Description
Manage or own a struggling small- or mid-size business, you know how hard it is to stay afloat and turn things around when the going gets tough.
Published by Soundview Executive Book Summaries 10 LaCrue Avenue, Concordville, Pennsylvania 19331 USA
*All rights reserved. Reproduction in whole or part is prohibited.
Revitalize Your Struggling or Stagnant Enterprise
SMALL BUSINESS
TURNAROUND
THE SUMMARY IN BRIEF
If you manage or own a struggling small- or mid-size business, you
know how hard it is to stay afloat and turn things around when the going
gets tough. You are not alone. The risk for failing seems to be greater with
every passing year. According to the Small Business Administration, busi-
ness failures rose an incredible 16.6 percent from 1986 to 1996. And busi-
ness bankruptcies rose 5.3 percent during 1996 alone.
Marc Kramer takes the process of turning around a small business and
compares it to getting back in shape. You didn’t lose shape overnight; it
took time. There were good things that you stopped doing, and bad habits
that you started. Worse yet, you may have cultivated an all-knowing attitude
that erroneously convinced you that you had everything under control.
This summary provides practical steps to help your company go from
struggling and stagnant to growing and prosperous. The first step is to map
out your strategy. This summary will show you how to:
? put together an updated business plan,
? create an operation and launch plan to put change into motion.
The next step is to implement your strategy. You’ll learn how to:
? get vendors and lenders to agree to reasonable repayment schedules,
? keep and recruit good employees during the turnaround,
? create an effective marketing and sales plan.
Finally, once you have begun the turnaround, this summary will show
you how to:
? cut costs,
? boost sales,
? find the funding you need to move your business forward.
If you find yourself struggling to keep customers, make sales, pay ven-
dors and business taxes, this summary will help you take action now to pre-
pare for a better future.
Vol. 22, No. 4 (2 parts) Part 1, April 2000 ©2000 Soundview Executive Book Summaries* Order # 22-9
CONTENTS
Mapping Out Your Strategy
Pages 2, 3
Write A Business Plan
Pages 2, 3
A Business Plan:
Step-By-Step
Pages 3, 4
Write The Operation And
Launch Plan
Pages 4, 5
Implementing Your Strategy
Pages 5, 6
Write A Marketing
And Sales Plan
Page 6
Develop A Budget And
Negotiate Debt
Page 7
Preparing For The Future
Pages 7, 8
Find New Sources
Of Financing
Page 8
Keep Moving Forward
Page 8
By Marc Kramer
F
I
L
E
:
S
M
A
L
L
B
U
S
I
N
E
S
S
/
E
N
T
R
E
P
R
E
N
E
U
R
S
H
I
P
®
2 Soundview Executive Book Summaries
®
Mapping Out Your Strategy
Your company didn’t get where it is overnight, and
won’t recover instantly. It takes a lot of planning, hard
work, and grit to make the enterprise a success story.
The worst thing you can do is hide. You must meet
with key employees and advisors and let them know
what is happening. Talk to your customers and vendors,
too. They have probably been hearing rumors anyway,
and since rumors are often exaggerated, they will be
reassured to hear the correct information directly from
the source. Vendors especially want to know what your
plans are and how they will be paid. You will also need
to contact tax authorities if you can’t meet your obliga-
tions. They will usually do all they can to work with
you. The same goes for your bank if you are having
trouble paying business loans on time.
Ten Keys to a Successful Turnaround
Your company has a greater chance of turning itself
around if:
1. The top executive is strong, decisive, and com-
municative.
2. Business, marketing, sales, and operating plans
have a narrow agreed-upon focus.
3. Managers are able to handle adversity and be
willing to work long hours.
4. Employees are willing to make sacrifices and
work more than 40 hours.
5. Board of directors and advisors are strong and
experienced.
6. Vendors are flexible.
7. Bank loan officers believe in the company.
8. Quality is job one.
9. The marketplace needs the company’s products
or services.
10. Management hires experienced counsel and
accountants who understand the business and
turnarounds. ?
Write a Business Plan
The first step to turning around any enterprise is to
map out a plan. Planning is essential to success.
Therefore, you want to begin the turnaround by creating
business, sales, marketing, and operations plans. Revise
these plans annually. Those who get in the habit rarely
fail. That’s because detailed planning lets everyone
know where the company is and where it’s going.
Planning builds confidence.
Start with an updated business plan. Many small busi-
ness people think of business plans as something they
need to draft to raise money. But a business plan can do
much more than that. It can be used as a realistic view of
the expectations and long-term objectives of your busi-
ness, and can provide a framework within which the
enterprise will operate. Business plans help management
clarify, focus, and research the development and
prospects of their business or project; provide a logical
framework within which a business can develop and pur-
sue business strategies over the next three to five
To subscribe: Send your name and address to the address listed below or call us at 1-800-521-1227 (Outside the U.S. and Canada, 1-610-558-9495)
To buy multiple copies of this summary: Soundview offers discounts for quantity purchases of its summaries. Call or write for details.
Published by Soundview Executive Book Summaries (ISSN 0747-2196), 10 LaCrue Avenue, Concordville, PA 19331 USA, a division of Concentrated Knowledge
Corporation. Publisher, George Y. Clement. Publications Director, Maureen L. Solon. Editor-in-Chief, Christopher G. Murray. Published monthly. Subscription, $89.50 per year
in the United States and Canada; and, by airmail, $95 in Mexico, $139 to all other countries. Periodicals postage paid at Concordville, PA and additional offices.
POSTMASTER: Send address changes to Soundview, 10 LaCrue Avenue, Concordville, PA 19331. Copyright ©2000 by Soundview Executive Book Summaries.
SMALL BUSINESS TURNAROUND
by Marc Kramer
— THE COMPLETE SUMMARY
The authors: Marc Kramer is president of Kramer
Communications, which specializes in Internet strategic mar-
keting, sales and communications, business plan development,
and project management. Kramer is a professional speaker and
lecturer on turning around distressed companies.
Copyright ©2000 by Mark Kramer. Summarized by per-
mission of the publisher, Adams Media Corporation, 260
Center Street, Holbrook, MA 02343. 336 pages. $17.95. ISBN
1-58062-195-3.
(continued on page 3)
How Do You Know
You’re in Trouble?
Heed these warning signs:
•
Decreasing sales despite a growing market.
•
Customers leaving for reasons you control.
•
Clients claim calls go unreturned.
•
Projects are over budget.
•
Expenses are up while profits are down.
•
Employees doubt viability of the company.
•
Employees say there’s no leadership.
•
Staff arrives late and leaves early.
•
Staff meetings are a thing of the past.
•
Taxes go unpaid.
•
Payments to vendors are late.
years; serve as a basis for discussion with third parties;
and offer a benchmark against which actual perform-
ance can be measured and reviewed. Lack of a business
plan almost certainly dooms a business to failure.
The easiest way to start a business plan is to create a
two- or three-page outline. From this start, you will cre-
ate a plan that should be no longer than 25 pages. Of
course, before you can begin an outline, you must be
able to identify the current status, objectives, and strate-
gies of your business. Those entities will be critically
examined to probe existing and perceived strengths,
weaknesses, threats, and opportunities.
Parts of the Plan
Every business plan will include an explanation of the
firm’s vision, mission, objectives, values, sales, market-
ing, and hiring strategies, competition, and income and
expense projections.
