How Do I Create a Turnaround Plan for my Business?
When your company is struggling, everything counts and nothing is neutral. Time can be on your side, but it is crucial to develop a turnaround plan for your business. Reconsidering your finances and maximizing your existing assets are the key to reviving your business.
Find the True Balance Sheet
Assess the current true balance of all assets, cash, debt, liabilities, shareholder’s equity, investments, retained earnings, and more.
Find the Burn Rate and Run Rate
In order to consider your current financial position, you need to consider your burn rate and the run rate.
The burn rate is the rate that a company is spending capital, and it is a key measure of business sustainability. This can help you to determine how long you can stay in operation until you run out of money. It can also help you to determine the scale of your company.
Considering the opposite, the run rate helps a company to consider sales, profit, and other sources of income. It utilizes the current financial information to project the future performance; however, it assumes the current conditions will continue at the present rate. It does not account for decreases or increases in revenues.
Calculate Debt Service and Monthly Profit
We need to answer the question, can we cover the debt service? The next step is to calculate the amount of money that is required over time to repay any debts, including principal balances and interest and lease payments for business equipment. This is the minimum payment required to satisfy all your debt.
From there, it is crucial to calculate monthly profit, and the free cash flow.
FCF = Cash from Operations - Capital Expenditures
Making the Decision:
Once you have found the monthly profit, compare it to the minimum required debt service payment (usually interest only payment). If the monthly free cash flow is not enough to cover the debt service, the company is insolvent and no turnaround is possible. If the monthly free cash flow exceeds the monthly debt service fee, then continue developing the plan.
Maximize Revenue Opportunities
Although you are struggling, never underestimate the power of holding promotions in order to drive your revenue. Reevaluate your pricing strategy, consider expanding your market, or hold promotions in order to drive revenue.
Minimize Spending
At this step, you should take a look at expenses, and plan to eliminate any that are unnecessary for your business. It is crucial to scrutinize all expenses, saving money where you can. This does not mean that you should skimp on your existing level of quality, but instead utilize your resources as effectively as possible.
Negotiate Deals
Monetary and time savings are crucial when turning around a struggling business. While it may be difficult, we advise for you to work with vendors that you owe previous debts to negotiate better terms.This can include setting up a payment plan with the IRS. It’s worth a shot, as vendors are willing to do what they can in order to get paid, after all, it’s in their better interest, too.
Maintain a Positive Narrative
Though your company may have fallen on hard times, it is crucial to maintain a positive narrative for your company. Whether it’s working with customers, vendors, or even the media, maintaining a positive brand image, attitude, and level of integrity goes a long way. It will encourage positive employee morale, and reassure your employees that you are doing all that you can despite the hardships.
Address Specific Items
While we focused on the financial overview of the turnaround plan, there’s a need to address other specific items. It depends on the company and industry, but items include sales tax, credit cards, loans, or even marketing tactics.
Is your business struggling? Contact the Giersch Group today for a free consultation.
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