Turning A Business Around

Book Review by: Jay Fortuna Jr. Sept. 26, 2011

Turning a Business Around

A. Compress learning from Book of Mark Blayney and 2 days seminar from Ateneo Business School in Makati. B. Data from Electro Group Inc established company for BMP 440 selling. (Health is Life International)
PAGTATATUWA

Lahat po ng inyong makikitang pag-aaral, parirala, pananaliksik at notasyon sa mga slides ay nasasaad o naka sulat sa libro, hand-awt o polyeto AT HINDI KATHANG ISIP KO LAMANG.

CONTENTS
Type of Business Failure. Causes of Normal Failure.
Traits of Weaknesses in Management

Ideal phases of business. Recognition of the need for a Turnaround Conditions for a successful Turnaround. Business Health Check. Sample signs of trouble. Steps in Restoration. Principle of Managing Turnaround.

TYPE OF BUSINESS FAILURE

I.
1. 2. 3.

The start-up that never starts

We hire people in business not business people. Business model is wrong. Business is under capitalised.

II.
1. 2. 3.

The catastrophic failure

Major fire or flood. No Internal controls (Financial Management). Government Act.

III.
1.

Incremental Failure
This is a Normal type of failure.

THE CAUSES OF NORMAL FAILURE

The Businesss Management Structure
Autocrat Management; Lack of leadership; Management experience and depth; Unwillingness to seek / take external advice; Failure to change management structure / culture or to Manage Change; Failure to plan for succession; Failure to face up problems or necessary actions; Failing to understand exactly where you are and where you are going. Failure to spot and adapt to changes in the SECTOR / MARKETs needs; End of business natural cycle; Failure to prepare for Trade Cycles; Failure to face up to the NEED ofor step changes; High cost structure; Lack of investment; Concentration on the NEW to the detriment of the OLD; Eggs in one basket; Lack of relationship to Supplier, Service-Provider and customer; Operating in difficult industry; Lack of Support Staff. Functional and Situational Poor Credit Control; High Stock Levels; Overtrading

Strategy Challenges

Lack of Operational Control Lack of Financial Control

One-Off Projects or Special Circumstances (Strains that weak management or financial controls are unable to deal with)

A PREMISE move; Big Acquisition; Committing business to a big contract; developing or launching a new product

Traits of Weaknesses in Management

A Rabbit is frozen into inactivity by: Fear, inability to face up to doing, paralysis through analysis and paralysis through advice. An Ostrich wont face up to how serious the problems are, preferring instead to believe that everyone else in the indutry is doing badly or that, if only the banks would lend another, all would be well. A headless chicken rushes around making lots of noise and scratching at anything that crosses its path, but is unable to focus on taking the structured actions need to tackle the REAL issues.

IDEAL PHASES OF BUSINESS

Maturity
Underperformance Distress Growth Crisis Startup

1. 2. 3.

Market share decline or reputation lost. Profits are stagnant and declining Bank is taking security for its lending

1. 2. 3.

You start to stretch creditor payments. You are force to acquire assets on lease when before you can bought outright. Start to make regular or more severe losses.

HILE
DECLINE CURVE & PHASES of TURNAROUND

The Beginning of under performance

Under Distress Under Crisis

Failure

And another 5 months to Produce P 2Million Gross profit

HILE (LOSS) P 1.2Million

It takes 9 months to break-even But it only takes 5 months to Lost 1.2Million

Turning a Business Around

By far the most common [ business mistake ] , is not brought by doing something but by doing nothing. Sir John Harvey-Jones This book will guide and help you when the going gets tough, It acts as a smoke detector spot early warning signs and a fire extinguisher for immediate use in crisis.

I. Recognize the need for a Turnaround.

Identify symptoms Identify causes Assess urgency

II. Stabililise Your Finances.

Manage cash Understand Finance Set Targets.

III. Devise a Plan

Undertake strategy Investigate performance Set Strategic Action Plan

Recognize Need for a Turn Around

Checking your businesss health to SPOT the warning signs
1.a. Check for signs of failure. Tangible & Intangibles
Running a business on visible figures alone (just counting the cash) will ensure that a business is eventually doomed to fail. -W. Edwards DemingThe more companies are in financial crisis, the more they focus on Financials ignoring the ENABLERS. The deeper they dig the hole. -Gordon J. Stevenson-

1.b. Undergo Score Test.