The vision statement is a snapshot of the business
three or more years into the future. It describes the com-
pany’s physical appearance, size, and activities.
Remember to keep the statement grounded and accessi-
ble. Venture capitalists often have their secretaries scan
business plans. If your vision statement isn’t clear
enough for a secretary to understand, it will never see
the light of day.
The mission statement explains what the business is
trying to accomplish. When crafting the mission and
objectives, management must ask:
?What are the central purposes and activities of
the business?
?What are its major objectives, key strategies,
and prime goals?
For example, a food company concentrating on food
for diabetics might state its mission as “To be the lead-
ing kidney food company in the United States.”
The next step is to identify the objectives and goals
that will help the company achieve its mission. The
objectives and goals state what the business needs to
achieve in the short and long term. Objectives are cen-
tered around financial and market share goals. In most
cases, financial goals are more meaningful than market
share, unless you are in a niche business. The strategies
outline the path the company will use to achieve its
objectives and goals.
The most difficult sections to write are likely to be the
marketing and sales sections. Be sure your financial pro-
jections are in line with industry norms. Overestimate
the time or cost required for product development, mar-
ket entry, external support, and raising capital. A good
rule of thumb is to halve sales projections and double the
cost and time required to get there. ?
A Business Plan: Step-by-Step
Here is the step-by-step process for putting together a
business plan:
Draft an Executive Summary: (1-2 pages) Introduce
the entire plan, and explain who wrote it, when, and why.
Be sure to provide contact information and highlight the
most important points you make. The executive summary
3 Soundview Executive Book Summaries
®
Small Business Turnaround — SUMMARY
Write a Business Plan
(continued from page 2)
Sample Mission
and Objectives Statement
The mission of the company is to provide quality
prepared microwaveable foods to individuals with
kidney problems so they are freed from the task of
preparing their own food. HF will offer a variety of
entrees to meet their special nutritional require-
ments and in so doing, make meal planning easier,
more convenient, and less stressful. HF’s plan is to
develop unique entrees and related foods focused
on kidney nutrition and to market these products
both domestically and abroad.
Short-Term Objectives: 1997-1999
•
To raise $1 million to finance initial product
acquisition and marketing costs.
•
To recruit quality management to build a world-
class food company.
•
To develop quality microwaveable shelf-stable
entrees.
•
To set up distribution channels and perform sam-
ple marketing.
•
To attain name recognition in the kidney commu-
nity via targeted marketing efforts and dissemina-
tion of educational information.
•
To reach $20 million in sales.
Long-Term Objectives: 2000-2003
•
To expand penetration into international markets
with help of overseas distributors.
•
To expand the product line to include side dishes,
desserts, and snacks.
•
To develop other forms of recurring revenue such
as additional product lines targeted to other niche
markets.
•
To reach long-term revenue goals of $52 million
within five years.
(continued on page 4)
encapsulates everything into one place. Many investors
don’t read anything but the executive summary on the
first go-around. If it doesn’t make the cut, the plan goes
in the trash. Make sure the executive summary shines.
State Your Mission and Objectives: (1-2 pages) The
mission statement tells the reader what the business is
trying to accomplish. Every employee should be able to
articulate the same mission if asked. It is followed by
the objectives the company wants to accomplish.
Describe the Company History: (1-2 pages)
Summarize the company’s achievements and perform-
ance and introduce the shareholders or principals. It is a
snapshot of where the company has been and where it is
now.
Describe the Company’s Product/Services: (1-2
pages) Describe what makes your products or services
special.
Profile the Target Market: (1-3 pages) Address the
size, segment, trends, and potential customer profiles. A lot
of the information you need on the target market is avail-
able through research. Try industry publications, research
departments, college professors, and trade associations.
Valuable data can also be found on the Internet.
Describe the Competition: (1-2 pages) Include both
primary and secondary competitors, and comment on
their strengths and weaknesses.
Describe Your Marketing Strategies and Sales
Plans: (2-3 pages) Tell the reader how you will market
your product or services to customers. Predict how sales
will go in your main market. Describe how you will dif-
ferentiate yourself from the competitors.
Describe R&D Efforts and Technology: (1 page) If
your company is engaged in any research and develop-
ment or owns patents it will use, describe these. Explain
how you will improve or develop products and what
resources you will need.
Describe Operational and Manufacturing Plans:
(2-3 pages) Explain how the company plans to improve
distribution, service, and manufacturing.
Identify Managers: (1-2 pages) Identify the manage-
ment team you plan to use. Be sure to highlight their
experience in your industry or their specialty.
Disclose Funding Needs: (1 page) Summarize the
company’s financial needs, identify sources for funding,
and offer projections for their return on investment.
Once you come this far in your business plan, you will
have a clear understanding of how much money you
need and be able to decide how much ownership you
are willing to give up in exchange for funding. Include
an exit plan if selling or going public is a goal.
Provide Financial Position and Projections: (2-3
pages) Use simple tables to present key financial projec-
tions, such as profit and loss, cash flow, balance sheets,
and key ratios. Be sure the figures are accurate and
believable. ?
Write the Operation and
Launch Plan
Once you have a solid business plan in place, you need
to concentrate on creating the operation and launch plan.
A solid launch plan is the second most important docu-
ment your company will prepare as it reinvents itself. The
plan will include product descriptions, show how the
products will be created and developed, show exactly
how they will be marketed, how much it will cost and
what the pricing will be, and who will be involved.
If this sounds a lot like a business plan, it is. An oper-
ation and launch plan takes the business plan and
expands it. The details are filled in. For example, if part
of your company’s turnaround includes creating a web
presence, the business plan would list web development
as one of the strategic goals. The operation plan would
detail the technology the company will use to develop
the web site, specify its layout and content, and detail
how the site will be advertised to its intended market.
The plan would also detail how the site will make
money, and how much. Pricing for everything from sub-
scription fees to advertising rates also belongs in the
operation plan.
The launch section of the plan specifies what will
4
Small Business Turnaround — SUMMARY
(continued on page 5)
A Business Plan: Step-by-Step
(continued from page 3)
Lack of Plan Dooms Antique Mall
Entrepreneurs are famous for believing they can
make it happen with the sheer force of their will.
They think business and marketing plan are for
sissies. And some pay dearly for that arrogance.
Consider the case of a successful, charismatic pro-
moter. When he met someone who told him an
antiques center would be great in his part of the
state, the promoter jumped on the idea. Because he
personally loved antiques, he found the idea attrac-
tive. He then built a $250,000 center and opened the
doors for business without ever having investigated
the antique business, who his competitors were, or
whether it was a money-making proposition. Had he
investigated the business, he would have known that
antique businesses cluster together like fast food
restaurants along a highway rather than congregate
in a mall. His lack of planning sent him straight into
bankruptcy.
Soundview Executive Book Summaries
®
5 Soundview Executive Book Summaries
®
happen when and where and identifies milestones along
the way. In the example, the launch timetable would
include dates for getting funding, hiring key employees,
and having the site up and running. Think of the opera-
tions and launch plan as a “to do” list for full imple-
mentation of the business plan. ?
