Diagnosing a Troubled Company – Part II ©
Diagnosing a Troubled Company – Part II ©
In Part I of this article, I noted that even when problems are identified or become obvious, many people will ignore them for a variety of reasons. I also noted that in diagnosing a company, a good starting point is to have the company do an honest self-assessment. A self assessment involves asking many questions and carefully listening to and interpreting the answers.
Troubled companies may face financial problems, such as a lack of cash flow, too much debt, low margins, etc., and/or operational problems, such as defective manufacturing processes or distribution problems. One problem may lead to another. For example, a lack of cash flow may tempt a company to cut back on its inspections which may then lead to poor quality and defective products. Conversely, late shipments may lead to a loss of business and a lack of cash flow. Is the identified problem the disease or only a symptom?
A company’s financial statements may provide clues. “Big picture” questions that should be addressed include:
1. Is revenue increasing or decreasing? At what rate? Why?
2. Is the company’s gross profit margin and net profit margin increasing or decreasing?
3. What expenses should be cut? Which expenses should be increased?
4. What is the company’s cash flow? Is the cash flow from operations positive? Is cash flow increasing or decreasing? At what rate? Why?
5. Compare the company’s current cash on hand to liabilities due within 30 days, 60 days, 90 days, etc. What can be done to defer payment of cash?
6. Are the company’s accounts receivables growing? Review an aging schedule of the receivables. What can be done to expedite collections?
7. Can any of the company’s assets be sold? Can any be leased or licensed to others?
8. Can the company refinance any debt?
9. Is it possible to raise any new equity capital? If so, on what terms?
10. What can be done to improve the company’s reputation and image?
Albert Einstein defined insanity as doing the same thing and expecting a different result. However, many troubled companies do exactly that. They continue doing what they have been doing thinking that if they are persistent and patient the business will improve. I believe that if you want different results, you have to do things differently. This is not to suggest that a company should act like a fish out of water – flopping about and changing its strategy often. Strategy should not be changed too often but tactics used to implement the strategy can and should be changed or modified to get better results. Management should constantly be asking: What tactics are effective and which ones are not?
In Part I of this article, I noted that a company should solicit input from its customers. Bill Gates has written that when customers complain that is actually a good sign for the company because it indicates the customer has psychologically committed to continue to do business with the company. If the customer decided to go elsewhere for the product or service, they would not waste their time complaining to the company. Customer complaints really provide the company with a roadmap – the customers are telling the company what it should do to better serve them in the future and to enhance the relationship.
Companies should consider several points including: (1) How easily can customers complain to the company? (2) How quickly and effectively does the company respond to the complaint? (3) What attitude does the company express with its response? Is it “the customer is always right,” or is it “if we ignore them maybe they will just go away,” or perhaps “the customer is overly demanding, unrealistic, and really just a pain in our backside.” The key to most businesses is to get repeat business from customers, and to convert customers into the company’s goodwill ambassadors. How companies handle customer complaints is critical to their long term success. Satisfied customers are often a company’s most effective advertising. While a company should strive to minimize the number of dissatisfied customers, it is important is to change unhappy customers into satisfied customers. Does the company do this consistently, most of the time, some of the time, or never?
Here are some additional important points:
1. A company’s CFO and/or its outside CPA should be proactive and alert the company to downward trends or warning signs. Unfortunately, too many CFOs and CPAs do not perform this service because they do not want to be the “bearer of bad news.”
2. Many, if not most, business owners and executives can identify problems. Fewer can explain the true cause of the problem. Even fewer can offer practical solutions. I believe strongly that companies should consider all of their options and the advantages and disadvantages of each one before making a decision. Having outside, independent directors can be a big advantage in this regard.
3. Before deciding which option to implement to solve a problem, many factors should be considered including: (a) the amount of time that will be needed to implement the solution; (b) who, within the company, will be involved and the impact on their other duties; (c) whether the company even has the qualified personnel needed to implement the solution or whether new employees or consultants need to be hired; (d) the cost of implementing the solution in terms of both dollars and other opportunities that cannot be taken advantage of due to monetary restraints; and (e) the effect of the solution on the company’s culture, strategy, branding, etc.
Conclusion
Now, in the summer of 2008, many well known corporations are filing for bankruptcy protection. Many other companies are simply closing their doors. Why did they fail? Why couldn’t they turn their business around? People do not like to do business with troubled companies. Once a company is perceived to be in a downward spiral, customers often go to the company’s competitors and the company’s downward spiral accelerates. It is very difficult to get out of the spiral; if it were easy, everyone would do it. The goal should be to avoid getting into the spiral in the first place – that too is harder to do than it sounds.
Diagnosing a Troubled Company Part II - To learn more about this author, visit Dennis Gerschick's Website.
