Turnaround Step 12: Financing the Turnaround

As you take your business through a turnaround, external financing will be extremely difficult if not out right impossible to get…for obvious reasons. Therefore, your most viable option for raising funds will be internally generated sources. The following list of ideas to generate these internal funds is from Kevin Muir's The Insider Secrets to Saving Your Business: 

Expense Cuts 

Technique 1 - Approval procedures

Your approval of every expense, no matter how small, is the quickest way to control your money. If you did not do this as part of the emergency plan, do it now. This immediately stops any unnecessary purchases or business trips. In addition, you will verify that all new purchases meet your cost objectives. 

Technique 2 - Business supplies

You can easily cut business and office supplies. Likely, you are spending two times what you need. 

After your layoff, gather all office supplies hidden away in desks and departmental cabinets and put them in a central storage room. In one turnaround, this central storage room supplied the remaining employees for six months before they needed another office supply order.

Technique 3 - Cell phones

In a turnaround, cell phones are a luxury that a business cannot afford. Many of these bills run $500 to $1000 monthly and are this high because of personal phone calls. Get rid of all cell phones even if it means paying cancellation fees. A landline is substantially cheaper. 

If you feel that your business cannot survive without mobile phones then put in place a use policy. This policy should plainly cover to whom, when and why an employee places a call on his or her cell phone. Of course, you must check these bills regularly and carefully. 

Technique 4 - Company airplane

If you have a company airplane (even a small prop), you must get rid of it. You do not need this luxury, and it can be a ready source of cash. 

By selling your airplane, you send a strong signal to the employees, as well as your lenders and investors that you have committed fully to the company's turnaround. You show them that you are willing to make personal sacrifices to ensure your firm's survival.  

Technique 5 - Company cars

Effective immediately, cut out company cars including your own. Like the airplane, this is another unnecessary luxury. You may have to keep the cars for your sales team, but, if they can drive their own cars, it will save you a bundle. 

Technique 6 - Company credit cards 

The only person that needs a company credit card is you. If others in the firm have a company card, you need to gather these immediately. You will do this for three reasons. First, a company credit card allows employees to make purchases without your approval. This does not follow your new buying procedure. Second, disgruntled employees will often charge personal expenses on the card before quitting. Third, you will force all employees to put travel and related expenses on their own credit cards. As a result, they will be more frugal in their choices. 

Technique 7 - Computers and software

My experience is that you can get by for at least a year without upgrading your computers and software. This should is especially true after a layoff when you should have extra computers laying around. Cut this line from your capital and expense budgets. 

Technique 8 - Consultants

In most companies, you pay consultants around two to three times your average employee cost. Therefore, other than your turnaround consultant or coach, you should release all your consultants immediately. Your new philosophy should be if you cannot do it in-house, then you should not be doing it right now. 

Technique 9 - Discounts from suppliers

Use any advantage that you have to get supplier discounts. You may want to couple this effort with a search for better payment terms and higher credit limits. Potential leverage points are increasing order size, moving to another supplier, or a sole supplier arrangement. Eventually, you may have to tell your supplier that you need a discount for your business to survive. Do not play this card until you have exhausted every other cash saving opportunity because your supplier can always just cut you off. 

Technique 10 - Insurance

Cancel any unnecessary insurance that you may have. Unless your loan agreement requires it, you can get rid of "key person" life insurance coverage. After layoffs, your company should substantially contract in size. Therefore, your property and employee coverage should decrease as well and you should ask for discounts in these premiums. In addition, you should bid out your insurance (including your employee health insurance) at least once a year to get the best rate possible. You can see a ten to 25 percent drop if you have not bid out your coverage recently. 

Technique 11 - Lease or rent renegotiation

If you are in trouble, many of your landlord's tenants likely face similar issues. This can be a good time to renegotiate with your landlord. He or she does not want empty space on his or her hands, and will work with you on your rent Dealing with your landlord is a lot like dealing with your banker.

Technique 12 - Leasing

Leasing can be a great financing source for your troubled business. You should follow one simple rule. If you need an expensive item for your business, you will only lease it and never buy it. Using this rule, you will save at least two thirds of the cash outlay for capital goods in the first year. This is a good savings. 

Technique 13 - Legal services

Monthly legal bills can easily amount to several thousands of dollars even in small companies. For a profitable company, this is reasonable as a lawyer's advice gives a sense of security on a business decisions. However, this security is something you cannot afford during a turnaround. Although you still will need legal services, only use your lawyer in critical circumstances. For example, get your lawyer involved when a plaintiff files a lawsuit against the company or when you have personal liability issues. Further, your lawyer can help you collect money from deadbeat customers. 

