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Common Sense Business Turnaround
Can you really fix a small
business if it gets in trouble? Of course you can. And here's a
common-sense approach that works:
1) control the cash
2) size to the core business
3) execute with precision.
That comes as a surprise to
many, because it sounds so simple. The truth is, it's not
difficult to fix a small business, and just about any motivated
manager can do it when armed with the right know-how and some
backup.
Of course, not every
troubled business - large or small - is a candidate for a
turnaround. If your industry is consolidating and competitors
are slashing prices to combat cheap labor or new technology,
it's probably too late for a turnaround.
However, if your industry
is stable and you can generate enough cash to stay in business
for a few months while you put a plan together, you have a good
chance of fixing your company. Here are three questions to
consider before you get started.
WHO'S IN CHARGE? Regardless
of what others may tell you, you don't have to hire a $50,000
per month turnaround consultant or file for bankruptcy to save
your company. If this were true, no ship's captain would ever
find his way to safety after encountering bad weather at sea.
The notion that you aren't capable of getting yourself out of
trouble because you were at the helm when the storm came up is
ridiculous.
You are a good candidate to
lead your own turnaround if you have the following
characteristics: 1) you like being the leader and you intend to
remain in charge, 2) you have made some mistakes, but have not
committed fraud, 3) you have personal assets at risk in the
business, and 4) you can get beyond denial and take action.
Success happens when you
get motivated to take charge, fix your company, and protect your
assets. Most small business owners who have pledged their homes
as collateral for a business loan understand this.
WHAT HAPPENED? There are
many reasons why small businesses get in trouble. The easy
answer is bad management, but there is much more to it than
that. Most small business owners are not bad managers, they are
under managers. They got distracted at the wrong times and did
not do enough of the right things to avoid trouble. They let
margins slide without taking action. Or, they launched a growth
program without enough capital to see it through. Others played
too much golf while competitors stole their best customers.
Brutal honesty and good financial analysis will show you what
went wrong.
CAN YOU PROTECT YOURSELF?
There are many legal and ethical reasons why small business
owners should turn their companies around, instead of locking
the door and heading for the hills. It's the right thing to do,
and it will also reduce your chances of losing lawsuits to angry
creditors.
If your liabilities exceed
the fair market value of your assets, or you cannot pay your
debts as they come due, you are in the Zone of Insolvency. Your
personal liability increases significantly when this occurs.
When you are in the Zone of Insolvency, the law requires you to
act in the best interest of both investors and creditors.
However, the law does not
require you to be perfect with every decision you make. The
Business Judgment Rule will usually protect you from ordinary
mistakes, so long as you have conducted yourself:
1) in the best interest of
creditors
2) in the best interest of investors
3) with sufficient information to make an informed decision
4) without any intent to defraud or deceive.
When your business is
insolvent, turning it around is the best way to protect
yourself. Saving your company is clearly in the best interest of
creditors and investors, because creditors are repaid and
investors don't loose their investment. Acquiring sufficient
information to conduct the turnaround and then acting ethically
will usually complete the four point test of the Business
Judgment Rule.
So, protect yourself by at
least trying to turn things around. And remember, you should not
be authorizing bonuses to yourself or other executives, or
repaying loans to yourself or other insiders, while you are
delinquent to outside creditors.
If you don't have a
relationship with a good small business attorney, develop one.
Ask your business friends for referrals. Find a lawyer who
represents business owners like you, and pay him for his
judgment, experience, and assistance.
If you need turnaround
know-how and resources, search the web using keywords such as
small business turnaround, small business problems, or
turnaround management.
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