, and financials. 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. In these types of 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.
After writing your business plan, you should begin executing on the following:
Step 1: Control cash and cut unnecessary costs by:
- Creating a daily cash-flow report
- Approving each expense before it is spent
- Collecting your accounts receivables as quickly as possible, and offering cash discounts for faster payment (it’s usually cheaper than paying your bank for a line of credit)
- Delaying payments to your vendors
- Considering switching to lower cost vendors for essential services and supplies
- Evaluating your staffing needs and keeping only employees who are bringing in, making, or servicing sales
- Reviewing all products or services offered with an eye to eliminate unprofitable solutions, and reduce the cost of production, or service delivery
- Informing all employees of your actions and asking for their support after implementing these cuts
You will be surprised by how much you could have saved if had you paid more attention to your business.
Step 2: Meet with key personnel and your board of directors or advisors:
- Form an Advisory Board that will help guide and support you through the turnaround process
- Get your key employees together to have a candid discussion on how to fix the company — ask for their cooperation and seek advice based on their expertise
- Always share the reason for changes with employees
Informed employees will cooperate with you to save the company and their own jobs.
When going through these steps, it is important to always be prepared. Don’t go into any meeting — with anyone — without a plan. People lose confidence in leaders who lack a plan and vision for their business. You should always be self-assured, yet open-minded and flexible, and be open enough to share your plan with investors, management, and key employees.
Following these first steps should get you back on your feet and on your way to success. In my next post, I will continue to lay out the action plan — specifically on how to deal with customers, vendors, and tax authorities.