Turnaround Strategy

[Miro Bagrov]

Turning a business around is now a professional skill. There are is an association which accredits people as turnaround experts internationally.

The idea is to restore a business to profitability. If anyone is interested or has a case study or has some experience to share I would like to listen.

[Dave A]

It's not something I do for a living, but I've had to do a few business turnarounds over the years - so I'm kinda interested.

I'm not sure the businesses involved would like me to discuss them much, though. They're well recovered and I'm sure would rather not have those painful periods put back in the spotlight.

[Nickolai Naydenov]

This tread is a bit different than what I expected but in any way I have a question that you guys might want to give your ideas. I've got a very close friend of mine who's running his own business, he deals with other companies and at the moment he is in a situation where he could lose his biggest contract. I'm meeting with him tomorrow just to throw some ideas around on how to try and save the business. Just to give you a bit of a background, at this big contract the person that he used to deal with found a better job and left and now the new person is trying to get my friend out of that contract as he wants to bring his own people. The new guy is very unapproachable and doesn't even greet my friend or any of his stuff. This person is a decision maker and the treath of them loosing the contract is real.

I'd like to hear from you guys how would you approach somebody like that and what strategy are going to use? For me personally relationship is the key, but let's see what you have in mind.

Thank you

[Blurock]

the person that he used to deal with found a better job and left and now the new person is trying to get my friend out of that contract as he wants to bring his own people.

It appears as if your friend is a sub-contractor. If he was subcontracted to the previous contractor that left the site for more lucrative work, he has very little to fall back on. All he can do now is to approach the main contractor, show his credentials and ability to do the job and hope for the best.

This is not a turnaround strategy though, but an example of contractual risk.

[Dave A]

Generally, if the success of your business is dependant on a single client, you don't have enough clients.

So get more clients, and/or have an exit strategy if you lose that critical client.

[Hermanb]

All the major government finance agencies (NEF, IDC, Khula etc) have adopted an approach of insourcing skilled and qualified resources to assist with mentoring new businesses as well as to assist with the turnaround of distressed businesses. In South Africa Business Advisors are accredited with a specific rating dependent on experience and qualifications and become members of the Independant Business Advisors Association of South Africa. (IBASA)

I have been involved in the turnaround of a few businesses and have received the highest accreditation from IBASA. i am also an accredited advisor for the National Small Business Chamber (NSBC).

Turning a business around is now a professional skill. There are is an association which accredits people as turnaround experts internationally.

The idea is to restore a business to profitability. If anyone is interested or has a case study or has some experience to share I would like to listen.

[Blurock]

The easiest turnaround strategy which is used all over the world is actually asset stripping.

The first thing the "strategist" will look for is undervalued assets. The value of fixed property in the balance sheet will be shown at cost (original purchase price) plus maybe improvements over the years. Now if that property was bought 30-40 years ago, the balance sheet value will be a fraction of the current market value.

E.g. property acquired for R500k now worth R5 million. The genius sells this property and shows "income" of R5 mil which improves the asset value of the balance sheet by R4.5 mil. This is a good strategy to recapitalise a business, but it is often smoke and mirrors when it comes to value added. No increase in sales etc, just an asset sold.

A head of one of our big 4 banks used it effectively in a previous job to polish image, but added no value to the business which is still struggling today. The balance sheet structure was improved, showing more value, but the operational woes and declining revenue continues. The same could have been achieved by just revaluing the assets in the balance sheet and adding an explanatory note.

Investors should be wary of extraordinary income with potential to hide a declining turnover and other problems in a business. Extraordinary income should always be investigated.

[Miro Bagrov]

This tread is a bit different than what I expected but in any way I have a question that you guys might want to give your ideas. I've got a very close friend of mine who's running his own business, he deals with other companies and at the moment he is in a situation where he could lose his biggest contract. I'm meeting with him tomorrow just to throw some ideas around on how to try and save the business. Just to give you a bit of a background, at this big contract the person that he used to deal with found a better job and left and now the new person is trying to get my friend out of that contract as he wants to bring his own people. The new guy is very unapproachable and doesn't even greet my friend or any of his stuff. This person is a decision maker and the treat of them loosing the contract is real.

I'd like to hear from you guys how would you approach somebody like that and what strategy are going to use? For me personally relationship is the key, but let's see what you have in mind.

