Saturday, December 13, 2008

Dont Just Stand By And Watch Your Business Fail

Most businesses that fail do so because the owners fail to get to the emergency room on time! Like a staph infection or sepsis, it's treatable if you get treatment in time. The trick is getting pass the denial, anxiety, and panic/paralysis stage, recognizing that you can't do it alone, and getting the expertise to help and guide you through a turnaround of your business.

Turnaround consultants - CPAs, MBAs, bankruptcy and financial attorneys make up a team of skill sets needed to assess the viability and survivability of a business in a particular industry or economic sector, that is, to determine that the business has adequate potential to survive the economic and financial crisis that threatens its existence.

Common root causes of business crisis

Reduced revenues resulting from economic downturn

Overly optimistic sales projections

Poor execution of a good business plan or model

High operating costs

High fixed costs that decrease management flexibility

Insufficient resources

Poor management of vendor and supply relationships

Unsuccessful R&D projects

Industry or market paradigm shifts for which management was unprepared

More efficent, better marketed competition

Excessive debt leverage and service

Inadquate financial controls

Typically, the turnaround process involves the following stages:

Management change
- draw in turnaround management expertise

Situational analysis

Survivability under changed market conditions

Change of management better equipped to manage under crisis conditions

Divestment of poorly performing assets

Reformulation of business strategy

Optimization of revenues with less resources

Cost reductions

Vendor and supplier concessions

Human resource concessions

Strategic acquisitions

Emergency Action Plan

Quick tactical action in order to implement the strategies above

Business Restructuring

Achieve positive cash flow

Improve efficiencies of delivering services and goods

Optimize, and where necessary, reposition marketing strategies

Strategic planning to return to long term profitability

Secure additional capital or financial resources

Develop reorganization strategies to employ the powerful weapons
available under Chapter 11 of Title 11, United States Code
("the Bankruptcy Code")

Liquidation Strategy

Where the business illness is irreversible and fatal, develop a
liquidation strategy and road map in order to minimize damage to employees,
suppliers, vendors, other third parties, and potentially, salvage
some equity for stockholders and investors, including white knight takeovers, and mergers with financially stronger companies.

Decisions, decisions:
Your Small Business: When Do You Call It Quits?By Däna Wilkinson, Attorney at Law on Nov 30, 2009 in Chapter 11 BankruptcyFeaturedGeneral Bankruptcy InformationOne of the hardest decisions a small business owner will ever face is whether to shut down a business that is losing money.  It is an emotional decision because of the blood, sweat and tears that it takes to go into business for yourself.  But it is also a financial decision, fraught with uncertainties and unknowns.  Whether you have invested your life savings, or just your life, in a business, it is not easy to decide whether, and when, it is time to quit.There are some businesses that are clearly not viable without a significant change in product or service.  Let’s say, for example, you operate a photo developing and printing business.  With the advent of digital cameras, cheap photo printers, and online printing services, it may be obvious that such a business cannot survive without either diversifying or offering some unique service or product.  But for most businesses, it’s a much closer call.  In the present economy, when so many businesses are failing, there is an added risk/reward analysis–with so many businesses failing, if you can outlast your competitors, you may be well-positioned to take advantage of reduced competition when things improve.

Cathy Moran’s five questions for business owners are  a very good start toward identifying your options and deciding whether you should continue to try to operate your business, reorganize your business, open a new business, or call it quits.  Those questions are:
  1. Do you have the time, energy, and desire to continue the business?
  2. Could the business prosper if it wasn’t servicing old debt?
  3. Could the business prosper if it shed equipment or premises leases?
  4. Could you start a like business if you walked away from this one?
  5. Could you sell this business as a going concern?
 I often tell clients that the first thing you should do when you find yourself in a hole is quit digging.  If your business is in a hole, bleeding cash and building debt, I would add one more bit of advice.  Set yourself a limit, whether it is a dollar amount that you will invest in the business, or a length of time that you will operate at a loss, or some other measure.  Decide on your tolerance for risk, and don’t go beyond it.  I can’t tell you what that ought to be because it is a very personal limit.  But set it, and live with it.  Don’t just keep digging the hole deeper out of simple inertia.

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