Businesses of all shapes and sizes are having to face up to the impact of a reduced oil price and its commercial consequences.
The trading environment is unquestionably more challenging than it was a year or two ago: demand for real estate, other assets, goods and services has fallen; corporate customers are expecting more for less and consumers are suffering as the prices of household necessities increase.
In such situations, the emphasis should be on “performance improvement” as opposed to “restructuring” (which may be taken by some as a complex and stressed situation). While the latter sometimes represents the only course of action, it is also the case that if certain steps are followed, a business can often navigate a path through its troubles and return to health, even in a challenging trading environment.
These can be summed up as a “10-Step” recovery programme. If followed carefully, some businesses which might otherwise have ended up closing can earn themselves a second chance to deliver shareholder value and contribute to the economy.
Step 1 — Acknowledge there’s a problem
You will never solve a problem if you don’t know it’s there, and the longer you leave it, the worse it gets. In that respect, a business is no different to the human body. Step 1 helps managers overcome denial about the problems they face — “Those sales figures are wrong, they can’t be that low.”
They are.
Or worst of all: “It’s only a temporary glitch, we’ll get through this, there’s nothing to worry about.”
There is.
Step 2 — Control cash immediately
It forces managers to get complete control of all cash in the business, tightening controls and approvals of all expenditure and all invoices for payment. This sees managers prioritise only the most critical business activities, and chase accounts receivable with fervour.
Holding open, detailed discussions with banks is critical; managers must be open, straightforward and realistic about the challenges they face, and how they plan to use the cash they have to drive the rescue.
Step 3 — Get accurate information, analyse everything
At the same time, managers need to get as much information as they can, gathering it and organising it properly. They need to look closely to find where they can make real, long-lasting performance improvements.
This is the point at which management’s advisers can often add the most value, driving the right analysis, drawing different conclusions, seeing different stories and approaches in the day-to-day business.
When they are more effective, advisers help managers come to conclusions which challenge the status quo and look through the noise of a complicated situation.
Step 4 — Set clear, achievable objectives
As the analysis comes through, managers can assemble a clear set of objectives. What targets should we set? How long will it take to achieve them?
Will action in one area adversely impact another? Managers must remember to start on real action aiming for tangible progress. Over-ambitious targets will leave everyone frustrated in a few months.
Step 5 — Support the team
It’s essential that managers make sure employees are aware of what’s happening and what plans are under way. Managers don’t need to tell the staff everything — in fact, it’s usually better not to. But nor can managers ignore them.
The most effective leaders communicate with their staff throughout the challenges, reassuring them, showing then that management is in control and has a workable plan.
Step 6 — Start on operating costs
Armed with a clear plan, managers should then set about cutting out the costs which make a difference. There are always reductions to be gained, through different purchasing approaches, shaking up supplier relationships and more aggressive pricing. But it’s worth remembering managers will always get a better deal if they’re a better business partner, not just aggressive negotiators.
Step 7 — Minimise finance costs
Many managers overlook how much their money costs them. Loans can accumulate from commercial lenders who take advantage of revolving credits, unstructured overdraft facilities and other ad hoc loans to set prices higher than normal.
Others miss opportunities to develop creative solutions using collateral and security which can lower the cost of structured credit.
Step 8 — Optimise headcount
In an ideal world, matching the number of staff to the needs of the business is a dynamic, fluid process. But sometimes managers have no choice but to act quickly to scale back staff. Some managers reduce the number of sales people they have, others reduce customer service personnel.
While there’s no easy answer, managers must be very careful to respect the society and culture in which we operate; this is an intensely sensitive topic and must be handled with great care and sensitivity; in the end a manager’s reputation is at risk and steps should not be taken lightly.
Step 9 — Chase every chance for revenue
While cost reduction can take a lot of attention, managers need to still fight for every ounce of revenue they can. This is a time to provide standout levels of service to customers old and new, to fight for every renewal and chase every new lead. It’s a time to make the uncomfortable personal sacrifices and change priorities for a while, building new relationships and nurturing loyal customers.
Indeed, many managers find out who their truly loyal customers are in challenging times, and make the most of new friendships when times get better.
Step 10 — Stay the course
Once the recovery is under way, managers must stay the course, be patient, and try not to get distracted. Recovery takes time, patience and effort, day after day.
With careful planning and attention, the signs of progress can come quite quickly. And when they do, celebrate and nurture them.
They’ll be the result of a lot of hard and difficult work — some celebration is always welcome.
The writer is a Senior Director with the performance improvement practice in Alvarez & Marsal.