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Every company is a “troubled company” because every company has problems or issues it must address. “Trouble” is only a matter of degree. Companies that are successful one day do not always remain successful. Well managed companies remain vigilant, always alert for warning signs, and they react quickly when problems arise.
In Part I of this article, I noted that even when problems are identified or become obvious, many people will ignore them for a variety of reasons. I also noted that in diagnosing a company, a good starting point is to have the company do an honest self-assessment. A self assessment involves asking many questions and carefully listening to and interpreting the answers.
Troubled companies may face financial problems, such as a lack of cash flow, too much debt, low margins, etc., and/or operational problems, such as defective manufacturing processes or distribution problems. One problem may lead to another. For example, a lack of cash flow may tempt a company to cut back on its inspections which may then lead to poor quality and defective products. Conversely, late shipments may lead to a loss of business and a lack of cash flow. Is the identified problem the disease or only a symptom?
A company’s financial statements may provide clues. “Big picture” questions that should be addressed include:
1. Is revenue increasing or decreasing? At what rate? Why?
2. Is the company’s gross profit margin and net profit margin increasing or decreasing?
3. What expenses should be cut? Which expenses should be increased?
4. What is the company’s cash flow? Is the cash flow from operations positive? Is cash flow increasing or decreasing? At what rate? Why?
5. Compare the company’s current cash on hand to liabilities due within 30 days, 60 days, 90 days, etc. What can be done to defer payment of cash?
6. Are the company’s accounts receivables growing? Review an aging schedule of the receivables. What can be done to expedite collections?
7. Can any of the company’s assets be sold? Can any be leased or licensed to others?
8. Can the company refinance any debt?
9. Is it possible to raise any new equity capital? If so, on what terms?
10. What can be done to improve the company’s reputation and image?
Albert Einstein defined insanity as doing the same thing and expecting a different result. However, many troubled companies do exactly that. They continue doing what they have been doing thinking that if they are persistent and patient the business will improve. I believe that if you want different results, you have to do things differently. This is not to suggest that a company should act like a fish out of water – flopping about and changing its strategy often. Strategy should not be changed too often but tactics used to implement the strategy can and should be changed or modified to get better results. Management should constantly be asking: What tactics are effective and which ones are not?
In Part I of this article, I noted that a company should solicit input from its customers. Bill Gates has written that when customers complain that is actually a good sign for the company because it indicates the customer has psychologically committed to continue to do business with the company. If the customer decided to go elsewhere for the product or service, they would not waste their time complaining to the company. Customer complaints really provide the company with a roadmap – the customers are telling the company what it should do to better serve them in the future and to enhance the relationship.
Companies should consider several points including: (1) How easily can customers complain to the company? (2) How quickly and effectively does the company respond to the complaint? (3) What attitude does the company express with its response? Is it “the customer is always right,” or is it “if we ignore them maybe they will just go away,” or perhaps “the customer is overly demanding, unrealistic, and really just a pain in our backside.” The key to most businesses is to get repeat business from customers, and to convert customers into the company’s goodwill ambassadors. How companies handle customer complaints is critical to their long term success. Satisfied customers are often a company’s most effective advertising. While a company should strive to minimize the number of dissatisfied customers, it is important is to change unhappy customers into satisfied customers. Does the company do this consistently, most of the time, some of the time, or never?
Here are some additional important points:
1. A company’s CFO and/or its outside CPA should be proactive and alert the company to downward trends or warning signs. Unfortunately, too many CFOs and CPAs do not perform this service because they do not want to be the “bearer of bad news.”
2. Many, if not most, business owners and executives can identify problems. Fewer can explain the true cause of the problem. Even fewer can offer practical solutions. I believe strongly that companies should consider all of their options and the advantages and disadvantages of each one before making a decision. Having outside, independent directors can be a big advantage in this regard.
3. Before deciding which option to implement to solve a problem, many factors should be considered including: (a) the amount of time that will be needed to implement the solution; (b) who, within the company, will be involved and the impact on their other duties; (c) whether the company even has the qualified personnel needed to implement the solution or whether new employees or consultants need to be hired; (d) the cost of implementing the solution in terms of both dollars and other opportunities that cannot be taken advantage of due to monetary restraints; and (e) the effect of the solution on the company’s culture, strategy, branding, etc.
Conclusion
Now, in the summer of 2008, many well known corporations are filing for bankruptcy protection. Many other companies are simply closing their doors. Why did they fail? Why couldn’t they turn their business around? People do not like to do business with troubled companies. Once a company is perceived to be in a downward spiral, customers often go to the company’s competitors and the company’s downward spiral accelerates. It is very difficult to get out of the spiral; if it were easy, everyone would do it. The goal should be to avoid getting into the spiral in the first place – that too is harder to do than it sounds.
