Amid an increasingly uncertain commercial landscape, many companies find their business threatened or on the brink of failure. Various factors may be at play here, from a rapidly evolving market to poor performance or a failing business model, but they all carry the same bottom line for companies – change or die.
Businesses in this position may call on a handful of strategies to rescue their position and stimulate success or minimize market losses – and turnaround strategies are a common option. Today, we’ll discuss what business turnaround strategies mean, why they’re important, common types, and the critical phases of a successful turnaround plan.
A business turnaround strategy is a plan that helps a struggling business return to profitability. It is a strategic process that identifies where and why a business is failing and restores the business to its former viability.
But business turnaround strategies are not for only failing or financially distressed companies. An organization may lay and execute a turnaround plan to take an already successful business to its next level or unleash the full potential of an underperforming business. Therefore, the goal of a turnaround plan is to transform a company’s position from one of loss or underperformance to profitability.
Business turnaround strategies come in all shapes and forms. Some might aim to induce stability through debt restructuring. Others might tackle surging overheads and bloated operations through cost cutting. Turnaround strategies may also employ business or digital transformation strategies to promote efficiency, boost productivity, or foster a beneficial change of leadership.
As mentioned above, companies will typically consider a turnaround strategy when facing the prospect of failure or when serious inefficiencies prevent expected growth. Other situations where a turnaround plan may be beneficial include:
This list is non-exclusive though. As the Harvard Business Review notes, the turnaround imperative stems from the need to remain competitive. Businesses that earn the right to compete are those that constantly assess their operations, cull inefficiencies, and prioritize sound business practices.
Consequently, “turnaround opportunities exist everywhere”, and savvy business owners are always on the lookout.
If your company’s performance or finances are at a level lower than you would like, implementing a turnaround plan can help you stimulate positive change, enhance cash flow and restore financial stability. The following are the core steps you would take to design and implement a turnaround strategy.
Before you begin to draw up or implement a turnaround plan, it’s critical to first assess the situation. This assessment will include performing an in-depth investigation of your business and its performance. You will critically evaluate various core aspects of the business, from your balance sheet to profit, business model and cash flow. This process is called a business turnaround analysis.
Conducting a business turnaround analysis will help you understand the complete situation of your business. It provides a platform to correctly diagnose your company and identify opportunities for improvement. Some areas you could evaluate to help identify turnaround opportunities include:
As you conduct this evaluation, it is crucial to be committed to isolating legitimate causes and understanding their effects. If your business is already struggling, you likely cannot afford an incomplete or inaccurate analysis that wastes precious time and resources. Take the time to get this one right – call on expert help if necessary.
Once you’ve identified areas where a turnaround will offer value, you can move next to designing a strategy. As we’ve explained, a turnaround plan should provide an action sheet that details how you intend to restore profitability. It is a roadmap that describes how you save your business.
There are various types of turnaround plans, depending on what business area you intend to tackle.
As you lay out your plans, it’s critical to be prudent and honest with your numbers. Creditors and shareholders want to see achievable financials and a clear pathway back to profitability. Secure buy-in from your business stakeholders – staff, middle managers, and senior leadership – as they’ll be vital to success.
If your business is in crisis, the first item on your plan must be to stabilize finances and preserve a positive cash balance. This is critical as you need to be able to make decisions without the pressure of a negative cash balance.
There may be several reasons why your finances are in trouble. The following are some ways you might deal with this issue.
With a stabilized business, you have the perfect foundation for your company’s rebound. Your next focus should be on improving profitability. Importantly, the goal here isn’t to expand revenue – that will come later. Instead, prioritize cash flow and a positive cash balance to truly put your business back on the path of good health.
There are two key factors to boosting profitability: improved profit margins and reduced costs. While it can be hard to grow profit margins, as higher margins may likely propel higher prices and alienated customers, there are numerous opportunities for action here.
You could consider a multi-pronged approach that includes reviewing expense structures, increasing prices for some products, introducing new sales items or entirely dropping some items. Whatever you decide, ensure you’re flexible and dynamic about your approach. Routinely survey your business and market to adjust tactics or pounce on prospects when they arise.
As for cost-cutting, you’ll quickly find that there are always avenues to cut costs. Undertake a rigorous initial evaluation of your cost structure, identify what’s not necessary and take it out. Also, imbibe the habit of periodically auditing your costs to ensure you’re operating leanly and efficiently.
Lastly, aim to expand your revenue. For many businesses, targeting current customers for cross-sell or upsell prospects is an easy way to quickly boost revenue. Scrutinize your existing customer base, determine where selling opportunities exist, and take advantage. You’ll save on the cost of prospecting and converting new leads, while immediately boosting your income.
Another way you can coax more revenue out of existing customers and leads is by increasing your conversion ratio. This involves finding ways to get a higher number of prospects in your pipeline to convert into customers. Likewise, you can increase purchase frequency, which is how often current customers return to you for a product or service.
When you’ve utilized avenues to cross-sell or upsell existing clientele, you can then accelerate lead generation and conversion.
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