There are many warning signs that can lead to the decline of a business. Legislative change, loss of key staff, loss of a major customer, rent increases, declining performance, product quality, loss in market share, general trading conditions, even something as simple as the weather can have significant adverse effects depending on your industry.
Fortunately, there are as many business turnaround strategies as there are causes of decline. And the more you understand about the options available to you in a turnaround process, the better prepared you'll be if difficulty arises. Start with these three business-level strategies.
1) Investigating your accounts
Even if the warning signs for your business are external, the corporate turnaround process begins internally.
With this strategy, it's best to use independent accountants and business recovery practitioners to analyse every single detail of your business. This strategy is particularly effective at identifying the cause of cash flow decline, and can also highlight missed or non-invoiced payments, poor debt collection methods and even employee fraud.
Make a list of all your expenses and eliminate what you don't need. You need to buy time in order to fix your problems, and cutting expenses is a good way to buy 'financial' time.
You'll also get the big picture on your assets and liabilities - a critical foundation for any business turnaround strategy.
2) Utilising the PPSR
The Personal Property Securities Register (PPSR) is an essential tool for any company hoping to protect ownership in unpaid stocks or equipment. This can help you protect against bad debts and from facing insolvency arising from a major customer non payment. If you do not register your security interests and a debtor is adjudicated bankrupt or the debtor company is placed into liquidation, secured creditors will be ahead of you when payments are made or assets distributed
Individuals or organisations can register their interest in assets on the PPSR, if their trade terms allow. This gains you super priority for recovery in your unpaid and identifiable stocks supplied and equipment. This simple registration can also establish a strong defence against voidable transaction claims. Proper use and checking of the PPSR is an important strategy for understanding creditors' entitlements, as well as gaining clarity on your assets' security.
To properly utilise the PPSR, you must ensure your terms of trade are up to date.
3) Engaging your creditors
It is daunting, but involving your creditors in the turnaround process can give you a competitive advantage.
Develop a prepared statement outlining the problems and how you plan to deal with them. Investors, the management team, the bank and employees all need to know what the company's future plans are. They also need to know how they fit in and what they can do to help. Creditors need assurance on how they will be paid and that the business is viable.
Providing a clear analysis of your business and communicating a comprehensive turnaround strategy can indicate to creditors that you are prepared to do what is necessary to stay on your feet. They may then be more likely to meet you halfway with extended payment plans or further investment.
There are options available to gain support from the large majority of creditors and to bind the minority in a payment plan strategy. A company compromise is one of these options.
Decisive, clear short-term action is a sound start on the path to long-term success.
Use the experts for your corporate-level strategies
These are just three tasks your company can undertake to begin the turnaround process. The way your business achieves economies of scale in the face of financial decline will be specific to your exact situation, and that's why it's important to employ experienced professionals. To effect a turnaround, a company must identify and acknowledge its problems and develop and implement a problem-solving strategy. Directors must see opportunities and isolate problems.
At McDonald Vague, our team has decades of experience implementing tailored business turnaround plans for clients of all New Zealand sectors. To discover your next steps, contact one of our staff today for a private consultation.