How do you know if your business is in a turnaround situation...and what should you do about it?

Business can be tough. Some business owners dig in when times get hard. They work longer hours, get more stressed, do more of the things they have always done. But sometimes that isn't enough. The business keeps trading unprofitably, suppliers demand payment and the business finances get worse.

Spotting the signs of a struggling business early enough can make the difference between survival and failure.

What is needed is a radical review or 'turnaround plan'. My own professional body, The Chartered Institute of Management Accountants describes this as 'a set of actions required to save an organisation from business failure and return it to operational normality and financial solvency'

There are 6 stages in a turnaround situation:

• Management accept the need for change
• Carry out a business review and identify underlying problems
• Prepare a recovery plan
• Implement the plan
• Stabilise the business
• Embed the change

Often an external consultant or turnaround specialist can help senior management make the challenging decisions which will be needed. There is a an Institute for Turnaround which recognises the specialist nature of the skills required to deliver this kind of work. Finance professionals also have a key role in supporting a turnaround - reporting on the financial status of the business and the areas of poor performance and setting up reporting systems to track improvements. Good financial forecasting models are also essential.

I have been involved in several turnarounds in my role as an external accountant, usually working alongside a turnaround specialist and the business owner. The most successful outcomes have been where the business owner has accepted the need for change at an early stage and put their full weight behind a turnaround plan. The few instances where management have just carried on doing the same thing and hoping for the best have inevitably not ended well

The tell tale signs of a business which might need a 'turnaround' remedy are:

1. Shortage of cash
2. Pressure from suppliers for faster payments
3. Showing continued losses in monthly or quarterly accounts

If your business is in this position taking urgent and radical action is probably required. If you would like an informal discussion to see how we can help please get in touch using the link below

www.base52.co.uk/services/consultancy

A case for outsourcing

In the early days of running a business, often the business owner does a bit of everything. Looking after customers, sure, but doing the accounts, paying the bills, fixing the computer, cleaning up, sorting out problems and anything else that comes along too. The phrase, 'Chief cook and bottle washer' describes it well. From the interesting and important stuff to the plain boring and mundane, it all needs to get done...somehow.

As the business grows the business owner might start to bring in help. They then need to decide what tasks to let go of and what they need to keep hold of. Michael Gerber's, 'E-Myth' describes this dilemma well. He advocates that over time the business owner should delegate the 'technical' stuff and in due course, the 'managerial' stuff and end up being the entrepreneur who develops and guides the business. It's a difficult journey and many don't stay the course. Many stay stuck in the mire of dealing with technical matters, often where they are not an expert and fail to focus on developing their businesses.

A good solution can be outsourcing. Outsourcing is passing responsibility for a set of tasks to an external party, usually a specialist in this line of work. There are many advantages but these include:

• It's often cheaper than employing someone to do this work for you as you only pay for the support you need
• They are are experts and have the knowledge and resources to do the work better than you can
• It's scaleable - as you grow or contract you can adjust your level of support accordingly
• It leaves you to focus on the entrepreneurial stuff

 It's almost a no-brainer but I see many businesses of a reasonable size who deal with their own IT (if something breaks they get someone in to fix it), have no HR back up, do their own marketing (when they get time) and yes, do their own bookkeeping, payroll and VAT, not always in the most effective way

Since starting Base52 we made an early decision to outsource IT and HR support, website maintenance and aspects of marketing. I've never regretted this. It's a monthly overhead but I feel it is an essential cost of 'doing business'. Similarly we offer an outsourced accounting service to many of our clients covering bookkeeping, VAT, management accounts, payroll and well as year need compliance. I believe this arrangement works very well and many of these clients have stayed with us for many years on their business growth journey. 

I found this quote from a chap called Alphonso Jackson, 'The other part of outsourcing is this: it simply says where the work can be done outside better than it can be done inside, we should do it'. 

I think that's pretty good. Cost is also a factor of course (you'd expect an accountant to say that) but if it's affordable, I'm a big fan.

Outsourcing at Base52