Implementing Your Strategy
Once you have decided to turn your company around,
chosen someone to lead that effort, and drafted busi-
ness, operation, and launch plans, then you are ready to
implement your strategy. As you begin to implement
your plan, you will need to accomplish three things.
First, you must rebuild morale as well as attract and
retain employees. Next, you must build sales through
creative marketing. And finally, you must learn to hold
the line on expenses and negotiable debt.
Manage the People Issues
If your company is going to turn around, it’s essential
that employee morale be rebuilt. When things look
bleak, workers aren’t naturally motivated to work harder
and longer for fewer rewards. They may feel as if they
have already made enough sacrifices. They start coming
in late and leaving early. They steer friends and
acquaintances away from joining the company. With
time, energy, and commitment, these negative attitudes
can be transformed.
Recruiting for a turnaround is often difficult. You
must pick the right type of person, someone who thrives
on pressure and looks at a turnaround as an opportunity
to shine. They have to be mentally tough, able to with-
stand long hours and sleepless nights, and be full of
energy.
Some other characteristics to look for are the ability
to work in a team environment and to be flexible
enough to work without structure. Good candidates also
don’t mind losing free time and can work on multiple
tasks simultaneously. Finding employees suited for a
turnaround is difficult but not impossible. Good sources
of referrals include current employees, friends, business
associates, trade associations, members of the board of
directors or advisory board, and other professional con-
tacts like attorneys and accountants.
A struggling company must also work hard to retain
its good employees. Do what you can to create a pleas-
ant work environment. Use small perks like free food
when employees work late. Scout out free seminars and
inexpensive books to help workers develop professional-
ly. Let employees play with new technologies by asking
vendors for demonstrations. Give employees extra time
off with pay if long hours are taking a toll. Consider
giving stock options in lieu of raises, and promise profit
sharing when the tide has turned. And don’t hesitate to
dole out bonuses for a job well done.
Small Business Turnaround — SUMMARY
Write the Operation and Launch Plan
(continued from page 4)
(continued on page 6)
Hire a Turnaround Specialist
Sometimes the owner of a failing firm doesn’t
have the expertise or the ability to distance him- or
herself from what’s happening in order to turn
things around. Sometimes the managers have to be
replaced if the company is going to recover and
prosper. If that’s the case, the best solution is to
hire an outside turnaround specialist and have the
managers resign and the owner step down from
active management of the company. A specialist can
take a fresh look at the situation, has no preexisting
prejudices, and often has valuable experience turn-
ing other firms around.
If your company decides to hire a specialist, first
ask trusted advisors for referrals. Good sources are
accountants, attorneys, bankers, or financial plan-
ners familiar with your business. You can also try
the Chamber of Commerce or trade associations to
which your company belongs. Another good referral
source is the Turnaround Management Association.
When selecting a specialist, look for experience
and knowledge about your industry as well as real
experience turning a business around. Don’t hire
someone who hasn’t suffered through adversity and
turned things around. He or she won’t have the
stomach to face angry vendors, disappointed cus-
tomers, and hostile workers.
Compensation for the turnaround expert can be
handled several ways. Some want to be paid by the
hour or by the project. If the proposed fee is out of
your company’s reach, there are also specialists
who will work for a combination of cash, equity, and
bonus based on results. Ownership of 5-15 percent
is standard. Trading equity for service may help
cash-strapped companies who could use the funds
to recover faster. If giving up equity is a concern,
you may want to draft the agreement to allow a
buyback or right of first refusal for any future sale
of stock.
A specialist becomes the new leader, and is
responsible and accountable for all facets of the
business. For the process to work, the specialist
must be in control. No one can be hired or fired,
and not a penny can be spent, without his or her
approval. If giving purse string control to an out-
sider bothers you, then you can require two signa-
tures for expenditures.
Handling Layoffs
On the other hand, turning the company around may
mean laying off workers. If your new business plan
includes downscaling the company’s endeavors, obvi-
ously people will have to be reduced. While it can be
very hard on management to have to fire people, some-
times it has to be done. It helps if you can offer sever-
ance payments or at least assistance with the job hunt.
Be sure to offer references and don’t contest eligibility
for unemployment. There is no need to make enemies
out of former employees.
Once layoffs are a fact, the surviving employees may
be angry or worried that they are next. If you don’t want
a mass exodus, you must explain the situation. Have a
departmental or companywide meeting. Be reassuring.
Explain that the layoffs are part of the company turn-
around plan, and that their contributions are essential to
the success of the plan. ?
Write a Marketing
and Sales Plan
One of the quickest ways to get a company out of
trouble is with a strong sales and marketing plan. Since
you already should have a business plan in place, you
already have experience writing plans. A sales and mar-
keting plan has a similar layout.
Start with an executive summary and mission
statement. Use the business plan format.
Follow with a competitive advantage section. This
section is crucial. It should explain what clear advantage
your company has over the competition. Competitive
advantages can range from better technology, quicker
service and better quality service to wider coverage area,
more experienced staff, or cheaper price. Once you artic-
ulate your competitive advantage, your employees will
be able to answer a crucial customer question; “Why
should I buy from you and not someone else?”
The next part is the objectives section. These objec-
tives should be developed by the management team.
They should represent realistic sales goals, not numbers
pulled out of a hat. They should also include recruiting
and visibility goals.
Outline sales strategies. This is a road map of how
you will achieve the sales goals. It should be developed
by the head of sales, and should be based on the most
successful sales techniques used in the industry and by
the company.
Benchmark your strategies against the best in the
industry and you will improve your sales. Be very spe-
cific. For example, say “We will send a one-page letter
to each prospect and follow up within 10 days with a
phone call,” and not “We will do a mass mailing.”
Outline how you will market your services. Identify
good sources of new business by asking current cus-
tomers, vendors, trade associations, and professionals
for referrals and outline how you will reach those
prospects. Other ideas include developing a newsletter
and holding seminars.
Identify your target market. Your target market is
those who need your service or product, can afford it,
and are within an area you can service. Don’t waste
time on others.
Outline your retention plan. Keeping current cus-
tomers is crucial. Be sure to set contact goals for current
customers and ask them how you are doing and what
you could improve.
Describe your personnel program. How will you
select and retain workers? What skills do they need and
what duties will they perform?
Describe the competition. You need to keep tabs on
the competition. Keep a file on each one, and fill it with
press releases, news stories, and marketing material.
Identify their strengths and weaknesses.
Outline launch plan. This should be very specific,
perhaps month-by-month or week-by-week.
Make financial projections. If you have completed
the previous sections, you should be able to estimate
expenses and income. Bear in mind that “it’s better to
underestimate and over perform than overestimate and
underperform.” ?
6 Soundview Executive Book Summaries
®
Small Business Turnaround — SUMMARY
Rebuilding Employee Confidence
Here are some tips to build employee confidence
in themselves and the company:
•
Hold a meeting to single out successes, demon-
strating to everyone that successful people
abound.
•
Admit past mistakes and discuss how everyone
will have a part in fixing them.
•
Meet with every employee and get his or her
input.
•
Post client compliments and sales successes.
•
Compliment workers in front of clients.
•
Promote from within.
•
Let go of employees who aren’t team players.
•
Acknowledge implemented suggestions.
•
Encourage risk and reward innovation.