Diagnosing a Troubled Company Part II - To learn more about this author, visit Dennis Gerschick's Website.
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Jeff FosterWebBizIdeas.com is a Minneapolis website design company founded to help people start an internet business by providing them with website, business, and internet resources that help foster the growth of successful online businesses and develop innovative Internet business ideas. We specialize in internet consulting & internet marketing. - Visit Jeff Foster's Website |
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John PowerJohn Power, founder of Biltmore Franchise Consulting, has extensive experience developing and marketing franchises and business opportunities. He has been in and around franchising for over twenty years. From 1980 through 1990 he conceptualized, organized, and developed the American Video Association. He grew AVA to 2,000 national members, before selling the company it 1990. It was later merged into another home video marketing company. From 2000 to 2005 he worked as a contract marketing and human resources consultant to several local and national companies. In 2005 Mr. Power began working as a franchise development consultant on a full-time basis. Since that time he has helped more than three dozen companies initiate and develop their franchising program. He notes that there are many companies interested in developing a franchise program, and who need his specialized assistance. Mr. Power is a “hands-on” franchise consultant. He said, “I am the ‘nuts and bolts’ person who tends to the details for my clients.” Mr. Power holds a B.S. degree with a major in Marketing. See: www.biltmorefranchise.com You may contact Mr. Power at: jpower@biltmorefranchise.co - Visit John Power's Website |
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Anne BarrAnne Barr has over 26 years experience in sales and marketing, six years as a franchisee. She has assisted over 367 business owners and purchasers to achieve their goals in career change, transition and exit strategy. She holds the designation of Certified Franchise Executive from the International Franchise Association, Certified Business Intermediary from the International Business Brokers Association and Board Certified Broker from the Texas Association of Business Brokers. Anne is active in professional organizations, networking groups and volunteers for non-profit entities. As owner/operator of four successful businesses, Anne has proven people skills and enjoys helping clients find the right "fit" in business ownership. Visit www.FranchiseOpportunitySpecialist.com for more information about me and my company. - Visit Anne Barr's Website |
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Joe DagerJoe Dager is President of Business901, a progressive coaching company providing no-nonsense direction in areas such as Lean Six Sigma Marketing and organized referral marketing. What others say: In the past 20 years, Joe and I have collaborated on many difficult issues. Joe’s ability to combine his expertise with “out of the box” thinking is unsurpassed. He has always delivered quickly, cost effectively and with ingenuity. A brilliant mind that is always a pleasure to work with.” - James R. If you want to learn more about Business901, start a conversation with us. We can be found @ Web/Blog: Business901.com Web/Blog: FundingYourNonprofit.com LinkedIn Profile Follow me on Twitter - Visit Joe Dager's Website |
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Linda RichardsonLinda Richardson is the Founder and Executive Chairwoman of Richardson, a global sales training and performance improvement company. As a recognized leader in the industry, she has won the coveted Stevie Award for Lifetime Achievement in Sales Excellence and she was identified by Training Industry, Inc. as one of the “Top 20 Most Influential Training Professionals.” Ms. Richardson is credited with the movement to Consultative Selling and is the author of ten books on selling and sales management, including Sales Coaching — Making the Great Leap from Sales Manager to Sales Coach, and Stop Telling, Start Selling. She teaches sales and management at the Wharton Graduate School of the University of Pennsylvania and the Wharton Executive Development Center. Linda is a frequent speaker at industry and client conferences, has been published extensively in industry and training journals, and has been featured in numerous publications, including The Wall Street Journal, Forbes, Nation’s Business, Selling Power, Success, and The Conference Board Magazine. Learn more about Richardson's sales training and performance improvement solutions at http://www.richardson.com web - Visit Linda Richardson's Website |
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Jay Kubassek(Jay's Full Bio: EvanCarmichael.com/jaykubassek) In five years, Canadian-born entrepreneur Jay Kubassek went from selling mufflers at a Midas franchise to revolutionizing Internet marketing with the 2004 launch of CarbonCopyPRO, a online marketing education company, now worth over $20 million with customers in over 160 countries.
As an independent film producer, his upstart film fund Aliquot Films is currently producing a films with Spike Lee and Abel Fererra (starring Ethan Hawke and Dennis Hopper.)
Jay's entrepreneurial spirit is irrepressible. He’s the owner of five companies, a professional speaker and trainer, international real estate developer/investor, extreme sport enthusiast and emerging philanthropist. Jay resides in NYC with his wife Jamie, son Milo and dog Cooper. Visit Jay's official website: www.JayKubassek.com - Visit Jay Kubassek's Website |
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