Communication: The Key To Business Turnaround

[Vincent]

Communication: The Key To Business Turnaround Success

At workshops and seminars, that I conduct, a question frequently asked is “What do banks require from us when our business is in trouble? What are they looking for? What do they want?� There are no easy answers to these questions, because each bank operates their “business rescue� department differently. It is save to say that the underlying principle of the relationship between the bank and other stakeholders is COMMUNICATION. Without an open climate between the parties, it will be difficult to harvest a long term and sustainable relationship. Communication limits surprises, builds’ trust and credibility. The business owner must make certain that there is a regular flow of information, that it is open, honest, but never reckless or to the detriment of stakeholders. A relationship between the bank/investor and its client does not morph neatly parcelled up when a contract/loan agreement is signed, it has to be worked on and constantly nurtured.

In good times, a company is accountable to its shareholders and to a lesser degree to its employees. In bad times, a company’s main responsibility shifts to the interest of all stakeholders, including banks bondholders, trade vendors, employees and customers.

The communication strategy in a turnaround is to create awareness about the company’s vision, plan and commitment to achieving a positive recovery of the business and to facilitate the development of a proactive company image in the minds of the stakeholders. The success of the turnaround plan depends upon the ability of the owner to communicate how the plan will satisfy the stakeholders.

In the communication mix, what needs to be decided is:

• What needs to be communicated – how much information must be communicated, not every microcosms of the business needs to be divulged
• How to communicate the relevant information – combination of meetings, newsletters, business plan, etc
• To whom should the information be communicated – is it relevant for all stakeholders to share in the information
• Where should the information be communicated – web page, downloads, news bulletin boards
• How often should the information be communicated – fortnightly, monthly

Information communicated to the various stakeholders should contain the same message. In times of business crisis giving preferential or privileged information to one group of stakeholders over another group can lead to conflict, which in turn puts pressure on the business and may distract owners/stakeholders from the crisis on hand. No disparities in the information disseminated should exist. In other words, all stakeholders receive the same information, but as a business owner, you need to decide who receives what information.

From a bank’s point of view:

What do banks/investors look for when your business is in trouble and you require a cash injection? – Some points to consider:

1. What type of relationship do you have with your bank?
2. Don’t wait till the last minute to approach the bank – turnarounds take time
3. Does the business owner understand the constrains ‘imposed’ on the bank – for example losses are an important form of bankers evaluation; banks can’t carrying on flogging a dead horse.
4. Has the business owner complied with the bank’s requests – for example a turnaround action plan, additional surety, speed up accounts receivable, slow down accounts payable, prepared cash flows
5. Does the business have sufficient funds to see it through for the next three months
6. If money is lent will the business stabilise – how will the money be used?
7. Has the business had dealings that have had a negative effect on its finances but are unlikely to recur? – for example client bought goods and was later unable to pay
8. Were these previous events the cause for the business to be in a position where it cannot meet its liabilities as and when they fall due?
9. Does the operation have a good core business that is capable of generating profits over a period if it were allowed to continue trading?
10. Can the business afford contributions to its creditors if all of its liabilities were placed in a ‘moratorium’, and these creditors were willing to wait for their money during the course of an arrangement?
11. If your business is losing a R100,000 per month, does your business rescue plan make provisions on how to cover this loss?
12. If you have not been able to generate profits in the past, how will you do so in the future?’

From a business’s point of view:

1. What do businesses want from banks concerning their business?
2. Too take a greater interest in the business/owner
3. Have a general understanding of the business
4. Don’t call only when the company is in trouble
5. Don’t call only to lend more money and then disappear when the business is in trouble
6. Have you got the resources to assist a business turnaround – for example someone to help with a turnaround plan, industry information, someone to assist in the transformation of the business
7. Too deal with only one person – when the business is in trouble don’t send someone new to see the owner
8. If confidential information is provide will it remain confidential
9. Provide feedback promptly – ‘my business is in crisis I can’t wait’
10. Don’t try and sell a turnaround/rescue package
11. Do not guess what I need – let’s work out a plan together

Effective communication is a vital tool in any management situation. Clear, open communication is needed with all stakeholders about how, why and by when the turnaround strategy is going to be implemented. It is the owner’s duty to present a balanced and fair picture of the company’s position to its various stakeholders. This is essential for business survival. Without it, any attempts to carry out any of the planned turnarounds will fail. Only by communicating effectively can any activity be planned, organised, and carried through. While owner/managers are competent and capable of running their business’s daily operation, the skills required to manage a turnaround are quite different.