There are a number of signs that indicate the health of your business may be in trouble, and many small and mid-sized business owners will face the task of managing the recovery of a distressed or dying business at some point in their career.
Strained financial resources, low morale and poor market share are some of the key indicators that a company may be on the verge of insolvency or bankruptcy. Many owners who recognise these signs are able to deal with the issues and recover. Some are so adept at spotting and acting on these signals that they actively seek distressed companies with a view to purchasing at a discount and turning their fortunes around. In every case, a turnaround is achieved by having a sound plan and the willingness to make some very tough decisions.
In 2018, as the prospect of Brexit looms larger and the pound continues to flounder, SMEs may find themselves facing a period of particular uncertainty. For those companies who do find themselves struggling, bankruptcy is certainly not inevitable. Here are some steps you can take to return your business to profitability if your business, or one you’re hoping to acquire, is distressed.
1. Face the problem
The first step is to take stock of your business and identify where the main problems lie.
Map the workflow and workload for each department and evaluate whether the strategy is relevant, focused and tightly managed. Evaluate each area of your business and what you really offer your customers. How do you compare to competitors? Are they providing something you aren’t?
Realising and understanding your situation is a critical turnaround strategy and a necessary first step. Without it, you're just flailing around in the dark. Knowledge is power.
2. Change your game plan
Once you know what isn't working, you'll have a clearer idea of what will.
Go back to the drawing board and completely rethink your operations from the ground up. It's time to start making some tough decisions and being brutally honest with yourself and your team about what needs to be changed.
Consider employing a business advisor or accountant for an outside perspective. They’ll have seen plenty of businesses in similar situations and will be able to offer the fruits of their experience.
3. Re-engage employees
A business is nothing without the people who work there, so talk to your employees – they can make or break your business, and accountability is vital to your success.
One of the main employment trends forecast for 2018 is a further shift to remote working. Employees, especially younger ones, value work-life balance and flexibility as an essential factor when choosing a job.
With advancements in technology making connectedness and mobile work easier than it's even been, the 'fixed workplace' is fast becoming outdated and inhibitive. Offering your workforce more options in terms of when and where they can work may just lead to a happier and more engaged team.
Another major benefit of flexible working in 2018 will be as a means to fill the skills gap that post-Brexit net migration will leave in certain sectors. Cities like London are already seeing staff shortages in IT and other industries as a weak pound and the prospect of a less open Britain begin to edge workers out.
4. Innovate
All things technology, perhaps unsurprisingly, will be the main area of change for companies in 2018.
Many SMEs are already struggling to keep up with advances, and 2017 has seen a number of big-name brands sink to a large degree because of a weak digital strategy and a general sluggishness in keeping up with consumer trends.
For example, fashion house Jaeger went into administration in April at the cost of more than 700 jobs. At the time, head of retail at Gordons law firm, Andy Brian, blamed a failure to update their online model.
“This is another blow for the high street and, crucially, another indication of the huge consumer shift towards online shopping,” he said.
“Like BHS last year, Jaeger has failed to capitalise on the growth of online retailing. As a result, it has been left behind – and left struggling – where other fashion retailers have grabbed the opportunity.
“Online shopping is growing faster than ever and retailers must keep up, otherwise they will no longer be able to compete.”
But innovation is not limited to technology. Consider other ways to remain relevant in the market and update existing products and services to meet new and predicted consumer trends. People change, markets change, technology changes and so must your business.
5. Take care of security
Rapid changes in technology have opened up a whole new world of dangers to companies large and small – especially those who may already be lagging in their digital adaptation.
If you're looking to make changes to your digital infrastructure, you'll need to employ some safeguards. Worryingly, almost one quarter of businesses say they have yet to take measures to protect themselves from cyber-threats, despite the fact that criminals are finding ever new and inventive ways to infiltrate systems and con companies out of well-needed funds.
For a company who is or has recently been distressed, a single hack could mean the end. Don’t make it easy for the hackers - implement protection.
6. Update your branding
If you buy a distressed or dying business, it's likely that its difficulties have had a negative impact on the brand.
Customers and investors may have lost a certain amount of trust in your company especially if there has been unfavourable publicity. This means you'll need to make fast and definitive changes to show stakeholders that your outlook and strategy have changed. Fresh ideas and fresh marketing will reassure third parties that steps are being made to 'right the ship' and return your business to fitness.
7. Fix your cashflow
Money is the lifeblood of any business, and one of the surest signs of a distressed business is the lack of it.
Get a laser focus on your finances to avoid heading down the path to insolvency. If the business is already insolvent, a plan is needed to turn things around as speedily as possible. Finding external funds may be difficult if your business is in distress, so start by looking at internal funding options.
You should know every payment that comes in and out of your company and be fully prepared to streamline or make difficult cuts to ease the pressure on other areas of the business. Shorten your credit terms and manage your debtors. Utilise all of the credit period granted to you by your suppliers and prioritise payments, without going over deadlines and incurring penalties and interest. Make your cashflow forecast central to your turnaround plan.
Distressed businesses often struggle due to poor strategic management as opposed to marketplace forces, however there are certain forecasts for 2018, such as the ones previously mentioned, that may affect your business and are therefore important to prepare for.
Planning ahead will help – but you should also need to pinpoint the critical strategic flaws in the here and now if you want to bring a distressed business back to life. Performance-driven solutions will work wonders in providing the information, commitment and action required to turn around a business that is in distress but has potential.
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