Implementing Your Strategy
(continued from page 5)
Develop a Budget and
Negotiate Debt
There are three reasons why companies get into finan-
cial trouble. First, they are under funded. Second, they
spend money unnecessarily. Third, they can’t sell enough
products or services to make up for the lack of funds.
If you are turning a company around, you must cut or
reduce expenses. By taking a close look at what is being
spent, you will find many creative ways to reduce costs.
For example, cancel redundant magazine subscriptions,
shop for new telephone services, buy instead of leasing
equipment, analyze insurance costs, keep only crucial
memberships, advertise effectively, avoid charitable
contributions, buy office supplies on sale, and avoid first
class travel.
Working with Creditors
Any company trying to turn itself around probably has
creditors demanding immediate payment. If they know
your company is having trouble, they may fear the
worst. The reality is that if they force the company into
bankruptcy, no one will get more than pennies on the
dollar. Therefore, most vendors will be happy to work
something out. The key is to approach them directly and
honestly and not make any promises you can’t keep.
Work with each creditor and come to an agreement,
and then keep it. Keep vendors informed of your situa-
tion. Remember that most banks would rather reorganize
the debt and take small payments over time than have to
take over the business. Working out payment schedules is
to everyone’s advantage. Companies should remember
that even a bankruptcy reorganization could wreak havoc
with a business. Once a bankruptcy petition is filed, the
company loses control of its business. ?
Preparing for the Future
Once your company has begun its turnaround, it’s
time to prepare for a successful future. Preparing for the
future includes finding new ways to build sales and
obtaining funding to allow your enterprise to keep
growing. Acquiring outside advisory board members is
also recommended.
Use the Internet to Cut Costs and Boost Sales
The Internet is probably the best and most cost effec-
tive medium to promote a company’s products and gen-
erate new sales.
Although large multinational companies may spend
hundreds of thousands of dollars developing an Internet
presence, small companies can get on the Internet for
much less. An outside developer can do the job for
$25,000, or off-the-shelf software can get the job done
for considerably less. Shop carefully before you sign a
contract or make a purchase.
As with any other endeavor, you need to have a plan
in place before you go online. Check out what the com-
petition is doing, and prepare a launch plan. What will
your site offer? Will it be an online catalog with order-
ing potential? Will it deliver your newsletter? Will it be
used to provide answers to commonly asked questions?
Remember that you may have to advertise to get people
7 Soundview Executive Book Summaries
®
Small Business Turnaround — SUMMARY
(continued on page 8)
Conduct a Client Audit
As the company grows and you focus on courting
new customers, you may forget to pay attention to
the customers you already have. Remember that the
cost of bringing in new customers is always more
expensive than keeping old customers. Consider
having an outside firm conduct a “client audit” to
determine if you are satisfying current customers.
The client audit should cover the following ques-
tions:
•
What is your impression of the company?
•
How often do you speak to your account rep-
resentative?
•
How would you rate the quality of the prod-
uct/service?
•
How does the company compare to your other
vendors?
•
Do you feel the company goes out of its way
to keep your business or just does enough to
fulfill your needs?
•
Are you driven by price over quality when
making a purchase?
•
What could the company offer or do that
would be valuable to you?
•
What isn’t the company doing now that you
wish it would do?
•
What will be some of your greatest needs
over the next twelve months?
•
Would you serve as a reference for this
company?
Once you know where you stand, use that infor-
mation to build customer loyalty. There are many
creative ways to attract and keep customers includ-
ing creating a newsletter for customers, running
seminars, and writing a regular newspaper column.
Even simple tasks like sending your customers
thank-you notes goes a long way in developing loy-
alty. And remember that current clients are a great
source of referrals for new business.
to your site. One easy way is to begin using your web
address in direct mail pieces, on stationary, and in print
advertisements. ?
Find New Sources of Financing
To continue on the path to recovery, your company
may need to boost its cash flow. Finding additional
sources of financing will play a crucial role in growth.
Many businesses fail when they aren’t able to achieve
enough cash flow to sustain rapid growth. But there is
hope. Finding financing is possible if you know where
to look. Consider these possibilities.
Banks. Conventional bank financing requires collateral
in the form of cash, property, or business contracts. Bank
financing can be inexpensive, and doesn’t typically require
giving up equity in the company. The disadvantage is that
most owners have to personally guarantee loans. If the
company fails, they are personally on the hook.
Investor Angels. Angels are wealthy individuals who
like to invest in new or troubled companies with poten-
tial. They want an equity stake.
Venture Capital. Venture capital firms are in the
business of funding promising new companies. They
typically want a large equity stake as well as the ability
to control management.
Public Funding. The Small Business Administration
has loan guarantees available for firms turned down by
banks for conventional loans. Some states have similar
loan and grant programs available.
Vendor Funding. Vendors sometimes accept stock in
a company in lieu of payment for goods or services.
Factoring. Factors loan money using a company’s
accounts receivable as collateral. Typically, factors will
lend 70-80 percent of the value of the accounts receivable
at a rate of 3 percent per month. This is a good short-term
method, but the rate for long-term borrowing is high.
Venture Leasing. Venture lease companies specialize
in funding leases for companies with impaired credit,
and take a stake in the firm as part payment.
Conventional Public Offering. This is commonly
known as going public, and involves offering stock to
the general public. Hire experts in public offerings if
you go this route.
Internet Public Offering. This cuts the intermedi-
aries out when going public. Again, hire experts.
Small Companies Offering Registration. This form
of going public is done on a small scale at the state
level. Most states require that no more than $1 million
be raised per year.
Public Shell. A private firm can purchase controlling
shares in a public company with few assets and become
in effect a public company. The owners of the public
shell invest in the business much like a venture capitalist.
Venture Consultants. Venture consultants raise
money for companies for a fee. ?
Keep Moving Forward
Once you complete a successful turnaround, it is
imperative that you don’t fall back into the old habits
that got you in trouble in the first place. Try these sug-
gestions to help you stay in shape:
Never skip a weekly staff meeting. Keep those lines
of communication open.
Hold semiannual strategic planning sessions. Re-
evaluate and revise your strategy when needed.
Update the company business plan. Review and
rewrite sections regularly.
Hold monthly company meetings. Always ask for
input from your employees.
Evaluate management. Remove or add people if the
current team isn’t getting the job done.
Keep a close eye on the cash. Constantly re-evaluate
expense items such as telephone, insurance, and mainte-
nance.
Stay in contact with customers. Call customers
every six to eight weeks to be sure they are happy.
Hold semimonthly board meetings. Management
and the board should meet every other month.
Continuously educate. Circulate articles and bring in
speakers to help everyone grow professionally.
Hand out awards. Remember to single out people
who are making a contribution. ?
8 Soundview Executive Book Summaries
®
Small Business Turnaround — SUMMARY
Preparing for the Future
(continued from page 7)
Use an Advisory Board
Using an advisory board can be a powerful way
to add the expertise needed during a turnaround.
Unlike a board of directors, an advisory board has
no financial responsibility to the company. Advisory
boards serve at the pleasure of the owners, and
can’t wrest control. Instead, their function is to pro-
vide advice and feedback. An advisory board made
up of 10 to 15 top clients can provide valuable
advice and information.
Consider your company’s weaknesses when
selecting an advisory board. Look for people who
can fill voids and who understand the company’s
business. Then listen critically but with an open
mind to their suggestions.
doc_659283339.pdf
Manage or own a struggling small- or mid-size business, you know how hard it is to stay afloat and turn things around when the going gets tough.
