Very few businesses are able to report positive sales trends in 2009 as compared to 2008.  Some have not survived, while other owners have been emotionally and financially drained in the process of surviving.  Circumstances, and emotions, sometimes lead owners to pursue a sale, even knowing this may not be the most opportune time to capture maximum value.  This may, however, be exactly the right time for buyers to buy a turnaround opportunity.  Valuations may be more reasonable, and sellers may be more amenable to finance the transaction directly.  And, sellers may actually be able to recover lost value by negotiating upside earn-out provisions, based upon the business' return to previous levels...a win-win for both buyers and sellers.
 
As noted above, turnaround opportunities (businesses for sale that have a history of more successful years prior to this economic cycle) are abundant.  To attract a turnaround investor, owners should honestly portrait the true nature of the business' distress and the upside potential for a turnaround. The focus for buyers should be:  (1) to identify those in industries that were directly impacted by the economic downturn or an under-capitalized owner; (2) to focus on those where their skill set, passion and resources can add value; and (3) to acquire them for the right price, and more importantly, the right terms (low down payment, low interest rate seller financing).  
 
Whether you are an owner, who has decided and is truly committed to hold and grow; or a buyer who has acquired a turnaround opportunity, the next series of steps are those commonly implemented to successfully implement a turnaround strategy. 
 
Step 1: Analyze every aspect of your business (and your competition). Thoroughly test your business model.  Know all of your costs...products, people, marketing, distribution and administration.  Make sure your pricing and terms are providing margins that cover all of your costs, plus a profit.  Review what each of your competitors are doing, both those who are performing admirably and those who are struggling.  Identify lead generation accelerators.  Analyze your sales methods (identify ways to sell more, better, cheaper, faster) and plan to implement a customer relationship management system.

Step 2:  Write business, sales/marketing, and operation plans.  Rarely do small businesses take the time to write and maintain business plans, but those who do, get into trouble less often. Plans document what has worked (and not worked) the past and sets a transparent direction and vision for the future.  Owners, management, employees, advisors and spouses all need to know what the business' future plans are. They need to see where they fit in, how they can help, and how to share suggestions based on their expertise that will help the business succeed.

Step 3: Meet with key employees and advisors.  Owners should meet personally with all people involved in the business to gather ideas on how to fix the business. Owners should not go into these meetings without a plan of their own. Employees lose confidence in leaders who lack a plan and vision for their business. The key in this type of meeting is to be self-assured, open-minded, and flexible.

Step 4: Meet with customers.  Validate your value proposition with customers.  If rumors of your business' difficulties, or even imminent demise, have leaked into the business community, address them head-on.  Owners should inform and reassure customers about your plans.

Step 5: Meet with suppliers.  Suppliers can get very nervous when they hear "on the street" that one of their customers is having trouble. Identify key vendors and alternate sources. Develop a prepared statement outlining any past problems and how your new plan deals with them. Respond quickly and thoughtfully to all concerns. Analyze whether you use the best suppliers, who offers the best terms and make changes if necessary.

Step 6:  Revise Plans.  After actively listening and consulting with employees, customers, suppliers and advisors, revise and do a reality check by asking advisors to review the plan a second time, then communicate the plans to all employees.  This step demonstrates that careful consideration has been given to the development of the business.

Step 7: Honestly assess your money situation.  Cash is key to your business moving forward.  Update and analyze your P&L, Balance Sheet, and more importantly, Statement of Cash Flows.  Profit is great, but until it is converted into cash you cannot put it to work.  If there are problem loans or line of credits, call-don't write-your loan officers and tell them you need to meet in person. Address any issues and your plan of action. Appear confident and reassuring.  If local, county, state, and/or federal taxes are problem areas, notify the authorities. Tax authorities will often work with Owners who have a plan and do not appear to be trying to avoid their obligations.

Step 8: Keep and motivate employees who are essential to the business.  Figure out which employees are essential to implement your plan. Provide an incentive program that rewards results, tied directly to the plan.

Step 9: Cut unnecessary costs.  Itemize and analyze all your expenses and eliminate anything not essential to implement your plan. Increasing revenue takes time, but eliminating costs are immediate.  Cutting expenses is a good way to buy "financial" time to implement your plan.
 
Step 10: Prioritize your time.  Focus your time on tasks necessary to implement the plan, that add value or generate income.  Finally, leave the business at work so you can recharge, enjoy time with your family and get a good night's sleep.

Whether your business needs a "makeover" or turnaround plan; or you are a buyer looking for a turnaround opportunity...call  or email Touchstone today to talk with an advisor.