Small Business Management Series
A Turnaround Artist Can Keep Your Business Afloat
Marc Kramer
07/13/07 - 11:27 AM EDT
Many business leaders are good at starting a business or maintaining one that has already been started, but aren't good at fixing a seriously ill business. They often don't have the experience, skills, temperament or willingness to do what is necessary to correct the problem.
An outsider who has no attachments to the people and no investment in the business' past history needs to be brought in. There are many ways of finding quality professionals to help you fix your business. In large metropolitan areas, there are listings in the telephone books for "turnaround specialists."
Here are some other avenues you can take to get some help:
- Professional referrals: The first thing to do when looking for a qualified turnaround specialist is contact your accountant, banker, lawyer and financial planner. All four of these professionals have worked with clients with business troubles at one time or another. Some of those clients have probably engaged a professional to assist them in fixing their business. Large international accounting firms have in-house experts who work with all sizes of companies. Banks have internal groups called "work-out departments" that work with troubled companies to protect the bank's investment in the company. The "work-out departments" have a list of professionals they have worked with and will be glad to make introductions between their clients and these professionals.
- Chambers of commerce: Strong, involved chambers of commerce always know which members are doing well and which are having problems. The chambers are often contacted by members who are in trouble, asking for a referral to someone who can assist them in fixing their business. If the chamber doesn't have a direct contact, it will contact members who have engaged professional help and ask them if they would be willing to share their experiences and contacts with a member who is having business problems.
- Trade associations: A troubled business owner can contact Turnaround Management Association (541 North Fairbanks Court, Suite 1880, Chicago, IL 60611, 312-822-9700, www.turnaround.org). This association has a list of qualified professionals, organized by state, who work with troubled companies. A business owner can also contact his national trade association and ask for a list of individuals and management companies that work with troubled companies.
Qualifications of a Turnaround Specialist
There are many people who profess to be general turnaround specialists, but their sole expertise is in looking at a balance sheet and figuring out what expenses to cut and how to reorganize debt and bank loans. This skill and knowledge is certainly important, but it is only part of the answer. It is also the easiest part of fixing a company. Understanding how to manage people and build sales is just as important, along with understanding the industry the business is in. The turnaround expert you pick should also possess the following qualities:- Understanding of industry: The value of understanding the industry is that the turnaround specialist doesn't have to spend time being educated about the business and will bring contacts and ideas on how to fix the business.
- Turnaround experiences: Don't hire a manager who hasn't suffered through adversity and who hasn't successfully turned a business around. Companies often hire competent, successful managers, but the manager has never worked with a sick company. They haven't worked with employees who have lost faith in themselves, vendors who are screaming to be paid and clients who are reconsidering giving additional business to the company. Knowing what to say and how to respond to each constituency can make all of the difference in the beginning, and if you can't initially control the major issues, the business will not survive.
- Expertise: Not every situation calls for a manager who understands the financial, management and sales issues. In fact, it is hard to find someone who has proven, above-average results in all areas. If your major problem is consolidating debts and reorganizing bank loans, then a financial specialist is maybe all that you need. If your business leader is terrific with numbers but is poor at communicating and energizing people, then an expertise in managing people is essential.
- Compensation requirements: Turnaround specialists who work for large management firms are either paid by the hour or by the project. For a small company, this may not be financially feasible. Small management firms and independent consultants are more flexible and are willing to take a combination of cash, equity and bonus based on performance. If you are hesitant about having an outsider holding equity -- fearing, perhaps, that they might sell their equity to someone you don't approve of -- you can design the contract to say that you have first right of refusal to buy their stock back.