These tongs have served me well for almost ten years. The rubber grips on its handles fell off long ago, but they are still my favorite kitchen tool. More importantly, they are a reminder of resilience. To understand, let me take you back to April 2010. Just as most of the global economy was starting to recover from the Great Recession, a catastrophic explosion occurred at the Deepwater Horizon oil rig in the Gulf of Mexico. Several million barrels of oil were released into the Gulf waters over the ensuing months, leading to significant coastal closures from Texas to Florida.
I was a part of the contingent of professionals who would spend nearly two years assessing the losses incurred by businesses and individuals as a result of the oil spill. We spent 10-12 hours per day, seven days a week, processing claims for those impacted by the oil spill. At the end of these long days, many of us would gather at the pool of the Hampton Inn that we called home, and I would use those tongs to cook meals for my coworkers on a small grill. As we shared those meals together, we reflected on the businesses we were attempting to help. Those tongs were my only tool at the grill, and nearly every memory I have of those evenings, those tongs were in my hand. Now, everytime I use them I remember the thousands of small business owners I meet in Louisiana and Mississippi.
Recovery Turnaround and You
As many organizations continue to struggle with the Covid19 pandemic, the global economic outlook once again looks bleak. Take solace in the fact that we have been here before, and we can recover. More importantly, your business can be saved and may even be able to take advantage of the new economic reality that will result from this event.
From my own experience working with businesses following disruptive events, I have learned two key things business owners can do now to accelerate their recovery:
- Get to the root cause of why your business is struggling. Do not just assume that the pandemic is the cause. For some entities, the current situation has simply accelerated an issue with the business that would have eventually led to difficulties.
- Leverage intelligence to develop and execute plans that ensure solvency and long-term growth potential. This includes assessing your management processes, business cycle, and product or services to ensure that you will remain competitive.
After careful consideration of these two areas, ask yourself a hard question: Is your business still viable? Studies of the economic impact of the Spanish Flu pandemic in the United States found an 18% drop in economic output. According to a report issued by FEMA, up to 55% of businesses fail in the year following a disaster. The fact is that many businesses will not survive the pandemic and the economic downturn that will follow. At particular risk are those entities that lack a strong core business, lack adequate cash flow or access to financing, and do not have committed decisive leadership.
What if my business is not viable?
Those business owners who do not have a viable business have several options. Selling the business is an attractive choice if the owner does not have the business’ liabilities tied to personal collateral. On the other hand, an owner may choose to sell off the business’ assets to settle debts and just cease operations. Finally the business owner may have no choice but to liquidate the business through bankruptcy (a Chapter 7 proceeding).
However, I firmly believe that most businesses can be saved if the owner is ready to make the hard choices necessary to get back on the right track. Before going forward with a business turnaround I warn clients that it will not be an easy process. Just like starting a business, the turnaround process requires a serious investment of time, energy, and will power. I have seen the stress of a turnaround wreck the personal lives of a few owners. Not only does the business have to be viable, but the owner needs a support system of family and friends who will be able to help the owner weather the storm of a business turnaround.
Wait, I want to save my business. What do I do?
Once the owner is ready to commit to a turnaround process, there are three phases to work through. First, prepare a turnaround plan that provides a strategic path forward to growth and profitability. Next, take the immediate actions needed to mitigate the root cause of the business’s trouble. This may include new leadership, changes to business operations, negotiation with creditors, and changes to the workforce. Finally, stabilize business operations and finances with a focus on implementing and monitoring those strategies that will lead to long-term growth and profit.
While the strategy for some turnarounds may include restructuring through a Chapter 11 bankruptcy proceeding, that is not the right fit for every business. A Chapter 11 restructuring is a mechanism where a court-appointed trustee works with the business and its creditors to negotiate new terms for outstanding debts, which makes it easier for the business to repay these debts. Businesses that are severely delinquent on debt to aggressive creditors, and those with substantial collateral at stake may benefit from a Chapter 11 bankruptcy.
On the other hand, a turnaround provides the business owner with substantial control (and responsibility) for the process of settling outstanding debt without the intervention (and protection) afforded by a court proceeding. More importantly, a turnaround is focused on fixing the business, not just settling its debt. A well-run turnaround process saves a business for the long-term instead of just fixing immediate debt problems. Good candidates for turnaround are able to generate cash to continue operations (either through sales, investors, or credit), have a viable market for its products or services (which may not be the business’s traditional products or services), and have a good relationship with creditors (even if the business is behind on payments).
What does the future look like for your business?
As the economy starts to recover from the Covid19 pandemic the need for responsible and holistic turnaround services will be great. As a business owner, you will have to decide whether you will want to pursue a business turnaround on your own or if you want to hire a turnaround professional. For those who are pursuing the self-turnaround, connect with me on LinkedIn where I will be sharing helpful tips, tools, and resources over the coming months.
For those who decided to hire a turnaround professional – either to lead the turnaround for you or simply to help you formulate a turnaround plan – please know that I am here to help. My firm is committed to helping as many small businesses as possible survive and thrive in the coming years. To that end, we are offering turnaround services at cost for qualified small businesses. If you are interested in exploring turnaround services for your business or have questions for our professionals, please email us today.