In South Africa, the use of business turnaround specialists is a new and developing field. This is a good thing, but only if more businesses are made aware of it, and stakeholders like banks, creditors and employees see the value in the process.
When it comes to the state of the economy, it’s easy to become dejected, and this is exacerbated by recent reports and predictions that insolvencies are set to rise at their highest level since the 2008 financial crisis. It’s possible that the economic recovery is still some time away because of the tightening of credit, energy price rises, job losses and rising unemployment, as well as the rising rate of inflation.
Nevertheless, a recovery is possible, and it will be led by entrepreneurs. We as entrepreneurs see opportunity where others see challenges. As the economy begins to recover, professional investors will have the opportunity to both contribute to and benefit from the process of rebuilding the broader economy.
What are the warning signs that you need a business turnaround specialists?
In what ways is your business struggling, or is it something more serious? Returning the system to full functionality may necessitate a company turnaround.
Over time, most businesses become irrelevant due to their inability to keep up with the competition. There are numerous inefficiencies that have a negative effect on profitability and cash flow.
Delivering results that are short of expectations is not fatal in and of itself, but if it is not quickly corrected, it can lead to financial difficulty.
Knowing the early warning signs of business underperformance can help you prevent this from happening, so you can take corrective action.
In order to avoid a crisis, it is possible to implement business turnaround measures that are reasonable and effective.
Listed below are ten of the most important financial and operational metrics to keep a close eye on.
Business Turnaround Warning Signs
1. Profits have been steadily declining.
Financial growth is a good indicator of a company’s health. One of the most obvious signs of trouble is if your profits have declined for five or more consecutive quarters. Your numbers should worry you even if they remain static.
2. Cash flow problems
There is a problem even if business is coming in. Cash shortages, overdrafts, and bounced checks are all signs of a problem. Despite the fact that working capital fluctuations are common, they should be manageable. Got no idea how much money you’ll make? You’re on the wrong track.
3. Lines of credit fully drawn
Another clear indicator of underperformance is the need to take out fully drawn advances to deal with liquidity issues. You should be able to cover your operating expenses and generate a profit without having to rely on long-term debt.
4. Expenses that are too high
Long-standing overheads, such as inefficient IT systems, underutilised rental space, or excessive and unfunded employee leave accruals, can be a problem for companies. Inefficiency is inevitable if these costs are close to, or already outpacing, your sales.
5. A decrease in investment, or even a complete absence of it
Short-term growth and long-term stability of a company are both dependent on adequate capital investment. This means that if your ability to invest in your business, from modern systems to new ventures, is dwindling or the possibility of it is completely eliminated, you’re in a bad situation.
Operational warning signs of a company turnaround
6. Communication breakdowns
Inefficient operations can be the result of a lack of communication between departments or between management and employees. In the event that you’ve observed these kinds of behaviours, underperformance is most likely to occur by defensive managers who deny or downplay negative information also pose a threat to the team’s success. This is where the challenge of managing self interests vs the interest of the business as a whole comes in.
7. Deterioration in the quality of goods and services
As soon as a problem arises, customers tend to be the first ones to point it out. The more returns or complaints you get, the more likely it is that you are performing below expectations. Negative reviews and a smaller customer base will only worsen the situation.
8. Employees don’t stay long
Staff turnover in South Africa is at a rate of 11.5 percent per year, according to the PwC. Other sources put this figure at 25% during 2021 which is quite stgering. Employee unrest or unusually high numbers could be a sign that things aren’t running as smoothly as they should. Even worse, when key employees depart, crucial knowledge is lost.
9. Poorly Planned Inventory
Having too much, too little, or a significant amount of obsolete stock is a sign of poor inventory management. Waste, high storage costs, and a lack of ability to meet demand are all consequences of this, all of which are unsustainable.
10. Loss of market share
If you’re losing market share to your competitors, you’re doing something wrong. Because of this, if your share of industry revenue has decreased in the last six to twelve months, you need to take notice and begin to investigate why.
Using Business Turnaround Specialists
There is light at the end of the tunnel
As long as consumers want high-quality goods and services at fair prices, businesses will be around for the long haul. A combination of poor management and the emergence of unfavourable market conditions can, unfortunately, lead to the demise of once-profitable companies. It is possible that the directors and decision makers have become ineffective, unable to find a solution, and unaware that the same level of thinking that created, or did not avoid the problems, can’t be fixed.
Because of this, it is rare for a once-thriving company to go out of business completely. Even so, quick action is required, as is the assistance of experts who have previously piloted recovery operations successfully. In some cases, professionals who have witnessed the demise of a business firsthand are best equipped to help a company recover.
There is no doubt that every company has its own strengths and weaknesses. However, a number of critical areas, such as reporting mechanisms, are frequently overlooked by professional trouble-shooters. Decision-makers will have a difficult time promoting successful business practises and correcting those that don’t work if they don’t have the right metrics. Like piloting a plane with no instrument panel when conditions are clear, running a business without adequate reporting mechanisms can be disastrous. The wrong direction can be easily taken if the company’s management is making decisions based on outdated or inaccurate information. This can create a false sense of security due to incomplete or inaccurate reporting.