What we can measure we can control and what we can control.. We can IMPROVE. Critical intangible like people, information, processes and culture need quantification. -Gordon J. Stevenson-

CONDITIONS FOR A SUCCESSFUL TURNAROUND

Some form of a viable business Core business that has potential for future
growth and profitability which the business can be rebuilt. Time Turnarounds are not instantaneous and, if started too late, will fail. Cash Turnarounds need money. Cost will often be incurred during the initial restructuring phase and to finance the future regrowth of the business. Vision A clear goal to which the business is to be directed, to provide both a target and motivation. Management Management must not only have the will to achieve the turnaround (its your plan and vision) but also the skills (functional and situational) to make it happen. Alternately, management must have access to external resources who can provide these skills when required. Commitment You have to decide realistically whether you have the determination, energy and enthusiasm to fight to save your business. Stakeholder Support Management cannot achieve a turnaround on their own they need to take suppliers, staff, bankers, shareholders and others with them. Confidence in the Process The stakeholders need to understand how the management (who will be regarded as the one who started the mess) are going to get them out of it.

What is the difference between a Car MECHANIC and a Hospital SURGEON? They both perform delicate operations on the heart & valves of their respective Engineand both have dashboard.

The Surgeon performs his delicate operation while

The ENGINE is still running

BUSINESS HEALTH CHECK

I. External Deterioration Business
I.S. and B.S. Body Paint, Surface Rust, upholstery Fading and wear & tear.

II.

Engine Deterioration
Cash Generation

No Gauge Warning, not tuned, lack of Lubricants, wrong cooling fluids

III.

Structural Deterioration
Undefined Organization Undefined Roles and Responsibility Monitoring System Organizational conflicts

Under carriage deterioration Suspension System Electrical System Short Circuits/Tripping

SIGNS OF TROUBLE
Employee were not involved in strategy planning. Employee should be part in sales target and cost/expense target. No Budget Forecasting. No Real-Time Monitoring. With signs of operational inefficiency due to lack of manpower or operational redundancy. Fixed Balance Sheet. Targets not in touch with reality, as this can affect cash budgeting, inventory purchase etc. Management stops listening to the environment and only follows themselves.

From the previous slides, there is a need now for a

CHANGE CHAMPION
or

TURNAROUND SPECIALIST
That can do the followings;

BUT

STEPS IN RESTORATION
I. External Deterioration Business
Provisioning risks, write-offs, ratios to build up Banks Trust and Confidence Fix Body Paint, Surface, Upholstery

Fix Fading & wear and tear

II.

Engine Deterioration
Generate Cash In Flow Fix Cash Out Flow

Fix the Engine (Cash is more impt. than net income)

III.

Structural Deterioration
Weekly, Monthly Report, better yet Daily. No Monitoring, No capability to improve efficiency

Fix Electrical System

Fix Efficiency, thus profitability

CONFLICT

DISAGREEMENT

Who can TEACH

Prepare For Environmental Change

Leadership

Who can TEACH

Multi-Tasking

SOLUTION PROVIDER and not PROBLEM PROVIDER PARTICIPATING and not BYSTANDER

For a NEW & DYNAMIC ORGANIZATION

Principle of Managing Turnaround

If its too far gone, FORGET IT. Sentimental Value overrides Economic Value. Put up another one if RESTORATION is not an option. Have a restoration plan. Factor resources and patience. Before you start restoration, DEFINE issues. Acquisition Cost = Final Economic Value less Restoration Value

BUTwatch out for a visionary

SURREAL VISION

A man who stretch his arm, look at the Sky but feet is still on the ground.

A man who stretch his arm, look at the Sky but feet is not on the ground.

Remember:
Continuous improvement in processes means uninterrupted activity even when the sales is high or the sales is low.
And this is one of the business intangibles that contribute a lot in the companys bottom line.

THANK YOU!!