Published by Soundview Executive Book Summaries 10 LaCrue Avenue, Concordville, Pennsylvania 19331 USA
*All rights reserved. Reproduction in whole or part is prohibited.
Revitalize Your Struggling or Stagnant Enterprise
SMALL BUSINESS
TURNAROUND
THE SUMMARY IN BRIEF
If you manage or own a struggling small- or mid-size business, you
know how hard it is to stay afloat and turn things around when the going
gets tough. You are not alone. The risk for failing seems to be greater with
every passing year. According to the Small Business Administration, busi-
ness failures rose an incredible 16.6 percent from 1986 to 1996. And busi-
ness bankruptcies rose 5.3 percent during 1996 alone.
Marc Kramer takes the process of turning around a small business and
compares it to getting back in shape. You didn’t lose shape overnight; it
took time. There were good things that you stopped doing, and bad habits
that you started. Worse yet, you may have cultivated an all-knowing attitude
that erroneously convinced you that you had everything under control.
This summary provides practical steps to help your company go from
struggling and stagnant to growing and prosperous. The first step is to map
out your strategy. This summary will show you how to:
? put together an updated business plan,
? create an operation and launch plan to put change into motion.
The next step is to implement your strategy. You’ll learn how to:
? get vendors and lenders to agree to reasonable repayment schedules,
? keep and recruit good employees during the turnaround,
? create an effective marketing and sales plan.
Finally, once you have begun the turnaround, this summary will show
you how to:
? cut costs,
? boost sales,
? find the funding you need to move your business forward.
If you find yourself struggling to keep customers, make sales, pay ven-
dors and business taxes, this summary will help you take action now to pre-
pare for a better future.
Vol. 22, No. 4 (2 parts) Part 1, April 2000 ©2000 Soundview Executive Book Summaries* Order # 22-9
CONTENTS
Mapping Out Your Strategy
Pages 2, 3
Write A Business Plan
Pages 2, 3
A Business Plan:
Step-By-Step
Pages 3, 4
Write The Operation And
Launch Plan
Pages 4, 5
Implementing Your Strategy
Pages 5, 6
Write A Marketing
And Sales Plan
Page 6
Develop A Budget And
Negotiate Debt
Page 7
Preparing For The Future
Pages 7, 8
Find New Sources
Of Financing
Page 8
Keep Moving Forward
Page 8
By Marc Kramer
F
I
L
E
:
S
M
A
L
L
B
U
S
I
N
E
S
S
/
E
N
T
R
E
P
R
E
N
E
U
R
S
H
I
P
®
2 Soundview Executive Book Summaries
®
Mapping Out Your Strategy
Your company didn’t get where it is overnight, and
won’t recover instantly. It takes a lot of planning, hard
work, and grit to make the enterprise a success story.
The worst thing you can do is hide. You must meet
with key employees and advisors and let them know
what is happening. Talk to your customers and vendors,
too. They have probably been hearing rumors anyway,
and since rumors are often exaggerated, they will be
reassured to hear the correct information directly from
the source. Vendors especially want to know what your
plans are and how they will be paid. You will also need
to contact tax authorities if you can’t meet your obliga-
tions. They will usually do all they can to work with
you. The same goes for your bank if you are having
trouble paying business loans on time.
Ten Keys to a Successful Turnaround
Your company has a greater chance of turning itself
around if:
1. The top executive is strong, decisive, and com-
municative.
2. Business, marketing, sales, and operating plans
have a narrow agreed-upon focus.
3. Managers are able to handle adversity and be
willing to work long hours.
4. Employees are willing to make sacrifices and
work more than 40 hours.
5. Board of directors and advisors are strong and
experienced.
6. Vendors are flexible.
7. Bank loan officers believe in the company.
8. Quality is job one.
9. The marketplace needs the company’s products
or services.
10. Management hires experienced counsel and
accountants who understand the business and
turnarounds. ?
Write a Business Plan
The first step to turning around any enterprise is to
map out a plan. Planning is essential to success.
Therefore, you want to begin the turnaround by creating
business, sales, marketing, and operations plans. Revise
these plans annually. Those who get in the habit rarely
fail. That’s because detailed planning lets everyone
know where the company is and where it’s going.
Planning builds confidence.
Start with an updated business plan. Many small busi-
ness people think of business plans as something they
need to draft to raise money. But a business plan can do
much more than that. It can be used as a realistic view of
the expectations and long-term objectives of your busi-
ness, and can provide a framework within which the
enterprise will operate. Business plans help management
clarify, focus, and research the development and
prospects of their business or project; provide a logical
framework within which a business can develop and pur-
sue business strategies over the next three to five
To subscribe: Send your name and address to the address listed below or call us at 1-800-521-1227 (Outside the U.S. and Canada, 1-610-558-9495)
To buy multiple copies of this summary: Soundview offers discounts for quantity purchases of its summaries. Call or write for details.
Published by Soundview Executive Book Summaries (ISSN 0747-2196), 10 LaCrue Avenue, Concordville, PA 19331 USA, a division of Concentrated Knowledge
Corporation. Publisher, George Y. Clement. Publications Director, Maureen L. Solon. Editor-in-Chief, Christopher G. Murray. Published monthly. Subscription, $89.50 per year
in the United States and Canada; and, by airmail, $95 in Mexico, $139 to all other countries. Periodicals postage paid at Concordville, PA and additional offices.
POSTMASTER: Send address changes to Soundview, 10 LaCrue Avenue, Concordville, PA 19331. Copyright ©2000 by Soundview Executive Book Summaries.
SMALL BUSINESS TURNAROUND
by Marc Kramer
— THE COMPLETE SUMMARY
The authors: Marc Kramer is president of Kramer
Communications, which specializes in Internet strategic mar-
keting, sales and communications, business plan development,
and project management. Kramer is a professional speaker and
lecturer on turning around distressed companies.
Copyright ©2000 by Mark Kramer. Summarized by per-
mission of the publisher, Adams Media Corporation, 260
Center Street, Holbrook, MA 02343. 336 pages. $17.95. ISBN
1-58062-195-3.
(continued on page 3)
How Do You Know
You’re in Trouble?
Heed these warning signs:
•
Decreasing sales despite a growing market.
•
Customers leaving for reasons you control.
•
Clients claim calls go unreturned.
•
Projects are over budget.
•
Expenses are up while profits are down.
•
Employees doubt viability of the company.
•
Employees say there’s no leadership.
•
Staff arrives late and leaves early.
•
Staff meetings are a thing of the past.
•
Taxes go unpaid.
•
Payments to vendors are late.
years; serve as a basis for discussion with third parties;
and offer a benchmark against which actual perform-
ance can be measured and reviewed. Lack of a business
plan almost certainly dooms a business to failure.
The easiest way to start a business plan is to create a
two- or three-page outline. From this start, you will cre-
ate a plan that should be no longer than 25 pages. Of
course, before you can begin an outline, you must be
able to identify the current status, objectives, and strate-
gies of your business. Those entities will be critically
examined to probe existing and perceived strengths,
weaknesses, threats, and opportunities.
Parts of the Plan
Every business plan will include an explanation of the
firm’s vision, mission, objectives, values, sales, market-
ing, and hiring strategies, competition, and income and
expense projections.
