What To Do When The S&*T Hit's The Fan

Business Truism #1 
The objective in business is to survive long enough to get lucky! 

Business Truism #2 
If you can’t run an emergency, it’s going to run you. 

Business Truism #3 
The good moves you don’t make can be as consequential as the bad ones you’ve made. (Ie don’t be a deer in headlights during a crisis – keep taking positive action). 

Business Truism #4 
Playing it safe isn’t always playing it smart. (Again, be in action). 

Expense reduction contingency plans. Use the A, B, C method. For example – run a model at 20% lower volume and see what expenses need to be cut to make the business profitable at that level. Rank the expenses and think of it as a glass break method – ie break the glass in an emergency. 

Business Truism #5 
Businesses don’t get into trouble during tough times. They get into trouble during good times and pay for it during the tough times. (Ie, you get fat, dumb and happy during the good times. You assemble higher fixed costs and benefits. 

The typical hostile world a turnaround guy works in: 
Company is losing money, Negative Cash Flow, Severe Creditor Pressure, Negative perceptions of the company 

NOTE: 95% of what is done in a crisis has nothing to do with the crisis. It has to do with running a lean efficient competitive organization. 

A normal organization should continually squeeze efficiencies. EBIT must improve by 1% each year. 

Typical start-up: 
Undercapitalized 
Over estimates market acceptance 
3 of 5 fail 
They have limited alternative strategies 
Lesson: Have a fall back position and build your business with a realistic plan. 

Rapid Growth Company: 
Cash eaters 
Lack of infra-structure & sophistication 
Lesson: Measure cash conversion cycle and develop the infrastructure. 

Cash Conversion Cycle: 

Days sales in Inventory + Days Sales Outstanding in Receivables 
Days Payables Outstanding 

Companies in transition – from entrepreneurial to professional management. The law of diminishing returns applies to management. What worked in a low volume situation doesn’t always scale up to meet the demands of big volume. The best of both worlds would be an entrepreneurially driven but professionally managed. Entrepreneurs build businesses, professional managers extend them. 

Re-think of Fixed Costs as Firm costs 

Why are we in business 
To build wealth 

Measured by ROA Employed, Return on Equity. The roles of investor and manager gets commingled and the investor hat gets forgotten. YOU NEED TO WEAR THE INVESTOR HAT. 

Role of Mgt 
To promote the effective utilization of resources in order to accomplish goals and objectives. In a crisis company, add the prefix word “available” in front of the word “resources” in the definition above. 

Mid level managers in companies are rarely accountable for anything more than people. However, they should be accountable and responsible for not only “Men”, but “Money”, “Materials”, “Machines”, and “Methods”. 

You need to work each year to reduce the $ cost per transaction. Ie – add 1% to your EBIT each year. Even in the fat times. 

FUNDAMENTAL RULES OF TURNAROUND 
1 – There is no such thing as a fixed cost 
2 – All things do not contribute equally. Use ABC method in everything – customers, suppliers, employees etc. 
3 - NO Loss leaders – NONE 

Work on cash flow first, then the P&L. 

Find out who the “Game Breaker Positions” are – A company needs to populate itself with superstars in these positions. 

Manage Cash Flow 
Cash Flow Forecasting Model 
Daily Cash Activity Summary 
Weekly Cash Report – Variance to Plan 
13 Week Rolling Cash Forecast 
Manage your commitments

 

 

 

 

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