Johannesburg - By keeping a clear head, making tough decisions and exploring all options you can save your business, even from the verge of collapse.
But first, says Gavin Reddy, an independent business adviser on behalf of Sanlam Cobalt Business, you need to weigh up all the options before deciding to save your business.
Financial risks
- Do I throw good money after bad?
- Is it really money that caused the business to get to this point?
- Do I take the risk and what is my realistic potential return?
Market risks
- What is the realistic marketing position of the business?
- Is there really enough potential to warrant me keeping the business alive?
- What are the underlying dynamics within the market, such as monopolies?
Legal risks
- Is there legislation that will have a negative impact on my business?
- What about contractual obligations?
Competitive risks
- Does the business have what it takes to compete with other players in terms of quality, service and price?
Once you have weighed up all the pros and cons and feel comfortable that the business can and must be saved, it's time to take drastic action.
Step one: what are your assets?
First ascertain what kinds of assets your business has, says Reddy.
Balance sheet assets
- The people within the business.
- The product or service offered.
- The reputation of the business and its owner/s.
Step two: what are your liabilities?
The next step is to look at all the liabilities, including non-financial ones. It is important to look at the biggest balance sheet liability first and to check if it can be rescheduled.
Step three: take drastic action
When you are on a sinking ship and have to exercise your options for survival, the only thing you can do is to take the bare minimum and get onto the life raft, says Reddy.
"In business the same principle applies", says Reddy. To keep a business afloat in such critical times, you have to do what's necessary to keep things going. "The business owner will have to ensure that cash outflows are slowed down dramatically, if not stopped, and speed up the cash inflows. The call is for drastic action."
Step four: turn to specifics
So now let's look at the challenges in trying to rescue a business. Reddy recommends defining the root causes, and matching possible solutions with decisions that can be taken to yield the desired turnaround.
Marketing:
- Is there a definite focus?
- Is there a clearly defined target market?
- Is the advertising effective?
What do the key customers say?
- List and categorise the A, B and C customers.
- What are the purchase patterns of these clients?
- How can sales be accelerated?
Tight cash flow management
Reddy stresses that daily cash outflows should be monitored and controlled very tightly.
Step five: dealing with the competition
Business owners have to make sure they understand who their competitors are, says Reddy. "You should also ask: what is their competitive edge, if they have one? And if they do not have one, what might it become?"
It is important to ensure your business situation does not reach the ears of the competition, he warns. "Do everything to minimise the possibility of the opposition capitalising on your organisation's demise."
Step six: restructuring to survive
Stick to what you are good at and go back to the core competencies of the business, says Reddy.
"Draw up a business rescue plan incorporating all the key business functional areas. What should the business carry as overheads in order to survive?"
Stop all unnecessary business activities that will cost you money where there are no returns for the business.
Step seven: dealing with the bankers
Try to see the situation from the banker's point of view, Reddy advises.
When faced with this situation a banker would look at the following:
- Who am I dealing with? What is the credibility of the people involved?
- What is the capacity of owners to turn this around? Is it more of the same or have experts trusted by the banker been called in to turn the situation around?
- What are the terms and conditions, should a banker want to make any concessions?
- Do the business owners have any collateral to fund the rescue plan?
- What contingency plans have been put in place that would make a banker feel at ease and comfortable?
Step eight: consider selling or merging
The following is what you should consider when looking to sell or merge, says Reddy:
- It is all about the value of the business. Is there any value left?
- What about ensuring I get the right partner for a possible merger?
- How do I keep this confidential in the marketplace?
If everything still goes pear-shaped...
When you have tried all options and nothing seems to work, it really is pointless trying to hold on to the dream, says Reddy.
"Cut your losses and minimise your risk.
"It is important to remember that the most successful people in the business world today were not instant successes when they started out. Their successes came about by taking the lessons learnt from the past and by starting again."
- Fin24.com