How to turn around a business

#12

Your business is slowly dying. What do you do?

In the past 5 years, I’ve gotten to be a part of 5 business turnarounds. Situations where profit was negative and cash was dwindling. 😬

One of those businesses was my own. It’s scary.

Turnarounds are a little less strategic, a little more tactical, so this week’s “strategy” is a tactical, step by step plan to help you turnaround your business.

If you need it.

If not, send it to a friend that might “find it interesting”.

Having a business that is tanking is embarrassing and isolating, especially when all you see on LinkedIn and Instagram are businesses that are “absolutely crushing it!!! 🤩🚀🥳”.

Be a good friend. Pass it on.

The Simple Strategy

Before we get into this, what is a turnaround? Is it different than declining sales?

A turnaround is a business setting where any of the following are true.

• When forecasting income and expenses, you’re negative in the next 6-12 months

• Your cash is burning on expenses faster than it’s being replaced in revenue.

• Your LTV/CAC ratio is 1/1.

You can be in a turnaround situation with $1,000,000 in cash in your account or $0. A turnaround is based on the forecast of your business.

For example, I was recruited to join a corporate turnaround team for a business that had $4 Billion in revenue per year. But expenses had risen beyond that, leading to a $2.9 Billion write down per year. Not fun.

If a big business needs a turnaround (over $50M) this almost always starts with refinancing, a reduction in force in administrative roles and hiring in “strategic” areas. It’s not uncommon to see a business connect with private equity, reduce staff by 15% and then purchase another business to increase cashflow. Behind the scenes, there is a series of debt refinancing steps that can be taken.

The PR statements are always “We’re excited to announce a new strategic alliance that will provide synergies…!” But really everyone is very stressed.

For small businesses — under $10M — the turnaround process looks a little different. You have less leverage for refinancing, so need to take more control of the cashflow.

That’s what we’ll focus on today.

Why it matters

Last year I connected with an entrepreneur who was ready to sell his business .

Revenue, followers and new customers were all up. But profit was way down. If he stayed on the path he was on, by this time right now, the business would be on a deep downward spiral.

We worked together on the steps below.

6 months later, profit is up 392%.

This is for a highly seasonal business where 65% of revenue happens in Q4. He hasn’t even gotten to the good part of the year!

If you’re in a similar situation, there’s hope. You can turn it around. It takes a lot of work but it’s possible. Here are the steps.

1. Create a clear picture

If there’s a hole in your boat, and you’re taking on water, it makes little sense to blame someone (or yourself) for making a hole. You just have to find it and plug it up.

The same thing is true for your business. If a mistake caused your problem, identify it and don’t make it again, but there’s no time for blame. Just fix it.

The first place to start is to get a very clear picture of your finances. Where are there holes in the boat?

Download the last 4 months of your credit card and bank statements. Combine them into two files, one for credit one for bank statements.

Then you’re going to look for any recurring payment that does not directly provide revenue.

Ask these 2 questions -

1. “Is this essential for creating revenue?”

   1. Yes or no?

2. “If yes, is there a lower cost option?”

2. Cut expenses

You can’t control the market.

You can control expenses, even if it’s uncomfortable.

Look at the following, in this order:

• Software - (web hosting, communication, design)

• Ads - (Meta, Google, direct mail)

• Vendors - (marketing agencies, design, L&D)

• Rents - (office space, vehicles, equipment)

• People - (full and part time employees in supporting roles)

Software. Software cuts will feel small, but they can add up, especially in a cashflow setting. $15 a month spent on software means $15 not spent on revenue producing activities.

Ads. Are there other lower cost ways of finding customers? The answer is almost always yes, you just have to find it.

Vendors. Who are you paying right now? Does this work need to be done to generate revenue?

Rent. Can you reduce it? Can you eliminate it?

People. This is the hardest. I also put it last, where others might put it first because it’s the hardest to undo. You can always find a new office, you can’t always find the same caliber co-workers.

3. Launch a 90% margin service.

Why a service? Simple. Services can be launched with very little capital and produce cash fast(here’s a deeper dive). You want to spend what little cash you have on acquiring customers, not on servicing them. Products are excellent, but they take cash to launch and have lower margins.

Find the winning customers in your business — the top 20% that support 80% of your revenue.

How can you serve them even more?

Do you have an expertise that is hidden in your day-to-day?

The service doesn’t have to be high value, it could be a low priced service for existing customer - like a weekend workshop, or live class — the most important point is that it puts cash in your pocket fast.

Do you have to launch a service? No, there are other options of course, but I like this one because of how fast it turns into cash. You figure out what works best for you.

If your business needs to turnaround, all hope is not lost. It can be done. Start with the steps I outlined above.

Keep your head up.

Ask for help if you need it.

Keep pushing friend! We need your good work!

Catch you next week

-Nate

Whenever you’re ready, I help bootstrapped entrepreneurs increase their profit in two ways.

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