4 Tips for Struggling Companies from a Business Rescue Expert

At its lowest point FedEx was burning through one million dollars per month and was forced to rely on Blackjack winnings to pay its bills. (Seriously, that happened!) Now FedEx employs close to half a million employees and boasts a $45 billion cap.

In 2009, automotive icon General Motors was actually forced to file for bankruptcy with debts totalling over $30 billion. With a little help from corporate bankruptcy experts AlixPartners (and the US Government), General Motors now boasts healthy profits and a $52 billion cap.

So, why am I talking about FedEx and General Motors? The point I wanted to illustrate is that all businesses experience challenges and all businesses experience tough times.

If your business is struggling, that’s okay. What matters now is how you respond to those challenges.

In this blog, I’ll share you four tips that I give struggling businesses when I’m brought in to right the ship.

Realistic forecasts

Nearly every single set of projections and forecasts I see show a sudden and significant improvement in trading. The justification for this is sometimes as simple as: “We are going to try harder.”

While this is admirable, simply trying harder will rarely engender enough change to rescue a failing company. On that matter, how hard were the directors working before the company started to fail?

Going back to the sudden improvement in sales, I always ask them what are they basing this improvement on and usually there is no solid explanation.

Directors must prepare prudent forecasts for the future that are based on past data and realistic projections. Realistic forecasts allow you to predict where you will be in six months and make plans accordingly. For example, will you need to raise more money?

Without realistic forecasts you are effectively flying blind and hoping for the best.

Prepare for things going wrong

There is a famous military quote that goes like this: No battle plan survives contact with the enemy.

The same is true in the business world. In the business world things rarely run as smoothly as you hope. For example, regulations change, political earthquakes occur, funding dries up and so on and so on.

Unexpected events are all par for the course and you need to be prepared for them.

Unfortunately, all too often business plans and forecasts work on the assumption that every goal will be hit, every opportunity grabbed and everything will work perfectly. In cases like these, it’s very rare to see wiggle room built in.

That means that when things do go wrong, the business doesn’t have the resources to adapt and survive.

When you’re designing your recovery strategy, build in wiggle room where you can afford it. If things do go sour (and I sincerely hope that they don’t) you’ll be thankful you prepared for it.

Keep a close eye on your finances

You would be surprised how many businesses take their eyes off their finances when they have a lot on their plate.

This is a little like taking your eyes off the road when you’re driving because you’re busy changing the radio station. It’s not a good idea.

I always recommend producing a regular cash flow forecast and using this on a daily or weekly basis to compare actual cash flows against the forecast. Any variances are quickly analysed and understood so that management can keep on top of the cash position.

A cash flow forecast can be a very powerful management tool but not if it just sits in your desk drawer after it has been produced. It needs to constantly reviewed and updated against actual performance.

Don’t ignore credit control

In my experience, credit control is an area that many SMEs struggle with. Often, I find that business owners find it an awkward subject to bring up with their clients so opt to ignore it until it is too late.

The easiest way round this is to separate the roles of sales and credit control so the person building a long-term relationship with the client isn’t the one calling them to prompt them to make an overdue payment.

As for encouraging your debtors to pay, the reality is that the companies who shout the loudest tend to get paid first at the expense of quieter organisations.

Make sure your credit control process involves regular follow-ups with clients to keep you at the head of the queue.

Barry Stewart