The vision statement is a snapshot of the business
three or more years into the future. It describes the com-
pany’s physical appearance, size, and activities.
Remember to keep the statement grounded and accessi-
ble. Venture capitalists often have their secretaries scan
business plans. If your vision statement isn’t clear
enough for a secretary to understand, it will never see
the light of day.
The mission statement explains what the business is
trying to accomplish. When crafting the mission and
objectives, management must ask:
?What are the central purposes and activities of
the business?
?What are its major objectives, key strategies,
and prime goals?
For example, a food company concentrating on food
for diabetics might state its mission as “To be the lead-
ing kidney food company in the United States.”
The next step is to identify the objectives and goals
that will help the company achieve its mission. The
objectives and goals state what the business needs to
achieve in the short and long term. Objectives are cen-
tered around financial and market share goals. In most
cases, financial goals are more meaningful than market
share, unless you are in a niche business. The strategies
outline the path the company will use to achieve its
objectives and goals.
The most difficult sections to write are likely to be the
marketing and sales sections. Be sure your financial pro-
jections are in line with industry norms. Overestimate
the time or cost required for product development, mar-
ket entry, external support, and raising capital. A good
rule of thumb is to halve sales projections and double the
cost and time required to get there. ?
A Business Plan: Step-by-Step
Here is the step-by-step process for putting together a
business plan:
Draft an Executive Summary: (1-2 pages) Introduce
the entire plan, and explain who wrote it, when, and why.
Be sure to provide contact information and highlight the
most important points you make. The executive summary
3 Soundview Executive Book Summaries
®
Small Business Turnaround — SUMMARY
Write a Business Plan
(continued from page 2)
Sample Mission
and Objectives Statement
The mission of the company is to provide quality
prepared microwaveable foods to individuals with
kidney problems so they are freed from the task of
preparing their own food. HF will offer a variety of
entrees to meet their special nutritional require-
ments and in so doing, make meal planning easier,
more convenient, and less stressful. HF’s plan is to
develop unique entrees and related foods focused
on kidney nutrition and to market these products
both domestically and abroad.
Short-Term Objectives: 1997-1999
•
To raise $1 million to finance initial product
acquisition and marketing costs.
•
To recruit quality management to build a world-
class food company.
•
To develop quality microwaveable shelf-stable
entrees.
•
To set up distribution channels and perform sam-
ple marketing.
•
To attain name recognition in the kidney commu-
nity via targeted marketing efforts and dissemina-
tion of educational information.
•
To reach $20 million in sales.
Long-Term Objectives: 2000-2003
•
To expand penetration into international markets
with help of overseas distributors.
•
To expand the product line to include side dishes,
desserts, and snacks.
•
To develop other forms of recurring revenue such
as additional product lines targeted to other niche
markets.
•
To reach long-term revenue goals of $52 million
within five years.
(continued on page 4)
encapsulates everything into one place. Many investors
don’t read anything but the executive summary on the
first go-around. If it doesn’t make the cut, the plan goes
in the trash. Make sure the executive summary shines.
State Your Mission and Objectives: (1-2 pages) The
mission statement tells the reader what the business is
trying to accomplish. Every employee should be able to
articulate the same mission if asked. It is followed by
the objectives the company wants to accomplish.
Describe the Company History: (1-2 pages)
Summarize the company’s achievements and perform-
ance and introduce the shareholders or principals. It is a
snapshot of where the company has been and where it is
now.
Describe the Company’s Product/Services: (1-2
pages) Describe what makes your products or services
special.
Profile the Target Market: (1-3 pages) Address the
size, segment, trends, and potential customer profiles. A lot
of the information you need on the target market is avail-
able through research. Try industry publications, research
departments, college professors, and trade associations.
Valuable data can also be found on the Internet.
Describe the Competition: (1-2 pages) Include both
primary and secondary competitors, and comment on
their strengths and weaknesses.
Describe Your Marketing Strategies and Sales
Plans: (2-3 pages) Tell the reader how you will market
your product or services to customers. Predict how sales
will go in your main market. Describe how you will dif-
ferentiate yourself from the competitors.
Describe R&D Efforts and Technology: (1 page) If
your company is engaged in any research and develop-
ment or owns patents it will use, describe these. Explain
how you will improve or develop products and what
resources you will need.
Describe Operational and Manufacturing Plans:
(2-3 pages) Explain how the company plans to improve
distribution, service, and manufacturing.
Identify Managers: (1-2 pages) Identify the manage-
ment team you plan to use. Be sure to highlight their
experience in your industry or their specialty.
Disclose Funding Needs: (1 page) Summarize the
company’s financial needs, identify sources for funding,
and offer projections for their return on investment.
Once you come this far in your business plan, you will
have a clear understanding of how much money you
need and be able to decide how much ownership you
are willing to give up in exchange for funding. Include
an exit plan if selling or going public is a goal.
Provide Financial Position and Projections: (2-3
pages) Use simple tables to present key financial projec-
tions, such as profit and loss, cash flow, balance sheets,
and key ratios. Be sure the figures are accurate and
believable. ?
Write the Operation and
Launch Plan
Once you have a solid business plan in place, you need
to concentrate on creating the operation and launch plan.
A solid launch plan is the second most important docu-
ment your company will prepare as it reinvents itself. The
plan will include product descriptions, show how the
products will be created and developed, show exactly
how they will be marketed, how much it will cost and
what the pricing will be, and who will be involved.
If this sounds a lot like a business plan, it is. An oper-
ation and launch plan takes the business plan and
expands it. The details are filled in. For example, if part
of your company’s turnaround includes creating a web
presence, the business plan would list web development
as one of the strategic goals. The operation plan would
detail the technology the company will use to develop
the web site, specify its layout and content, and detail
how the site will be advertised to its intended market.
The plan would also detail how the site will make
money, and how much. Pricing for everything from sub-
scription fees to advertising rates also belongs in the
operation plan.
The launch section of the plan specifies what will
4
Small Business Turnaround — SUMMARY
(continued on page 5)
A Business Plan: Step-by-Step
(continued from page 3)
Lack of Plan Dooms Antique Mall
Entrepreneurs are famous for believing they can
make it happen with the sheer force of their will.
They think business and marketing plan are for
sissies. And some pay dearly for that arrogance.
Consider the case of a successful, charismatic pro-
moter. When he met someone who told him an
antiques center would be great in his part of the
state, the promoter jumped on the idea. Because he
personally loved antiques, he found the idea attrac-
tive. He then built a $250,000 center and opened the
doors for business without ever having investigated
the antique business, who his competitors were, or
whether it was a money-making proposition. Had he
investigated the business, he would have known that
antique businesses cluster together like fast food
restaurants along a highway rather than congregate
in a mall. His lack of planning sent him straight into
bankruptcy.
Soundview Executive Book Summaries
®
5 Soundview Executive Book Summaries
®
happen when and where and identifies milestones along
the way. In the example, the launch timetable would
include dates for getting funding, hiring key employees,
and having the site up and running. Think of the opera-
tions and launch plan as a “to do” list for full imple-
mentation of the business plan. ?
Implementing Your Strategy
Once you have decided to turn your company around,
chosen someone to lead that effort, and drafted busi-
ness, operation, and launch plans, then you are ready to
implement your strategy. As you begin to implement
your plan, you will need to accomplish three things.
