Getting out of a crisis is difficult and requires extraordinary measures and great efforts from a company and its people. Since we’re here to help, we’ve listed 5 tips for leading your company out of a crisis or turnaround situation. Read on and make smart use of these tips.
- Identify (and solve) the problem
How do you know that your company is in trouble? Well, depending on the situation, there can be many signs of potential distress – see some listed below. Most of the time, troubled companies are dealing with multiple signs or problems at the same time, caused by internal and external factors (i.e. the current COVID-19 crisis) interacting together. Identifying these signs and solving the underlying problems is one of the things you should do first when you strive to lead a company out of a crisis.
- Declining or negative cash flow;
- Declining stock price;
- Regulatory inquiries;
- Large or unplanned workforce reductions;
- Increase in outstanding accounts payable;
- Resignations of key finance staff;
- Management turnover;
- Shrinking EBITDA (Earnings before interest, taxes, depreciation and amortization) margin.
- Find (and retain) talented people
One of the (few) good sides of a crisis is that the opportunity arises to find the next level of talent in an organisation. As a (turnaround) manager, you should look beyond the leadership team for people with institutional knowledge. They know all the ins and outs of the company and are essential to realising the impact of potential changes on the business. Be aware though, in many cases, they are the dissatisfied ones, unhappy with the company’s performance. But because of this, they are willing to point out the painful truths – and that’s just what needs to be done on the road to leading a company out of a crisis.
You should also keep an eye out for people that want to add value and impact. In most cases, you won’t find these people sitting around the table at the beginning, but two or three levels down – waiting for an opportunity to be part of something greater than themselves.
Retaining these people isn’t always about money and bonuses: it’s about figuring out their individual needs and get them involved.
- Concentrate on cash
In general, the board and management of most companies focus on complex, long-term metrics like EBIT and turnover. There’s nothing wrong with that, but unpleasant surprises are waiting when no one is concentrating on cash, especially during a crisis. So, the opposite needs to be done to keep a company financially healthy. The best way of doing this is by finding out which investments are making or burning cash, and by subsequently bringing your business back to its fundamental element of success. This makes it easier to see the actions needed to get back on track in terms of cash flow and steer out of the crisis you’re in.
As a company, you need forecasts with a mid- to longterm view to be able to focus on cash and avoid cash flow-related surprises. Focussing on an investment with a five-year return while money goes out the door, isn’t the right way either, so concentrating on cash flow is vital.
- Treat every turnaround like a crisis
Most companies without a crisis mindset, react the same to change: they focus on avoiding risks, and therefore they take small steps instead of leaps to get something done. There’s nothing wrong with this approach in a normal situation, but when in a real crisis, significant action is needed. Companies that treat every turnaround like a crisis and thus have that crisis mindset are willing to try the bold things that could change the trajectory of a company.
- Dare to criticise your own business plan
The best thing you can do to avoid distress is to periodically review your business plans and see how the company scores on operational and market performance. Find out where you stand as a company using essential financial and cash flow milestones, and do the same concerning your business and competitors. If that shows that you’re not moving with – or outpacing – the rest of the industry, then your business plan may be out-of-date.
Last but not least: don’t forget to look back at your business performance over the past to identify any trends. If you keep missing targets, ask why and most of all: be critical.