On average some 300 plus companies fail every week in the UK, with multiple effects: employees lose their livelihoods, customers lose access to services, suppliers, creditors and shareholders all lose money.
Not every company can be turned around, but there are many stressed businesses that, with professional time-limited expertise, can reverse their decline and prosper. The COVID-19 pandemic has created unprecedented and complex challenges for businesses and in the short to medium term we are likely to see even highly competent management teams stressed and challenged.
Just over a month into lockdown, we published a societal impact report that conservatively estimated that our turnaround expert members saved more than 200,000 jobs and protected £2bn in enterprise value in the previous year. The report also looked at the key steps in achieving an effective turnaround and the specific challenges for SMEs.
Although for SMEs a typical turnaround is between three and 18 months, a longer period of two to two-and-a-half years is required. The first period is about stabilisation, understanding what has gone wrong and resetting the direction. The second 12 months is about building on change and preparing for growth.
With a turnaround approach, this unprecedented situation needn’t prove the end of the road for small businesses with a viable offering. Core turnaround processes provide a blueprint for recovery under stress. Here we share the key measures and approaches that you can take to save your small business.
Top 7 tips to save your small business
#1 – Stepping in early
The first measure in turnaround is crucial: stepping in early enough to address both immediate and underlying issues in order to stabilise and rejuvenate the business. The sooner a business engages in a turnaround process when they are on the distress curve, the greater the prospects of success, and the better the outcome in terms of jobs secured and value saved.
#2 – Assess the situation and regularly evaluate
It is important to assess the state of the business and understand its position. The key financial and operational issues must be identified and prioritised, and a short-term plan should be created to help address them, looking at different scenarios. Focusing on the key KPIs: sales, orders, cash, debts and profit will enable you to understand your position, to plan, to manage and to give confidence to stakeholders. Understand your position and keep doing so.
#3 – Build the trust of stakeholders
Stakeholder confidence can naturally become affected at times of stress but is never more important. It’s essential to get everyone on board with the plan: shareholders, lenders, investors, suppliers, employees and customers. Build the trust of stakeholders by managing their expectations early and then following up consistently. It’s also important to understand your stakeholders’ circumstances: lenders’ expectations and constraints, the concerns and position of employees, and the position of your suppliers, particularly if you have a complex or specialised supply chain.
It is crucial that the leadership grasps the issues and motivation from the top to the bottom of the business. From engagement in hygiene measures to steps you may need to take to temporarily remodel or scale back operations, your colleagues need to know how they can get involved and how they will be affected.
#4 – Stabilise the finances
Get cash flowing into the business, reduce debt, extend credit, reduce inventory, cut costs. Running out of cash is often the trigger point for a crisis. Fixing the finances, for example through robust cashflow forecasting and management, will provide the time and space to manage wider issues but this will not in itself turn the business around.
#5 – Rehabilitate
Restructure finances, cost base and cost controls. Refresh leadership skills. Develop your strategic vision and turnaround plan. That means finding a way to do things better, cheaper or differently than competitors. It means having a vision that can be turned into a long-term recovery plan and a strategy for growth.
#6 – Articulate a strategy for growth
Develop a sustainable business strategy for future growth. If you want to save your small business, a long-term strategy building on the operational and financial turnaround gains and based on the core value of the business is essential.
#7 – Exit
Turnaround should be a situational intervention: once a normalised state of affairs has been achieved it is time to move on.
Steve Swayne is chairman of the Institute for Turnaround
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