Understand the message here. Having a good attorney is important during a turnaround. However, to prevent the high costs, limit your legal services to those areas important to your company's survival. This means that sometimes you may have to go ahead without your attorney's oversight You may want to buy a legal handbook for businesses to help you decide. Most cost less than $50 and give standard contracts and legal watch outs.

Technique 14 - Marketing materials

Get rid of all novelty items such as the pens, the notepads and the calendars. Also, cut out marketing materials that have never worked and are no longer relevant. Get rid of the expensive stationery and business cards. Only print more of those pieces necessary to communicate your sales message.

Technique 15 - Memberships

My personal belief is that all memberships are a waste of time and money. You should cancel all of these immediately. If your employees want to keep memberships, they should pay for them out of their own pockets. The enduring argument against cutting these `Valuable" memberships is that they help develop professional contacts and these contacts eventually translate into business sales. Even if this is the case, you do not have time right now to cultivate these new relationships into sales.

Without cutting costs, there is a good chance you will be out of business before these contacts amount to anything. If your sales team is any good, they do not need a membership to a professional organization to find sales leads. If you disagree with me on this, then limit memberships to one employee to an organization. The employee who holds this membership should be your best salesperson.

Technique 16 - First-class travel 

No more flying first-class! If anyone in your company travels (including you), he or she must fly coach or take his or her own car. There should be no exceptions to this rule. 

Technique 17 - Other expense items

Review a detailed profit and loss statement for your company. Are there expense items you can cut without affecting your revenues in the near term? One example is training. Do not provide any extra training now, unless it leads to an immediate increase in sales. Otherwise, you slash this budget item. 

Technique 18 - Overnight delivery

Cut out this budget item except for rare instances when you must send a client a proposal overnight Another time to use overnight delivery is when the customer pays for it as part of his order. Otherwise, use regular postal mail. This will save you a bundle.

Technique 19 - Pay cuts

Pay cuts, especially among the senior team, can be a great source of savings for the company. Each senior team member needs to agree to cutting his or her salary. In return, offer extra stock options or future raises when the company has achieved its turnaround plan. 

If a team member does not agree to the pay cut, then you should fire him or her. Others who give up pay will resent the member who refused the pay cut. This will destroy your senior team's capacity to cooperate. If you are in trouble and have no other savings opportunities, you can set up a similar program with the rank-and-file. However, prepare for your top performers to leave you immediately and for overall morale to deadline.

Technique 20 - Political contributions

Like charitable contributions, political contributions and lobbyist costs must go. Business gains from these expenses are strictly long-term, and right now, you must focus on your company's short-term survival. If you still must give, do it out of your own pocket and not out of the company's coffers. 

Technique 21 - Reduction in force (RIF)

Reduction in force, or layoffs, are usually the quickest and the most effective way to lower your costs. However, layoffs are the most emotionally draining cost cut that you will make. 

Technique 22 - Sublease

After most layoffs and pare-downs of the business, you will have extra space you no longer need. However, a lease commitment may prevent you from getting rid of it 

Explore subleasing this space. This is especially effective if your current lease is well below market rates. Before you do this, check your lease to see if it allows subleasing. If not, then your landlord will likely take the space back from you if you currently have a sweetheart deal. Therefore, you win either way. 

What if your current lease rate is well above the current market prices? If you cannot give back the space to your landlord in a lease renegotiation, then you should sublease the space forasmuch as you can get Getting something is always better than getting nothing.

Technique 23 - Subscriptions

Get rid of all subscriptions. Often you are paying for several copies of the same publication and, frankly, no one is reading these unless they are going to the bathroom. If someone wants bathroom reading, let him pay for it out of his own pocket 

Technique 24 - Support services

Cut out support services for customers that slow pay or don't pay. If you provide customer service to these people, you are throwing good money after bad. 

After cutting support services to nonpaying customers, examine your overall support services. Many failing companies provide too many services to their customers free. This is usually in the name of "great customer service." Either customers seldom use many of these services or customers just do not value them. 

Therefore, only provide minimum support services in line with your competitive environment and have customers pay for premium services. This then helps you in two ways. First, it reduces your costs. Second, it provides you with a new stream of income.

