How to Turn Sick SME Units to Profitable Units?

Lots of SME units nowadays fall under the category of SICK units. There has to be a logical and valid reason for the same. There are some psychological aspects involved in this. The entrepreneur always feels that his/her business idea is perfect and flawless. When their business turn to loss, they will blame it on either bad luck or existing economic crisis the customers face or some other silly reasons! Ajay Wahi, expert in Business Management, and Marketing, shares his views on How to Turn Sick SME Units to Profutable Business This attitude hampers the proper analysis of the core issue. The non-willingness from the part of entrepreneurs to identify and accept the real problem areas in the business is the prime reason why sick SMEs remain SICK. If at all the entrepreneurs really acknowledges the problems in their business, they will immediately think that extra funding by means of loans, or finding a partner to shoulder the financial crisis will be a solution to overcome the issues. But again the psychological factor plays the spoil sport. He/she will assume that availing loans or seeking a new partner will create additional burdens and responsibilities! The very psychological factor also prevents him or her from down sizing the company by shutting down non profitable divisions, cutting the employee work force etc So, the first step to turn a business to profitable one is to have a clear understanding of the real problems areas and a clear vision on growth strategies by means of sharp analysis of the existing business and its processes. Proper identification of the real problem area is the catch word.

Basic issues SMEs in general face:

Unwanted product /Poor promotional activities. There is no point in marketing a product which actually does not serve any purposes of the customer requirement. Proper understanding of consumer requirement is a must before marketing a product.Without proper promotional activities, the consumers will not know that such a product exists in the markert.

High pricing: In most of the cases, high pricing of product affects its preference among the consumers.

Improper product positioning: Improper product positioning leads to mis-match. For eg imagine you are positioning your product for the high class, but the actual need for that product is for the middle class segment!

Ineffective management team: Units do turn sick when their management keeps themselves confined in the comfort of ACs and glass chambers letting the juniors slog it off in the field. At the end, competition wipes them out forcing them to sell at low price and / or not sell at all.

Over-staffing: Due to any reasons, if the unit has more people than required it will eventually turn the unit into losses.

Poor cash flow management: The promoter keeps focusing on the newer sales forgetting the collection of payments and /or in that excitement to close a deal, offers lot of credit time.

Poor culture: While the above point is also linked to this but many a time even if the promoter is good etc , he is over busy in getting sales etc and is not bothered about the culture of the company and thus people who find the culture counter-productive leave.

Nave promoter: Many times the promoter is too much of a decent guy falling into the trap of emotional blackmail, smooth and polish talk of his employees! He trusts every word of the employees! And they are actually fooling him!

To overcome all the odds in the business, one can take note of the following things:

Once you have done the analysis yourself as the promoter, do not jump into thinking that you are 100% correct as you still have the narrow horizon considering emotions could still be there in your analysis! Call an expert. Expert could be your friend, a professional contact, a hired consultant etc. Present the facts and let him to the analysis. Once he presents, you then present your ideas and then both of you arrive at the final cause. Then plan for the corrective actions with dates and timelines and costs and responsibilities. Many a time , even if knowing the cause of problems , the remedial action fails as the promoter tries to take corrective action case by case without proper plan only to realize at end that he has put in lakhs and nothing positive came out. So, make a robust plan. In case poor cash management ails you, see each and every debtor and decide who will collect from there and by when and in parallel have someone make new credit policies. In case ,over staffing ails you, see how you could automate your process and deliveries so that you can do with less people. So, what I am saying is that you need to go very deep into every reason and see who in the company / external consultant needs to correct that and by when and what is the cost for that. Also have an effective mechanism to see how you could review. Most plans fail as they lack aspects such as review and monitoring and control. Do that and then decide at each step that is it working for you or not.

Tight monitoring of the plan. The real causes and corrective plans would vary from SME to SME. Turning around a sick to a profitable unit would mean major changes. Be ready for that first and then only move into above steps. So be willing to change your attitude, your style. Be ready to downsize ops if required. Be ready to change people and keep soft feelings aside. Be ready to drop your current product and make a new one.