Orchestrate A Turnaround

Features - Cover Story - PREPARE FOR THE WORST

Most crises are short lived, which is why developing a problem-solving financial turnaround strategy is vital to emerge strong and in one piece.

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August 19, 2020

Whether as the result of unfavorable weather or the Coronavirus pandemic, virtually all snow and ice management operations are facing the daunting task of a business recovery. For many, the hardest part may be forming a plan for that recovery.

A ”turnaround” is best described as the financial recovery of a business that has been performing poorly for some time. In the present situation, poor performance may have been a short-lived period or one season but, regardless, the need for a turnaround strategy can involve revenues that don’t cover costs, an inability to pay creditors or salary cuts for workers and others in the business. Fortunately, once the problem has been acknowledged and identified, a problem-solving financial turnaround strategy can be developed.

ASSESS THE SITUATION

The first step in any turnaround is to get to the roots of all problems to discover whether the services offered are selling, if too much is being spent on unnecessary things or too much spent pursuing the wrong customers. Is the snow removal business in imminent danger of failure or does it have substantial losses, losses that don’t threaten its survival? Or, is business merely declining?

In addition to the pandemic and weather, the factors responsible for a declining snow removal or ice management business are those that are self-inflicted such as incompetent management or poor financial controls, both of which generally fall into the category of internal forces. While those that are not self-inflicted such as: government intervention, economic recessions, the presence of low-cost competitors or natural disasters are considered external forces.

CASH FLOWS

Since cash is the lifeblood of every business, cashflow should be carefully evaluated over both the short and long term. Obviously, a positive cash flow must be established for your business with a sufficient amount of cash that can be used to implement the turnaround plan.

Three steps to manage cash flow include:

Increase the cash balance. Take full advantage of the many funding options contained in the stimulus programs created by Congress, collect outstanding accounts receivable and generate cash from any saleable assets.

Prioritize cash disbursements. Focus the available cash toward the “must-pay” expenses first, paying vendors and payrolls, and keeping in mind the financial help and extended deadlines for payroll and associated payroll taxes.

Forecasting cash. Projecting realistic cash receipts by customer, and disbursements by creditor on a weekly basis and monthly for the entire season – will provide a guide. This often means reducing the revenue and collection estimates in the projection by 10 to 30 percent to ensure the actual results are achievable and cash does not run out. Develop and implement plans to operate and keep you in business at the lower projections.

CUTTING COSTS/CONTROL EXPENSES

Turning around a failing business can be tough, requiring a strict, meticulous and cautious evaluation of where the operation’s money is being spent. Any expenses that aren’t contributing to the snow and ice removal business’s success should be minimized with the focus put on expenditures that are really producing the desired results.

This is the time to reduce overhead expenses, re-negotiate leases, to cut out the waste and to stop completely the “nice to have, but not absolutely essential to the survival of the business” expenditures – if not already accomplished.

PRICING

Increased costs weigh heavily on the bottom line. But no business is immune from rising costs in fuel; rent or real estate; labor; health insurance, employee incentives or marketing; and equipment maintenance costs. And let’s not forget all the taxes.

DUMPING UNPROFITABLE CUSTOMERS

Any snow removal or ice management business being pressured by costs, may find it may be time to review their pricing strategy. While losing crucial customers can be even more worrisome than losing crucial employees, it should be kept in mind that some customers are just really not worth it.

Instead of tying yourself with customers that are giving you little income with much heartache, it’s best to work on and please customers that actually generate the most profit. Planning the snow and ice removal operation’s marketing efforts towards finding other loyal and beneficial customers.

TURNAROUND FUNDING

Make sure you have the cash to finance your business turnaround. Even the very best plan will fail without the right level of turnaround financing. Thus, identifying the most appropriate partners to work with in restoring the business to its former glory is important. This can be a mix of funds from the stimulus bills, so-called “turnaround debt” and/or equity capital.

It may even necessitate paying off existing lenders if they are not prepared to fund the turnaround. Fortunately, there are specialist providers for all of these financing options.

All requests for turnaround funding should clearly define the amount needed, what it will be used for and why, and the anticipated return over a specific time period. Investors understand that these figures are estimates; the point is to demonstrate that you’ve thought these issues through as best as possible with limited information.

Any business getting a capital infusion from equity investors will mean the only people getting paid are governmental agencies, utilities and key vendors. Everyone else is expected to convert what is owed to shares of the business or take pennies on the dollar.

MEASURING THE TURNAROUND

In the final step of a turnaround, a snow removal and ice management business will slowly return to profitability. While earlier steps concentrated on correcting problems, the final stage usually focuses on profitability and restoring equity.

New marketing programs may, for example, have been initiated to broaden the business’s services and customer base or to increase market penetration. Revenue may have been increased by carefully adding new services – or improving customer service. Financially, the emphasis shifts from cash flow concerns to maintaining a strong balance sheet, securing long-term financing and implementing strategic accounting systems and controls.

Unfortunately, not all turnarounds succeed. The owner of a snow and ice management business may put a quick end to an operation’s disastrous losses, but never quite attain an acceptable return on investment.

Should this occur, the owner may decide to sell the business to someone better able to produce an acceptable return on the funds invested. In a sense, however, this outcome is not a failure at all. The business may well thrive and reach new heights under different ownership.

A NEW PLAN, FUTURE SUCCESS

Are your snow and ice services at the right price point for the market conditions? A turnaround is the time to try new things, different marketing strategies, alternative financing and more. Now is also a good time to look at the broader economic and industry conditions and make sure that the business is providing what the market wants, how it wants it and at a price it is willing to pay.

Once it is understood what is negatively influencing your snow and ice management business to fail, a new plan can be developed to eliminate that cause and replace it with another option. Then the snow and ice management contractor/business owner must recognize there is a problem, asses its extent and develop a turnaround strategy.