Step 6: Meet with your bankers and other lenders.
With many lines of credit and term loans, a company must provide quarterly or monthly updates. So your bank or other lender will often notice the degradation in your finances before you do. They may not say anything but, believe me, they are watching. Therefore, it is crucial for you to reach out and discuss the issues and the steps you are taking to identify the sources and resolve all the issues. If you need help with certain areas, your banker may be able to refer you to someone who can assist, such as a turnaround consultant.
Be honest and give your banker the bad news and show him/her how your financials have been impacted. (Remember, the bank has seen the numbers drop but do not know why.) Outline your plan of action and solicit input from them. Although you are probably very worried, make sure you appear confident when meeting with the bankers. If you are not sure how to get out of this situation, tell them you know there is a way but you need help figuring it out. Bankers often do a fair amount of networking in the business community. They may have ties to business consultants and others who can help. They want to protect their asset – your loan. If the banker can help you save your company, you save their asset, become a loyal customer, and thus may become even more valuable to him/her over time.
Meet with your bankers before you notify others external to your business. (Remember, investors/shareholders are internal to your business.) Bankers have a fiduciary duty to you so they cannot share your confidential financial woes with others. Your customers, suppliers and others do not have the same responsibilities.
Step 7: Meet with your customers.
Perhaps you have had trouble paying your vendors and suppliers. Or you may have had difficulty paying your employees or your employees have picked up on your stress. When you are having financial difficulties, word gets out in myriad ways. That is why it is CRUCIAL to communicate to those that matter – your lenders, investors, employees, customers, vendors,… The rumor mill will start and, as most people are aware, rumors are usually significantly more negative than the truth. Before you know it, you’ll hear that your company is about to go under. Avert this. Remember, as I previously stated, the best defense is a good offense. Let your most important customers know as soon as possible (AFTER you notify your employees) what is going on and how you are resolving the issues. You want to keep your customers happy. If they think you will not be around to serve them, they’ll look for another service or product provider. Reassure them yet be honest.
If you can meet with your customers face-to-face, do so. There is nothing like the human touch to help convey sincerity and drive. Unless your customer list is fairly short, you will not be able to meet with all in the short time frame required. Meet with your key customers and call and send letters to all the other customers. As time permits, schedule a face-to-face with as many customers as you can. This will also serve to strengthen your customer relationships as your company recovers and grows.
Step 8: Meet with suppliers and vendors.
Your suppliers and vendors want to make sure they get paid. If you have a credit line with them or terms, you must notify them immediately, otherwise they could cancel the credit line or terms putting you into more of a cash crunch. No supplier wants to be left holding worthless receivables. You wouldn’t either. If you’ve been paying your suppliers late, they may begin to worry and begin making inquiries. You know the copy servicer attendant? He may comment on the poor morale he observed or the past due notices he saw near the fax machine. An employee may comment to the IT provider. Word spreads many ways.
Unlike the others where a face-to-face meeting is important, in most cases a well-written letter delineating the problems and the actions your company is taking to address them is the best way to communicate with vendors. Address the letter to the primary decision maker and the person you interact with the most (if these are two different people). If you speak to the vendor regularly or if they are your largest vendor or supplier, then meet with them after sending the letter.
You’re not soliciting suppliers for input on resolving your issues. You want to negotiate with them to keep the best terms possible as you go through this period of uncertainty. When the suppliers call, as they definitely will, speak with them and reassure them. Promise only what you can adhere to. This is how you maintain you and your company’s credibility and your relationships.
Step 9: Cut all that is non-essential.
The operational business plan is very important in that the process of writing it will enable you to determine what is essential in maintaining your business as a going enterprise and what is not. You must cut but you do NOT want to cut indiscriminately. You want to return the company to good financial and operational health and maintain that which will strategically position your company for growth once your business recovers. You must maintain some marketing, sales, and customer service. Look at what is crucial to maintaining your company’s competitive advantage. Everything else you may be able to reduce or outsource.
Take a hard look at every line item in SG&A (sales, general, administrative expenses). What can you cut and how? Can you outsource some of your sales and marketing to an external entity? Do you need five customer service reps or can you streamline procedures and make do with two? Do you need all ten service technicians or is it best to keep the five high perfoming ones?
If you must layoff employees, this is where you make that determination. Then you must take swift action. When people are uncertain about their job security, employee morale plummets. Your business will plummet in tandem.
Step 10: Communicate, communicate, communicate.
Continue to communicate with all the stakeholder, but especially with employees. Keep the lines of communication open. Send out emails or schedule brief meetings more frequently. Let them see that you are hopeful or optimistic and committed to making the changes needed to restore the company to financial health. Keep everyone abreast of the changes that are occurring, as they are implemented. Sometimes it takes several months to begin to see a significant positive, so little victories can help maintain morale, support, and focus.
As the owner and/or CEO, you may or may not be the one to successfully lead the turnaround of your business and the restoration to financial health. However, even if you step aside and allow others to lead the turnaround, you are the one who must make the decision and hire the external entity(ies), consultants, etc. Sometimes it is hard for owners to see the issues. Other times it is hard to confront and resolve the issues. No matter whether you, as the owner, follow these steps alone or solicit outside help, you are responsible for the company’s return to success…or demise. Part of being a good leader is knowing what you are good at and what you are not, and enlisting others to assist. As the owner, the company is your baby. Follow these steps (with or without assistance) and your company can return to good cash flow and profitability…or exit the industry with dignity.