Lesson 18: Turnaround

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Lesson 18 Turnaround
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Objectives

• Identify warning signs that a business is in
  immediate danger
• Diagnose problems within a business by assessing
  financial statements, customer behavior, and
  employee feedback
• Develop an action plan to restore a struggling
  business to profitability
• Explain the importance of updating your business
  plan
• Compute cash flow based on total cash generated
  and total cash spent
• Calculate burn rate and explain its importance in
  turning a business around

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What is Turnaround?

• The process of determining the problems of a
  faltering business and rescuing the business by
  implementing a strategy to stop negative cash
  flow and return the business to profitability
• Problems that continue without intervention can
  cause businesses to fail!

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Assessing Business Problems

• Continually assess your business to gain insight
  on how your business is doing and make sure it is
  moving in the right direction
• Discussion Can you predict common warning signs
  that a business might be in danger of failing?

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• Common warning signs of impending failure
• Business cannot pay its expenses
• Utilities, vendors, payroll
• Net profit is shrinking, business expenses are
  growing
• Sales are flat or decreasing in a prospering
  economy
• Significant number of regular customers are not
  returning to the store
• Employees are showing unhappiness in their
  attitude
• Owner or manager no longer has the confidence of
  the employees

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Diagnosing the Problems

• Use both internal and external sources
• Internal employees
• External professional outside point of view

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• Start with the financials
• First step is to stop or slow the financial
  bleeding (losing money)
• Set up meetings with your accountants
• Take a Candid Look at Your Customers
• It is easier to retain (keep) customers than it
  is to attract new ones
• Get onto your sales floor and talk with customers
• Go undercover ie Undercover Boss
• Talk with Employees
• Observe employee attitudes, attendance, and
  appearance
• Observe their interactions with customers and
  turnover rate (how often people quit)
• Ask for evaluations of the business and your
  leadership, thank employees for honest feedback

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Creating an Action Plan

• Financials
• Most likely have negative cash flow - less cash
  coming in than is needed to pay for expenses
• Identify variable and fixed expenses
• Variable those that change according to the
  level of sales
• Fixed those that remain the same regardless of
  sales
• Keep creditors and vendors informed about your
  situation

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• Customers
• Need to see a store that looks prosperous
• Neatly groomed employees
• Well-maintained facility
• Employees
• Meet with employees individually, then as a group
  to share the input gathered
• Need to understand what you plan to do and how
  they will be affected
• Helps to set expectations

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Modifying Your Business Plan

• Businesses that update their plans are less
  likely to fall victim to a turnaround situation
• Update major sections with the assessments,
  diagnoses, and action plans resulting from the
  turnaround strategy

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Burn Rate How Much Time Do You Have Left?

• The amount of cash a business spends, usually
  projected on a monthly basis
• Ie The total cash spent during 6 months is
  36,000. The monthly burn rate is 6,000.
  (36,000 / 6)
• The higher the burn rate, the sooner the business
  will deplete cash reserves
• Identify where you can get additional cash to
  cover the business if needed

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Key Math Concepts

• Cash Flow
• Total Cash Generated Total Cash Spent
• Burn Rate
• Total Cash Spent Specific Period of Time