Of course there are dozens of reasons a company slips into decline in the first place and it’s a huge challenge for any owner MD or Chief Exec, although in that very statement we have already touched on a path forward!
The big thing (and I’m sorry if this sounds like an understatement as, exasperated, you may feel like screaming “yes, yes, but what’s the bloody solution?”) is to understand where the problem lies. Allow me to digress a little and say that sometimes one works so hard on a business and often for years, fighting off the impacts of the last recession with gusto and coming out stronger, then coping with aplomb when your top team cleared off to set up in competition and your best technical officer went off with stress!! – Been there. Done That!
So it is with true understanding when I write that in my view there are two scenarios here. The first is when your formally successful business is suffering and still full of energy you want to grasp it and change things. The second is when this is the second or third time you’ve raised the company to great heights following some difficult episode and you really have had enough!
If you’re chomping at the bit to sort things, then I implore you to ensure you have a good budget set up on a spread sheet and every single month you ensure you have a good and accurate variance analysis or (as some call it) BVA or budget verses actual. The big point here is, you HAVE to know where you think the business should be going and upon what basis it’s not getting there.
The sort of things we are talking about here are many and varied, but some examples would include the following:
- A decline in sales
- Inefficient staff that produce less that you had costed or allowed for
- Poor quality of product meaning staff spend time re-producing what should have been right in the first place
- An increase in raw materials that has not been flagged
- An increase in sales of products that have a lower gross margin than other products
- Staff working overtime without approval or your knowledge
The list of potential problems is vast and don’t forget the all too common risk of theft – you may not like to face it but yours would not be the first business brought to its knees by employee embezzlement.
The key to solving the problem of decline though is finding out just where you are and where the problem is and that means finding out where things should be and comparing that line by line with where you are – creating a budget and comparing your management accounts to that budget – line by line! Now you have the answer, you know where to go looking.
The other scenario is when you’re war-weary; done it all before and you know where the problem is, but what you’re trying to do is summon the strength to sort it – if it’s possible that is. And often what we have to do is stand back and face facts. For my part I had reached this point with one company and I chatted to friends and family about it. The chatting to others bit you’ll find to be not only helpful but cathartic. The next thing is to recognise that you have more power than you think! Let me repeat that; however trapped you feel you are, there is a path and you do have the power to change things. You just also have to accept that it will be you also that has to face the consequences of your actions.
Running a business in decline whilst you are sick and tired of everything is to say the least stressful also de-motivating and demoralising. It’s thoroughly difficult to put a smile on your face and make out everything’s fine – you need to find a way out and you know you do, but there will be a way out, trust me, it’s just finding it.
As to finding a way out I would slip back to my first point – it can be done, you just have to be strong and face the consequences although often they are not half as bad as they may seem and your family will love you for making the change.
So your business is in decline and you don’t have the energy anymore to pick it up or perhaps you’ve gone through the exercise I speak of above (budgets etc) and there is no option to re-kindle things, so what do you do?
On the basis you know where you are at all times there are a few options listed below and you might not have already thought about them. Importantly though you need to get in control if you’re not already there and steer the company through decline, don’t allow it to drag you along. I know that’s easily said, but try and get costs below income so you’re not crashing towards the bank taking things out of your hands, you just have to be at the helm so that you can act quickly. Essentially you need that dreaded budget. You just HAVE to know where you are financially.
More than ever today selling a company is difficult, whatever the banks say, all small businesses know they are not lending and will take you around the houses before they tell you that your cracking plan has fallen on deaf ears higher up the authorisation tree. So assuming you have things under some sort of control you could consider one of these:
- Look at your major competitor and consider whether they would buy your contracts
- Consider selling to someone who will take the business on and pay you out of future profits? Risky to say the least, but at least you’re out with your head held high
- Look at trimming back and earning a higher profit for a period before paying all your suppliers, creditors and staff and closing the company. You would need to take expert advice, but I believe that after all creditors are paid you can negotiate a pretty good deal with the tax man for anything that’s left over
If you have any other ideas we’d love to hear them, but importantly, nothing will change unless you change something and life is too short!