Every business will face a crisis situation at some point in its lifecycle, says Vistage speaker Lee Katz . How the CEO and board of directors acknowledge and address these crises will determine if the CEO keeps his or her job, and, ultimately, if the business will survive. To help you weather times of distress, Katz has assembled a 10-point list of key business practices that every organization should consider implementing.
- The CEO needs to check his or her ego at the door. When your business is in crisis mode, first recognize that a crisis is at hand, says Katz. “This may sound obvious, but it’s often difficult for a CEO because he or she does not want past business decisions questioned. Before steps can be taken to stop the bleeding, however, the CEO must recognize that mistakes were made, but now it’s time to move forward. Decisions need to be made swiftly and corrective actions taken accordingly.”
- Communicate with your lender. It is always important to have a good and open relationship with your lender, explains Katz. When times are troubling, the CEO should speak with loan officers to give them a “heads up.” Lenders don’t appreciate surprises, and, often times, they are willing to renegotiate loan covenants or debt schedules — if the debtor explains the problems its business is having and puts forth solutions. “If your company is already in financial crisis, it is still important to work with your lender. He or she may be willing to design a forbearance agreement or temporarily waive compliance with financial covenants.”
- Assign the most critical tasks to “superstars.” Make sure that the most challenging tasks facing your business are handled by “superstars” — those people in the company who are best suited to making difficult decisions. Types of challenges include: restructuring debts with your lender; identifying, downsizing and spinning off under-performing business segments; handling relationships with major vendors and customers; or implementing changes in your company’s marketing strategy.
- Develop incentive plans for meeting defined goals. “In crisis situations, your workers’ mettle is tested,” says Katz. “Make sure they know you recognize this and respect them for sticking with you during the downturn. In bankruptcy, especially, make sure to develop incentive or retention plans to keep employees producing.” Their best efforts will help your company turn around sooner rather than later. Remember, without your employees, your business can’t survive!
- Review profitability of product lines. Review your product lines for profitability and determine which ones aren’t performing, says Katz. “Get rid of any loss leaders, or products that you take a loss on to bring in additional business. Discontinue marginal product lines, segments or stores that act as a drag on your company’s cash flow.”
- Review profitability of customer base. “Remember Pareto’s Law: 20 percent of your customers typically generate 80 percent of your company’s revenues and margin. Make sure you’re speaking with your best customers and keep an open dialogue of your rebuilding efforts,” says Katz. “Don’t forget, these customers want you to succeed so that they in turn have a product to sell! Maintaining good relationships with your customers is especially important during a crisis situation because you need them to support your restructuring efforts.”
- Review relationship with vendors. On a regular basis, speak with your key vendors, especially your biggest suppliers, says Katz. “They have a stake in your enterprise and want you to succeed so that they can get paid out. Demonstrate to them why they are better off supporting your restructuring efforts and why you will be a customer to them longer-term.”
- Review marketing strategy. Just because you are in a crisis situation doesn’t mean that you should stop marketing, says Katz. If anything, continuing to market instills faith in customers and vendors that you’re confident your business will survive its crisis. “Cost-cutting methods may buy your business some life short-term, but you must maintain your top line to produce cash flow longer-term.”
- Monitor cash outflows from your business. Set realistic parameters, says Katz, but the CEO or CFO should sign every check over “x” amount for 90 days or so. “This effort ensures that only the most critical bills get paid,” he says. “Often, by monitoring all checks for a specific period, the CEO will discover some bills that are being paid in duplicate, some that are unnecessary (such as leases on copiers or computers that have expired months ago), or some that are unauthorized. This monitoring may even help you discover fraud that has siphoned capital out of your company.”
- Develop budgets to reduce and avoid unnecessary costs. Develop weekly or even daily cash flows to guarantee that your actual receipts and disbursements are in line with what you budgeted, says Katz. By analyzing these spreadsheets, you will be able to quickly identify problems and take corrective action before much more time has elapsed.”If you are quick to implement all these steps, you will provide your business with the best chance for a turnaround. Above all else, be proactive and take initiatives to buy time for your business to recover!” Katz concludes.
Lee N. Katz is president and managing partner of Grisanti, Galef & Goldress, Inc. an Atlanta, Georgia-based firm specializing in corporate rescue. Katz is a recognized leader in corporate rescue who has turned under-performing companies into high performance operations for more than 40 years.