UncategorizedSmall Business Coaching – Helping you come back from the brink of destruction

In the US, the two main tests for whether the business is solvent rather than insolvent are:

• The cash flow test – can the business pay its debts to creditors as they fall due?
• The balance sheet test – is the value of assets greater than the value of liabilities?

A company that fails either test can be considered as insolvent.

I will write more about this but if you fear your business fails these tests, you must talk to a qualified insolvency practitioner immediately.  Reach out to your network for the best person.

When you are insolvent, you must act in the best interests of your creditors.

If the business continues to trade after the point when insolvent liquidation becomes unavoidable, the directors risk serious consequences including being made personally liable for the debts and being disqualified as directors in the future.

Get the proper advice from an insolvency practitioner. It’s much better to deal with knowledge of the facts rather than uncertain fears.

It doesn’t mean the end.

Some businesses can trade out of the difficulties.

Others can go through a formal insolvency procedure like a creditors voluntary arrangement (where creditors agree to write off a proportion of the debts) or administration.

Businesses That Are Technically Insolvent

Many start-up businesses are technically insolvent but the owners have the resources and intention to stand behind the business.

Ideally, they should invest their own money as share capital to correct any balance sheet deficit where liabilities exceed assets and make loans if the company doesn’t have the cash to meet its obligations as they fall due.

Older businesses that can’t build up their retained reserves may also be technically insolvent on the balance sheet test but because of a favorable working capital cycle, they may be able to meet their debts as they fall due or at least before legal action would be taken.

Again the owners should increase the share capital to cover the balance sheet deficit.

They’d also be advised to take steps to improve the business so that profit could be retained in the business to build up a reserve buffer.

The Turnaround Consultant

Large companies hire turnaround managers or consultants, often called Company Doctors.

These hard-nosed professional managers take control over the business and do what the existing senior management won’t do or can’t do.  You may or may not have been involved with a turnaround consultant in the past, we are not fun, we do not take any bullshit, we do what we are paid to do and that is turnaround the business.

The existing directors and owners may be completely sidelined or may be used to implement the recovery plan of the turnaround manager/consultant.

The five stages…

These are:

1. The first stage is that managers are blind to the problems,
2. The second stage is a period of inaction as they assess what is happening,
3. Third is a faulty action stage where actions are taken but they fail because of inadequate diagnosis,
4. The fourth stage is crisis, by which time it may be too late to recover. A firm cannot sustain losses indefinitely and
5. In the fifth stage, dissolution occurs and the business is declared bankrupt.

Stage 1 can shockingly exist for a long period of time as the business has a good set of key performance indicators (KPI’s) and doesn’t use “break even point analysis” and the “margin of safety” as an early warning system of the health of the business.

Eventually things will get so bad, the managers can’t help but notice what is going on.

The further through the process before the turnaround consultant is appointed, the less chance there is for recovery.  The business will run out of resources and of course, time.

As turnaround consultants we are experienced in recognizing and diagnosing the symptoms and causes of business decline and finding an effective solution.  Things will stand out as odd, wrong, or unusual that the owners accept as….wait for it….”THE WAY THINGS ARE DONE HERE”  how many times have you heard or said that yourself?

The Problems With Appointing A Turnaround Manager or Consultant

1. Cost – a good turnaround manager will be expensive. This is a full time role and the person won’t be prepared to work for nothing. He or she is likely to demand a payment upfront and regular ongoing payments, a success fee and even a share in the future ownership of the business.
2. The owner has to give up day-to-day control. Almost all business owners have a big problem with this. The business is their baby and they don’t want to be bossed around. Ultimately the owner can terminate the turnaround manager but it will be expensive and is likely to accelerate the decline and collapse of the business.
3. The business owner has to swallow his pride and accept specific, public and implied criticisms of what has happened in the past to get the business into trouble. The turnaround manager will do things very differently to the owner and will sacrifice various sacred cows.

On the positive side of things, the owner may be relieved that someone else is making the tough decisions and has accepted the responsibility to prepare and implement a recovery action plan.

The Turnaround Coach – An Affordable Solution For Small Businesses In Financial Crisis

The turnaround manager / consultant will take control from the owner-manager and do whatever is necessary to move the business towards recovery.

The turnaround coach works through the owner-manager to create real change in the business.

This puts the coach as the advisor and guide but leaves the owner responsible for making the final decisions and taking the necessary actions.

This may be good:

• It costs much less than a turnaround manager and may be the only help a business owner can afford.
• It keeps the business owner in charge and his pride from being as beat up.

It may be bad:

• The business owner has to be persuaded and encouraged to take actions that he or she has previously dismissed or postponed.
• The coach sees the business partly through the eyes of the business owner. Instead of being there every day, seeing and hearing what is really going on, the coach has to rely on the owner accurately reporting the situation. Without going too metaphysical on you, none of us see reality but our own perception of reality influenced by our values and biases.
• Recovery is likely to take longer and be less certain. The business needs expensive intensive care but it receives less.

That may sound dismissive of the role of a turnaround coach. It’s not meant to be at all, that is not my intention.

A coach is much better than having no outside help.

• The coach will challenge the way you are looking at the business. The process can give you fresh eyes so that you see for yourself what is going wrong.
• The coach will help you diagnose the problems of the business and the independent and objective view will reduce the chances of getting the diagnosis wrong.
• The coach will provide new fresh ideas and solutions.
• The coach will help you to create a recovery plan that closes the gap between where you are and where you want to be.
  
