Liquidity issues are symptoms – find the root causes

WHY

Most analysis is symptomatic and unhelpful (i.e. they have a cashflow problem)

HOW

Work “on” the business, not just “in” it (is it losing a big customer, an unprofitable customer, general mispricing or low productivity, for example)

Actively manage credit

WHY

Company bankruptcy is caused by debts being out of control and (usually) poor communication with creditors

HOW

Apply sensible cash flow management and work with creditors

Review the customer mix and steer away from bad payers

WHY
80% of income usually comes from 20% of customers (Pareto principle)
HOW
Focus on customers that deliver the majority of value and reconsider efforts to woo unprofitable customers

Keep up-to-date financial records

WHY
Getting accurate financial information is essential for developing a turnaround plan because if you can’t measure it you can’t manage it
HOW
Ensure that your business has reconciled financial accounts checked by an accountant

Don’t put prestige over profit

WHY
Rational management and minimising waste is essential for a turnaround plan
HOW
Consider the return on investment for all sponsorship, promotions and employee remuneration

Don’t have too few customers

WHY
Concentration in a small number of customers undermines the overall value of a business
HOW
Look at the customer mix as a portfolio and look to spread risk

Set a target growth rate that is not too high

WHY
Targeting aggressive growth through new products/services during financial distress may not be sensible
HOW
Look at capitalising on existing opportunities and customer relationship before starting new projects

Treat your employees like human beings but manage by objectives

WHY
Often Australian business owners try to be mates not managers
HOW
Develop metrics to assess employee productivity

Don’t over expand – you should probably downsize

WHY
Rationalisation of the business is likely to mean downsizing in the short term
HOW
Termination of unprofitable customers and
unproductive employees

Don’t borrow too much or at to high interest rates

WHY
Borrowing with high interest lenders reduces the chances of a successful turnaround
HOW
Look at cash flow management, negotiating terms with creditors and reducing costs