Running a business is often a bumpy road – and with the unique challenges faced by businesses in today’s economy, the risks are greater than ever. According to recent statistics, one in five new small businesses fail within their first five years. But failure can often be seen a mile away – so what can businesses do to reverse their fate? The answer can be found in the form of the ‘turnaround strategy’.
What is a Turnaround Strategy?
Simply put, a turnaround strategy is the planning and implementation of measures designed to re-chart a company or organisation’s course, in the event of a continuous decline in profits or cashflow. A turnaround strategy would comprise a step-by-step process of reversing the decline in performance, with a view to creating a new baseline from which to build a profitable long-term strategy.
Why do Companies Use Turnaround Strategies?
There are numerous reasons a company might decide to draft a turnaround strategy, but those reasons typically align with an adverse result relating to a specific performance metric. The turnaround strategy would attempt to ‘undo’ the damage done, by reversing decisions made and re-implementing strategies to return to the ‘status quo’.
For example, a business might make a decision to phase out the sale of a particular service, in the hopes of re-directing customers to a new product or funnel. Instead, they might have found customers leaving their business altogether for a rival, resulting in an overall downturn in sales. This company would then use a turnaround strategy to reverse their steps – and reverse the negative effects of their prior decision.
Turnaround strategies can also be used by businesses facing a general decline in performance. There may be no specific reason for their company’s decline – or the reasons may be multiform. A turnaround strategy can be used as a form of re-grouping, to ascertain the reality of the situation and plot a course towards a more profitable baseline.
How to Plan a Turnaround Strategy
Address Your Finances
Before you begin planning measures, you should take stock of your existing financial outlook. Any steps you take to reverse your business’ fortunes will also require a budget – necessitating access to adequate funding. If you’re an established business, you can leverage your assets to access funds in the form of asset-based lending; alternatively, you could reach out to any investors for advice and cash injection.
A turnaround strategy needs to be focused, and targeted. Even if the end-results you seek are wide-ranging, instituting specific measures that target specific aspects of your business can ensure direct progress is made. Compartmentalise your strategy accordingly and assign specialists within departments to head up their design.
In implementing your plan, it is key to set appropriate metrics by which you can measure the success of your plan. Your goal might be to return to a previous gross profit benchmark within a set period of time, giving you milestones at which you can evaluate the efficacy of the turnaround measures.