Success-Failure-small-300x225Is business in a bad way?

Is there a need for a business renewal, restructure, or perhaps some re-energising?

Although at times it may seem impossible, turning business around can be done.  It just needs a commitment to first assessing why the business is failing and then taking the right steps to correct these issues.  Below is a suggested list of why business may be failing along with a simple planning method to help turn things around.

Why Businesses Fail

There are many reasons why businesses fail and sometimes these reasons may not be clear.  While thefailure rate can vary by industry there does tend to be some common reasons for failure that consistently appear.  These are listed below:

  • Poor cash-flow management skills, or lack of understanding of cash-flow
  • Beginning a business with too little money
  • Not doing sufficient research on the business before commencement, or lack of a well-developed business plan
  • Not setting pricing correctly
  • Being too optimistic about achievable sales
  • Not seeing the importance of promoting and marketing the business adequately
  • Not being able to delegate appropriately – a good leader knows how to delegate!
  • Hiring friends and/or relatives with no specific knowledge or skills
  • Ignoring or not understanding the competition
  • Too much reliance and focus on one client or customer

Although there may be others, the above list contains most of the common reasons why businesses fail.  If business is struggling, then careful consideration of this list will provide some valuable insight into why this is happening.  With an understanding of why the business is underperforming, the next step is to devise a business turnaround plan.

The Business Turnaround Plan

The overall goal of the turnaround plan is to return an under-performing or distressed company to normal, in the form of satisfactory stages of solvency, cost-effectiveness, liquidity and cash-flow. In other words, moving the business from a period of losses to profits, and from a negative cash-flow to a positive cash-flow.

The turnaround management strategy is developed using an analysis and planning process involving management review, an activity based costing, a root failure cause analysis, and a proper SWOT analysis to determine why the company is failing.

After the analysis is concluded, a long term strategic and restructuring plan can be implemented. Be aware, this plan may sometimes involve filing of bankruptcy. Time taken for a comprehensive and structured turnaround could be anything from three months to two years, depending on the size of the business and the complexity of the job.

However, the process of developing a business turnaround plan does not have to only apply to troubled companies.  The strategy can help in any situation where a general change of direction needs implementing. In actual fact, a turnaround plan is closely related to a management change, or a management transformation change. A high growth situation may also be a scenario where turnaround strategies could help.

Simply put, there can be five stages of a business turnaround or repositioning:

1. The assessment and evaluation stage
2. The acute needs stage
3. The restructuring stage
4. The stabilisation stage
5. The revitalisation stage

Knowing why a business is failing is the first important step to take when establishing a business turnaround plan.  Once this is done, the plan can be developed and implemented and turn a ‘failing’ business into a successful one.

Kestrel Solutions can help with the development and implementation of a business turnaround plan –contact us for more information.

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