• The coach will hold you accountable to the plan.
• The coach will help you solve problems implementing the plan and will decide when the plan needs to be adapted and updated to the new situation.

These actions can make a very big difference to the probability of effectively turning your business around.

Can The Business Be Saved Through Turnaround Coaching?

This depends on:

• The business owner
• The business
• The market
• The coach

Some owners don’t respond well to coaching. They resent being held accountable in their own businesses and having their thoughts, decisions and actions challenged or guided.  They have been at the helm for a very long time.

Others thrive on having a new “business best friend” when the going gets really tough. Someone who they can finally share what’s really going on and discuss their worries and concerns without having to put on a brave face and act confidently.

The business may be in too much trouble. The market just may be too tough.

Finally there is the coach.

The person has to be right for you and your business. General management skills are needed with a strong emphasis on finance.  Look for somebody with an MBA, they are usually well rounded and have a strong financial acumen.

Please read How To Choose A Business Coach

The earlier you start working with someone to turn around your business, the more chance there is to succeed.

Does A Small Business Owner Of A Struggling Business Have Any Alternatives To Working With A Turnaround Business Coach?

Of course there are always alternatives but they may not be very attractive.

Assuming that a full time turnaround manager is out of the question, the business owner can:

• Do nothing. It doesn’t sound sensible but that’s exactly what happens in many troubled businesses. There are the twin problems of 1) total denial of the problem and 2) blind hope of a miracle solution.
• Do it on their own, possibly with the help of business books, or classes. In one way this is good but it is time intensive when you should be taking action.  You can’t wait months to complete courses and hope that you can immediately impact the business.
• Work with the help of a friend or relative. This can be good or it can be terrible. Sometimes friends are kind and encouraging when they need to be blunt and truthful. You may have experienced that for yourself if you’ve ever shown any marketing to a friend and heard nice things back and it flopped. Sometimes the friends can be very experienced and knowledgeable in business but not always.
• Join a mastermind group of other entrepreneurs. This can be an excellent idea for successful businesses but it’s probably not going to work fast enough for you.  There are many organizations out there.  For example we offer CEO and Key Executive meetings each month to discuss these very situations.  Call us and we can set you up with a group in your area.

If you think that your problems come from having an unbalanced management team e.g. you’re great at sales but hopeless at finance and administration, it might be an alternative to hire a part time finance consultant.

Coaching is expensive and the business is short of financial resources.

I think it’s worth it to increase the chances of finding business success in the future.

But then, as a coach, I am biased.

The Business Turnaround Priorities – Establish the Position, Generate Cash, Cut Costs And Build Revenues

You might be wondering what you will do with a turnaround coach.

I believe the work falls into these four main areas:

1. You will need to establish the position of the business. What is the financial situation? Is it already insolvent and should you be talking to an insolvency professional? What are the underlying causes of the business issues?
2. You need to get in control of  cash flow and generate more cash. It gives you more time and reduces the day-to-day stresses. Some may say generating cash is your #1 priority but decisions that are correct the right side of insolvency may be wrong if the business is beyond repair.
3. You need to cut your costs. It’s not nice but reducing your cost base (which you are in control of) means you have less problems persuading customers to buy (which you don’t control).
4. You need to build revenues. Cost cutting will only take you so far and to create a long term viable business, you need to get your strategy and marketing plans right.  You may consider a part time marketing professional.  I have also found that you can look for young business minds fresh out of college, they are HUNGRY and they will work relentlessly for you and your business.

I Wouldn’t Start From Here

Business turnaround is a bit like the old joke of someone stopping their car and asking for directions only to hear “if you want to go there, I wouldn’t start from here.”

It’s much better to make sure your business doesn’t get into trouble than to have to get it out.

Company A sees the problems early and can slowly and surely make changes, testing ideas to see what works and what doesn’t.

Company B has to create a much bigger change in direction and momentum. Because of the accumulated losses, it will have fewer resources and more pressure to make things happen with less time available. While there are some things that are basic common sense and the business owner won’t regret changing, there may be some necessary and risky gambles. They may work, they might not, that’s why it’s a gamble right?

Company C has ignored all the warnings and collapses.

If you’re are somewhere between company A and B, you should seek out help as soon as possible. Start talking to people and own up to your situation.  There is no shame in asking for help.  i have worked with so many CEO’s, and owners that are literally ashamed to have asked for help.  I always respond to them by explaining it is much worse to stand in front of your organization and tell them that they have no jobs because the doors are closing.

If your company is between B and C, you need to talk to an insolvency professional. It doesn’t mean your journey is over, but it does mean that the process must be much more formal.  There are a few added steps to be taken to recover.

Can I Help?

You want me to say YES, but I will say MAYBE.  Afterall, I don’t know your situation yet.   I have to research you and your business before I commit to anything.  I am here to help, not take your money and pretend.

I won’t promise anything but send me an email mcdaccginc@gmail.com and tell me about your business and the issues you are facing.  Or, pick up the phone and call me at 714.872-2393 and we can talk about it.

If I think I can help, I will want to talk to you.  We can go grab lunch or dinner and get to know each other and the situation.  Afterall, if we think we are a good fit, we will be in this together for a while.

If I don’t think we are a good fit, I will give you some tips and point you in the right direction.  i have a great network of people and I am sure that I can set you up with the right person.

Now, stop reading this and make your first decision.  Decide on what you need and act.

Call us today!