First, you must rebuild morale as well as attract and
retain employees. Next, you must build sales through
creative marketing. And finally, you must learn to hold
the line on expenses and negotiable debt.
Manage the People Issues
If your company is going to turn around, it’s essential
that employee morale be rebuilt. When things look
bleak, workers aren’t naturally motivated to work harder
and longer for fewer rewards. They may feel as if they
have already made enough sacrifices. They start coming
in late and leaving early. They steer friends and
acquaintances away from joining the company. With
time, energy, and commitment, these negative attitudes
can be transformed.
Recruiting for a turnaround is often difficult. You
must pick the right type of person, someone who thrives
on pressure and looks at a turnaround as an opportunity
to shine. They have to be mentally tough, able to with-
stand long hours and sleepless nights, and be full of
energy.
Some other characteristics to look for are the ability
to work in a team environment and to be flexible
enough to work without structure. Good candidates also
don’t mind losing free time and can work on multiple
tasks simultaneously. Finding employees suited for a
turnaround is difficult but not impossible. Good sources
of referrals include current employees, friends, business
associates, trade associations, members of the board of
directors or advisory board, and other professional con-
tacts like attorneys and accountants.
A struggling company must also work hard to retain
its good employees. Do what you can to create a pleas-
ant work environment. Use small perks like free food
when employees work late. Scout out free seminars and
inexpensive books to help workers develop professional-
ly. Let employees play with new technologies by asking
vendors for demonstrations. Give employees extra time
off with pay if long hours are taking a toll. Consider
giving stock options in lieu of raises, and promise profit
sharing when the tide has turned. And don’t hesitate to
dole out bonuses for a job well done.
Small Business Turnaround — SUMMARY
Write the Operation and Launch Plan
(continued from page 4)
(continued on page 6)
Hire a Turnaround Specialist
Sometimes the owner of a failing firm doesn’t
have the expertise or the ability to distance him- or
herself from what’s happening in order to turn
things around. Sometimes the managers have to be
replaced if the company is going to recover and
prosper. If that’s the case, the best solution is to
hire an outside turnaround specialist and have the
managers resign and the owner step down from
active management of the company. A specialist can
take a fresh look at the situation, has no preexisting
prejudices, and often has valuable experience turn-
ing other firms around.
If your company decides to hire a specialist, first
ask trusted advisors for referrals. Good sources are
accountants, attorneys, bankers, or financial plan-
ners familiar with your business. You can also try
the Chamber of Commerce or trade associations to
which your company belongs. Another good referral
source is the Turnaround Management Association.
When selecting a specialist, look for experience
and knowledge about your industry as well as real
experience turning a business around. Don’t hire
someone who hasn’t suffered through adversity and
turned things around. He or she won’t have the
stomach to face angry vendors, disappointed cus-
tomers, and hostile workers.
Compensation for the turnaround expert can be
handled several ways. Some want to be paid by the
hour or by the project. If the proposed fee is out of
your company’s reach, there are also specialists
who will work for a combination of cash, equity, and
bonus based on results. Ownership of 5-15 percent
is standard. Trading equity for service may help
cash-strapped companies who could use the funds
to recover faster. If giving up equity is a concern,
you may want to draft the agreement to allow a
buyback or right of first refusal for any future sale
of stock.
A specialist becomes the new leader, and is
responsible and accountable for all facets of the
business. For the process to work, the specialist
must be in control. No one can be hired or fired,
and not a penny can be spent, without his or her
approval. If giving purse string control to an out-
sider bothers you, then you can require two signa-
tures for expenditures.
Handling Layoffs
On the other hand, turning the company around may
mean laying off workers. If your new business plan
includes downscaling the company’s endeavors, obvi-
ously people will have to be reduced. While it can be
very hard on management to have to fire people, some-
times it has to be done. It helps if you can offer sever-
ance payments or at least assistance with the job hunt.
Be sure to offer references and don’t contest eligibility
for unemployment. There is no need to make enemies
out of former employees.
Once layoffs are a fact, the surviving employees may
be angry or worried that they are next. If you don’t want
a mass exodus, you must explain the situation. Have a
departmental or companywide meeting. Be reassuring.
Explain that the layoffs are part of the company turn-
around plan, and that their contributions are essential to
the success of the plan. ?
Write a Marketing
and Sales Plan
One of the quickest ways to get a company out of
trouble is with a strong sales and marketing plan. Since
you already should have a business plan in place, you
already have experience writing plans. A sales and mar-
keting plan has a similar layout.
Start with an executive summary and mission
statement. Use the business plan format.
Follow with a competitive advantage section. This
section is crucial. It should explain what clear advantage
your company has over the competition. Competitive
advantages can range from better technology, quicker
service and better quality service to wider coverage area,
more experienced staff, or cheaper price. Once you artic-
ulate your competitive advantage, your employees will
be able to answer a crucial customer question; “Why
should I buy from you and not someone else?”
The next part is the objectives section. These objec-
tives should be developed by the management team.
They should represent realistic sales goals, not numbers
pulled out of a hat. They should also include recruiting
and visibility goals.
Outline sales strategies. This is a road map of how
you will achieve the sales goals. It should be developed
by the head of sales, and should be based on the most
successful sales techniques used in the industry and by
the company.
Benchmark your strategies against the best in the
industry and you will improve your sales. Be very spe-
cific. For example, say “We will send a one-page letter
to each prospect and follow up within 10 days with a
phone call,” and not “We will do a mass mailing.”
Outline how you will market your services. Identify
good sources of new business by asking current cus-
tomers, vendors, trade associations, and professionals
for referrals and outline how you will reach those
prospects. Other ideas include developing a newsletter
and holding seminars.
Identify your target market. Your target market is
those who need your service or product, can afford it,
and are within an area you can service. Don’t waste
time on others.
Outline your retention plan. Keeping current cus-
tomers is crucial. Be sure to set contact goals for current
customers and ask them how you are doing and what
you could improve.
Describe your personnel program. How will you
select and retain workers? What skills do they need and
what duties will they perform?
Describe the competition. You need to keep tabs on
the competition. Keep a file on each one, and fill it with
press releases, news stories, and marketing material.
Identify their strengths and weaknesses.
Outline launch plan. This should be very specific,
perhaps month-by-month or week-by-week.
Make financial projections. If you have completed
the previous sections, you should be able to estimate
expenses and income. Bear in mind that “it’s better to
underestimate and over perform than overestimate and
underperform.” ?
6 Soundview Executive Book Summaries
®
Small Business Turnaround — SUMMARY
Rebuilding Employee Confidence
Here are some tips to build employee confidence
in themselves and the company:
•
Hold a meeting to single out successes, demon-
strating to everyone that successful people
abound.
•
Admit past mistakes and discuss how everyone
will have a part in fixing them.
•
Meet with every employee and get his or her
input.
•
Post client compliments and sales successes.
•
Compliment workers in front of clients.
•
Promote from within.
•
Let go of employees who aren’t team players.
•
Acknowledge implemented suggestions.
•
Encourage risk and reward innovation.