Key to solving a company’s problems is a thorough understanding of the business, including its goals, customers, suppliers, and even internal departments. Even though customers are the lifeblood of any business, if they don’t pay for the goods or services they receive, they drain resources and become an obstacle to regaining control of the profit streams. This will have an effect on the declining business, as will a supplier who consistently overpromises and underdelivers. Delays and inefficiencies are just as common and must be addressed internally.
It’s easy to overlook the current management’s and the company’s core team’s wealth of experience and expertise. Just because a company has gone bankrupt doesn’t mean that the entire management team is responsible. Employees who have been with a company for a long time often hold key positions in which they have had great success. Experts in business recovery know that a company’s past success is as much a result of its people as it is of its products or services. A thorough understanding of what needs to be replaced or streamlined and what can be saved is critical. Being friendly with your coworkers and motivating them can help restore the company to an even keel.
As in a marriage, the founders’ and managers’ relationships with the company can go through rough patches, and the same is true of their own relationships with the company. After rescuing depressed and fearful management and employees from the depths of despair and helping them to focus on the task at hand, a new atmosphere is created. In order to turn around a company, getting employees to put in a little extra effort at a critical time is essential.
There are several advantages to quickly bringing in outside help to help the business recover. Firstly, a fresh objective persective can be both healthy and helpful. To ensure that the company’s future is secure, external business turnaround specialists have no political or other obligations to family members, clients or other obstructive players. Having a vested interest in the company’s survival and renaissance, the business recovery team will move quickly to ensure its survival and renaissance, avoiding what otherwise would have been certain corporate failure.
Business turnaround specialists unquestionably benefits the subject company and its employees, as well as the ailing economy as a whole. Investing in resurrected companies gives investors a chance to get involved in the process. The company can then be profitable again, ready to be sold on as a profitable ongoing investment for others to grow further with the right management and professional expertise.
In spite of the fact that the economy is still finding its feet, the much-anticipated ‘green shoots of recovery’ are definitely appearing on time. Businesses should never become complacent, as the recession and the difficult economic conditions that followed have demonstrated. While a decrease in consumer spending makes it more difficult to make a profit, it also highlights any weaknesses and separates companies that are well-run from those that have slackened off. Weaknesses in a company’s team can be remedied by business recovery experts, who work to build upon the team’s strengths and keep them employed and productive.
7 Key Questions for Managament
Management must be able to confidently answer these questions at key stages of the process for a successful turnaround:
1. Are we still invested in the company’s success?
2. Does the core business have a reasonable chance of success?
3. Key stakeholders can be managed and’motivated’?
4. Is there enough trust in the company’s leadership?
5. Is our company’s image intact?
6. Will we be able to secure internal or external funding?
7. Does our current business model allow us to serve our customers profitably?
Developing a plan to address the company’s fundamental issues and the underlying causes of its failure is necessary once it has been determined that the business can be saved.
Nine essential components to a successful turnaround
1. The management team must accept responsibility for the company’s current predicament and recognise that they are ultimately responsible.
2. Commitment to making necessary changes. Too often, the “the way we’ve always done it” mentality is used to stifle innovation. The second step of the process requires everyone involved to commit to the process of change, regardless of their own personal interests. Everyone involved will lose their jobs if the company fails.
3. It’s all about getting your act together in a time of crisis. That means taking charge, managing your finances, selling off assets, securing emergency funding, and beginning cost-cutting measures.
4. There needs to be a focus on sales and training sales teams, improve margins and improve the net profit. As business turnaround specialist this is normally core to our recommendation and an area we specialise in.
5. All stakeholders should be involved in the decision-making process. In order to give stakeholders confidence in the turnaround plan, it is necessary to provide them with clear, consistent, and predictable information and communication.
6. Reviewing the company’s overall strategy and determining whether divestiture, asset reduction, downsizing, outsourcing, or investment is warranted.
7. Structural change in business; reshuffling or decreasing line/middle management; improving communication strategy are examples of culture and operational changes
8. Improving sales and marketing, reducing costs, and increasing efficiency are all critical parts of the process, and they can all be improved by implementing the Eliminate, Automate, and Delegate framework.
9. Refinancing, asset reduction, and changes to debt and equity are all examples of financial restructuring.
Keep in mind that prevention is always a better option than treating an illness. In many cases, when business owners come to us for help with saving or turning around their business, it is often too late and the only solution is Liquidation or bankruptcy.
Your business is only as strong as the people who work for you. And your accountant should serve as the team’s leader. And not just a tax preparer you see once a year to find out how much you owe in back taxes. You need a confidant who you can rely on.
Why? In order to help your management team make important decisions about:
Too many business owners, in our experience, neglect to devote time and resources to assembling a solid team of employees who can be an asset to their enterprises. Do not make the same mistake again, please.
If you’re in need of business turnaround specialists, Caban Investments can help. We’ll help your company not only survive, but thrive.
Contact us at Caban Investments to assist you with you business turnaround consulting needs, specifically through our focus on sales and training sales teams, improve margins and improve the net profit. and let us help your business not just survive, but thrive.