Thank you

Talk to the regulators. Every industry has regulators against unfair practice. I am not sure which industry you are talking about. Sometimes it's government sometimes it's private. This is usually slow, but since it's a large contract it has strong effect. It is good to be familiar with these regulators before you begin a contract and maintain a good relationship with them during contract.
The remaining risk to manage is keeping a steady cash flow during the legal proceedings. There are a few ways to maintain an income with the available assets without the contract.
Good luck to your friend

[Miro Bagrov]

A head of one of our big 4 banks used it effectively in a previous job to polish image, but added no value

About banks:
The banks are actually running at a loss. They are hiding it very well for now. I can grantee you that the 15% net profit is all accounting profit and the cash flow statement is rigged with money moves from a subsidiary or holding company around reporting time.
They are also resorting to cheap tricks:
- Restaffing (low cost employees/temps) - new employees at banks now earn R2800 per month. of course this is illegal so they use labour brokers to hide their dirt and pay them 35% of the salary of this worker.
- Hidden Fees.
- Large but weak sales campaigns. These campaigns are reckless and add risk, not return.
- Blocking promotions within the company. This is just going to get everyone to leave and they will have no good staff left to do the work.
- Branch closure.. and throwing guilt trips on branch staff: actually branch staff can't do much to change useless products and poor money management.
They are not effective at turnarounds because they focus on the wrong things. Their products are overpriced and unnecessary. Further, they focus too much on customer sales (new customers) and too little on customer retention. There is a cost to both, but the cost to attract more customers is the more expensive one. Our banking system is in need of a turnaround.

The people who work there are incompetent. In fact, anyone who was competent found another job already. This is why your example above left.

[gac]

is in a situation where he could lose his biggest contract. I'm meeting with him tomorrow just to throw some ideas around on how to try and save the business. Just to give you a bit of a background, at this big contract the person that he used to deal with found a better job and left and now the new person is trying to get my friend out of that contract as he wants to bring his own people. The new guy is very unapproachable and doesn't even greet my friend or any of his stuff. This person is a decision maker and the treath of them loosing the contract is real.

I'd like to hear from you guys how would you approach somebody like that and what strategy are going to use? For me personally relationship is the key, but let's see what you have in mind.

Thank you

Tricky situation but not uncommon. Addressing the business risk that Dave A suggests is a good one but doesnt assist right now in this situation. Unfortunately you havent provided all the info but here are a few suggestions based on the assumption that a) there is an enforceable and valid written contract in place b) your friend has not breached/infringed any of the terms of the contracthis obligations and c) that the contract does not allow the customer to cancel the contract.

You say that the new decision maker is unapproachable and doesnt speak with your friend - I suggest that entering written communication is the best way of trying to get discussion going. Request reasons from them (customer) for being unhappy and wanting to cancel the contract and tell them you value their business and wish to address the issues.

If no reply after a reasonable period of time (i.e. 7 days) send a 2nd letter requesting an urgent reply and copy the head of the company (CEO, MD or GM etc).

If that doesnt get you into any satisfactory discussion then consider legal advice viz-a-viz legal enforcement of the contract. This should be the last resort/action given that once one does this the matter becomes more personal in the eyes of the fella trying to get his company out of the contract.

[Nickolai Naydenov]

Thank you all for your input. I didn't mention any names or type of business because the company he contracts to is a massive company and the weekly turnover of my friend's company is millions, I don't want to put anybody at risk. I believe the whole issue is a relationship issue because in any business, relationship is really 90% of your business. My question was more about relationship than anything else. We discussed it, I hope he follows up on the strategy and keeps the business.

Thank you all once again, your input is much appreciated.

[Nickolai Naydenov]

Just another question I've got, what is unfair business practice and is it valid between two companies that have a contact? I looked on the net but it all seems to be consumer protection?

[Miro Bagrov]

Just another question I've got, what is unfair business practice and is it valid between two companies that have a contact? I looked on the net but it all seems to be consumer protection?

What he is doing is obviously illegal. It is illegal to cancel a contract without good warning, without good reason and replace the worker. This may be legal in some countries, but not here.

Firstly the cancellation of the contract is to be examined:
The contract will contain a termination clause, limited to time, or to job completed, or to non-performance.

The cancellation of a contract outside this scope is called technically a "Material Breach Of Contract".
This can come in several forms.. Failure to give notice of termination, failure to allow your friend to continue work on site. Failure to allow access to working environment, failure to pay the amount owed.
The contractor MUST GIVE NOTICE, in writing. The notice must be for a reasonable time period ahead (it is not reasonable to cancel with too short notice.)

Penalties for Termination & Remedies:
These result after a breach of contract and after a legal authority has ruled in favour of your friend:
Payment of Damages... Simple - restoring the loss suffered financially.
Proof and calculation is based on the difference between what he should have had and what he actually received.
However, Damages are always the last resort.
Firstly the legal authority will order both parties to negotiate. If the parties can not resolve it, or do not come to the hearings, then other action will be taken.
So either way, prepare for more face to face contact.

In short, the law aims at restoring the person who suffered loss to the same position before the loss. Not giving more or less.
Another thing to consider: Impossibility of Performance - this means that you can not be expected to do the impossible. If it's a construction site and the person who provides the cranes is locked out of the site, and now can not render his services, this means it was impossible. By locking the crane provider out, and preventing his work, the site manager has committed breach of contract. There already legal action is possible.

I suggest keeping things in writing where possible.