Technique 25 - Telephone

With fierce competition in both local and long-distance markets, prices for phone services decrease daily. You should make sure that you are getting the best rate out there today. Just call around. You will probably see at least a 10% discount if not substantially more with just a few hours of work. Besides finding a better rate, you should study your most recent bills to find more money. What you find will surprise you. Often, the phone company is charging you for phone connections you abandoned long ago or your employees are making many unnecessary long-distance calls. Your phone bill is one of the biggest sinkholes at your company. Stay on top of it regularly, and make sure you are only paying for those services that you need.

Technique 26 - Travel

Travel usually is one of the largest expense items in your budget Therefore, you must get it under control quickly. Until your have made all of your expense cuts and have your house in order, you should put a moratorium on travel. The only exception to this rule is if someone needs to visit a customer to get an important sale or preserve an important partnership. Any employee who wants to travel should get your personal approval, and they should give you an estimate of their trip expenses. Only approve travel that is necessary to bring in revenue.

Revenue growth 

Technique 27- Price increases

Many companies never touch their pricing unless their costs change dramatically. This method is just flat wrong. You should price your goods and services at market rate. 

Therefore, look at your prices, and see where you are under pricing. In these areas, raise your prices immediately to market rate. You likely will see little change in sales volume, and a dramatic increase in profits and cash. 

If losing sales volume on these "loss leaders" concerns you, then compromise with me. Only raise your prices by half of the difference with the going price. 

Technique 28 - New markets

Selling a product into a new market can be a quick boost for your sales if you have ready and willing partner to help you. If someone has approached you offering to sell your product into a new region or a new market niche, then you do not have much to lose right now. This could be a great new source of revenue and income. 

Asset sales 

Technique 29 - Excess equipment

Look around your plant and offices and identify any excess equipment You probably have some. Convert this to cash as soon as you can. If you have much equipment to sell, then consider using an auction firm. They can easily carry out the sale in just a few months. Also, check to see if there is a ready market on eBay for your equipment I am seeing more and more companies liquidate equipment and inventory on eBay.

Technique 30 - Excess inventory

Like old equipment, you should sell any out-of-date and excess inventory. You will get your best price by selling it to your customers. If that does not work, then use a liquidator or sell the inventory in an auction possibly with your excess equipment 

Technique 31 - Sale and leaseback

If you own large equipment or business property outright, cash out your equity position. This will give you some much-needed breathing room. Consider using a sale and leaseback arrangement In this transaction, you sell your property to a leasing company or real estate investor and then sign a lease with monthly payments for continued use of the property. Contact a leasing company or a commercial real estate broker to make this happen.

Receivables management 

Technique 32 - Advance payments on orders

Try to get an advanced payment on orders, especially large orders. A typical number is 50%. This advance will give you working capital to complete the order and increase your bank balance. You could encourage your customer to give you the advanced payment using a discount on the overall price. 

Technique 33 - Collection agencies

If you have written off receivables, consider getting a collection agency involved. Although you must give them 20 to 50% of the invoice amount, a collection agency can easily yield unexpected money for your firm. In my experience, every customer paid his or her overdue invoice within two months after I hired a collection agency. Many businesspeople do not like using collection agencies because they fear it will damage their partnership with their customer. However, you need to increase your short-term cash flow right now, so don't worry about long-term implications until later. Also, keep in mind that usually you will not be doing future business with this deadbeat customer anyway.

Technique 34 - Collection procedures

Do not be shy about requiring your customer to pay on time. If you quietly and patiently wait, you probably will be last on your customer's payment list Sometimes, he or she will not pay you at all. 

Therefore, either you or your collections person must give your customer's payables department a friendly reminder call a few days before your invoice is due. Then, if they do not send payment, call every few days until they pay. Step up your customer's chain of command if necessary. Using these procedures, you will have few invoices going 15 days past due. This is stellar receivables management 

Technique 35 - Receivables factoring

Factoring is a great way to finance a turnaround. You can get money out of your outstanding receivables in about two weeks from the time you enter the arrangement After you have set up the partnership with the factor, you can sell him or her any new invoice and receive payment within 24 to 48 hours.

Technique 36 - Debt forgiveness (for long-term COD commitments)

If you cannot pay your supplier debts but you need to continue supply of the parts or service, you may be able to negotiate outright debt forgiveness in return for a long-term buying commitment Of course, since you have burned your vendor, he or she will want payment immediately or cash on delivery (COD) on the future purchases. You will need to treat your vendor much like your banker. You show your plan and timings for getting your business back on track. If you think your vendor will go for the deal and you have the cash to do COD, then this may make sense.