Implementing Your Strategy
(continued from page 5)
Develop a Budget and
Negotiate Debt
There are three reasons why companies get into finan-
cial trouble. First, they are under funded. Second, they
spend money unnecessarily. Third, they can’t sell enough
products or services to make up for the lack of funds.
If you are turning a company around, you must cut or
reduce expenses. By taking a close look at what is being
spent, you will find many creative ways to reduce costs.
For example, cancel redundant magazine subscriptions,
shop for new telephone services, buy instead of leasing
equipment, analyze insurance costs, keep only crucial
memberships, advertise effectively, avoid charitable
contributions, buy office supplies on sale, and avoid first
class travel.
Working with Creditors
Any company trying to turn itself around probably has
creditors demanding immediate payment. If they know
your company is having trouble, they may fear the
worst. The reality is that if they force the company into
bankruptcy, no one will get more than pennies on the
dollar. Therefore, most vendors will be happy to work
something out. The key is to approach them directly and
honestly and not make any promises you can’t keep.
Work with each creditor and come to an agreement,
and then keep it. Keep vendors informed of your situa-
tion. Remember that most banks would rather reorganize
the debt and take small payments over time than have to
take over the business. Working out payment schedules is
to everyone’s advantage. Companies should remember
that even a bankruptcy reorganization could wreak havoc
with a business. Once a bankruptcy petition is filed, the
company loses control of its business. ?
Preparing for the Future
Once your company has begun its turnaround, it’s
time to prepare for a successful future. Preparing for the
future includes finding new ways to build sales and
obtaining funding to allow your enterprise to keep
growing. Acquiring outside advisory board members is
also recommended.
Use the Internet to Cut Costs and Boost Sales
The Internet is probably the best and most cost effec-
tive medium to promote a company’s products and gen-
erate new sales.
Although large multinational companies may spend
hundreds of thousands of dollars developing an Internet
presence, small companies can get on the Internet for
much less. An outside developer can do the job for
$25,000, or off-the-shelf software can get the job done
for considerably less. Shop carefully before you sign a
contract or make a purchase.
As with any other endeavor, you need to have a plan
in place before you go online. Check out what the com-
petition is doing, and prepare a launch plan. What will
your site offer? Will it be an online catalog with order-
ing potential? Will it deliver your newsletter? Will it be
used to provide answers to commonly asked questions?
Remember that you may have to advertise to get people
7 Soundview Executive Book Summaries
®
Small Business Turnaround — SUMMARY
(continued on page 8)
Conduct a Client Audit
As the company grows and you focus on courting
new customers, you may forget to pay attention to
the customers you already have. Remember that the
cost of bringing in new customers is always more
expensive than keeping old customers. Consider
having an outside firm conduct a “client audit” to
determine if you are satisfying current customers.
The client audit should cover the following ques-
tions:
•
What is your impression of the company?
•
How often do you speak to your account rep-
resentative?
•
How would you rate the quality of the prod-
uct/service?
•
How does the company compare to your other
vendors?
•
Do you feel the company goes out of its way
to keep your business or just does enough to
fulfill your needs?
•
Are you driven by price over quality when
making a purchase?
•
What could the company offer or do that
would be valuable to you?
•
What isn’t the company doing now that you
wish it would do?
•
What will be some of your greatest needs
over the next twelve months?
•
Would you serve as a reference for this
company?
Once you know where you stand, use that infor-
mation to build customer loyalty. There are many
creative ways to attract and keep customers includ-
ing creating a newsletter for customers, running
seminars, and writing a regular newspaper column.
Even simple tasks like sending your customers
thank-you notes goes a long way in developing loy-
alty. And remember that current clients are a great
source of referrals for new business.
to your site. One easy way is to begin using your web
address in direct mail pieces, on stationary, and in print
advertisements. ?
Find New Sources of Financing
To continue on the path to recovery, your company
may need to boost its cash flow. Finding additional
sources of financing will play a crucial role in growth.
Many businesses fail when they aren’t able to achieve
enough cash flow to sustain rapid growth. But there is
hope. Finding financing is possible if you know where
to look. Consider these possibilities.
Banks. Conventional bank financing requires collateral
in the form of cash, property, or business contracts. Bank
financing can be inexpensive, and doesn’t typically require
giving up equity in the company. The disadvantage is that
most owners have to personally guarantee loans. If the
company fails, they are personally on the hook.
Investor Angels. Angels are wealthy individuals who
like to invest in new or troubled companies with poten-
tial. They want an equity stake.
Venture Capital. Venture capital firms are in the
business of funding promising new companies. They
typically want a large equity stake as well as the ability
to control management.
Public Funding. The Small Business Administration
has loan guarantees available for firms turned down by
banks for conventional loans. Some states have similar
loan and grant programs available.
Vendor Funding. Vendors sometimes accept stock in
a company in lieu of payment for goods or services.
Factoring. Factors loan money using a company’s
accounts receivable as collateral. Typically, factors will
lend 70-80 percent of the value of the accounts receivable
at a rate of 3 percent per month. This is a good short-term
method, but the rate for long-term borrowing is high.
Venture Leasing. Venture lease companies specialize
in funding leases for companies with impaired credit,
and take a stake in the firm as part payment.
Conventional Public Offering. This is commonly
known as going public, and involves offering stock to
the general public. Hire experts in public offerings if
you go this route.
Internet Public Offering. This cuts the intermedi-
aries out when going public. Again, hire experts.
Small Companies Offering Registration. This form
of going public is done on a small scale at the state
level. Most states require that no more than $1 million
be raised per year.
Public Shell. A private firm can purchase controlling
shares in a public company with few assets and become
in effect a public company. The owners of the public
shell invest in the business much like a venture capitalist.
Venture Consultants. Venture consultants raise
money for companies for a fee. ?
Keep Moving Forward
Once you complete a successful turnaround, it is
imperative that you don’t fall back into the old habits
that got you in trouble in the first place. Try these sug-
gestions to help you stay in shape:
Never skip a weekly staff meeting. Keep those lines
of communication open.
Hold semiannual strategic planning sessions. Re-
evaluate and revise your strategy when needed.
Update the company business plan. Review and
rewrite sections regularly.
Hold monthly company meetings. Always ask for
input from your employees.
Evaluate management. Remove or add people if the
current team isn’t getting the job done.
Keep a close eye on the cash. Constantly re-evaluate
expense items such as telephone, insurance, and mainte-
nance.
Stay in contact with customers. Call customers
every six to eight weeks to be sure they are happy.
Hold semimonthly board meetings. Management
and the board should meet every other month.
Continuously educate. Circulate articles and bring in
speakers to help everyone grow professionally.
Hand out awards. Remember to single out people
who are making a contribution. ?
8 Soundview Executive Book Summaries
®
Small Business Turnaround — SUMMARY
Preparing for the Future
(continued from page 7)
Use an Advisory Board
Using an advisory board can be a powerful way
to add the expertise needed during a turnaround.
Unlike a board of directors, an advisory board has
no financial responsibility to the company. Advisory
boards serve at the pleasure of the owners, and
can’t wrest control. Instead, their function is to pro-
vide advice and feedback. An advisory board made
up of 10 to 15 top clients can provide valuable
advice and information.
Consider your company’s weaknesses when
selecting an advisory board. Look for people who
can fill voids and who understand the company’s
business. Then listen critically but with an open
mind to their suggestions.
doc_659283339.pdf