Today, many snow and ice removal operators face a crucial question: Have we closed the door on the fallout from COVID-19 and begun a new phase of recovery and growth? Or, are we in the calm before another storm of operational uncertainty, mandated shutdowns, etc.?
One thing is certain, running a snow removal and ice management operation is going to be even more challenging than usual in the next couple of years. Some businesses may be able to return to regular activities with very little, if any, modifications. The majority, however, are facing the question of how to turn their business around amid the continued uncertainty.
THE TURNAROUND STRATEGY
Healthy, well-capitalized businesses faced acute liquidity crises and even the most prudent contractor and business owner discovered they lacked many of the usual tools and capabilities needed to manage through the uncertainty. While a number of businesses have used the pandemic as an opportunity to re-imagine the workplace of the future, others are incurring substantial costs to ensure customer and employee safety, adopt digital ways to do business and, in general, just to cope.
Business are, for example, incurring costs to provide personal protective equipment, health screenings and frequent deep cleaning of shops and equipment. Although these unexpected expenses and others made planning, annual budgets and forecasts obsolete overnight, many snow removal businesses were forced to scramble to raise capital to weather the storm. Fortunately, many traditional turnaround strategies retained their usefulness.
The first step in turning around any troubled business is to understand the problems and analyze the snow removal operation’s options moving forward. Surprisingly, the lingering effects of the pandemic may not be the only problem facing the business.
That analysis of the snow and ice removal operation may make some difficult choices necessary. If allowed to operate, for instance, is business coming back? How quickly? If the operation was struggling before, an objective view of where the business is going should be made.
The turnaround prospects for manufacturers obviously depend on the products. For retailers and restaurants, much depends on their customer base. In the case of a snow and ice removal business, as with many businesses, the operation’s very loyal customer base may help in the recovery.
Every business should be flexible. It should be ready to capture a quick recovery as well as quick to cut back quickly if demand drops. The future may see a change in customer preferences, price changes from suppliers and a whole new way of doing business. Thus, the first step is to ensure that the snow removal operation can survive under the new conditions. Once that’s achieved, look to growing the business.
In a turnaround, one of the leading causes of businesses forced into a second round of restructuring can be attributed to a failure to fix their underlying operational problems the first time. Short-term fixes -– such as a new influx of capital -– can mask a number of fundamental problems.
STAYING ON TRACK
When transforming a business, maintaining a focus, measuring progress and ensuring accountability on priorities is essential. This means:
Examine Services. Cutting back or eliminating certain less profitable service, particularly those with low volumes always makes sense. And don’t forget about cutting off customers it may be unprofitable to deal with.
Review Costs. Obviously, no service or customer can be cut until the cost is known. Plus, operating costs could go up, productivity decline and the cost of special “perks” offered some customers could escalate. However, unless it is a question of survival, be careful where cuts are made.
Renegotiate with Suppliers. Will your raw materials supplier survive if your business doesn’t survive? This is an excellent time to see what breaks can be negotiated, at least for the short term. Longer credit payments can help cash flow. Renegotiated rental terms may be possible depending on the operation’s position. An important tenant in the building has more of a chance.
Pricing. Many snow removal and ice management operations may have no pricing power thanks to competitors lower pricing options. On the other hand, now might be the time to increase prices. After all, customers may realize there are additional costs incurred today or be immune having seen similar price jumps at the grocery store.
Owner “Perks.” Many owners often pay themselves a minimal salary while overlooking the fact that the business pays the lease on their personal car, they take associates out to dinner regularly and they take distributions over the course of the year. Analyzing those expenses can reveal a significant amount of cash leaving the business.
Cash Flow. If times are tough, cash flow projections can provide an idea of how long the snow removal operation may be able to weather a drop in business and/or an increase in costs if yet another wave of the virus occurs.
Funding the Recovery. Recognizing that a turnaround will be successful, and the business survive, is important. And, it is the cash flow projection thar will tell the story. Only the snow and ice removal operation’s owner can decide how much is needed and whether the shortfall can be funded with loans or capital contributions. Missing a bank payment, getting a third notice from suppliers and haven’t made the employment tax deposits for the month all can cause problems.
GETTING GOOD ADVICE
Obviously, this is not the time to go it alone. The snow removal operation’s CPA should be able to assist in the turnaround, at least with the numbers. Chance are he or she can also advise on many other aspects of the business.
Help may also be available from a local Chamber of Commerce, The Small Business Administration and other local sources. At the very least, they might be able to provide a list of so-called “turnaround consultants.”
Most business owners will, at most, face only a couple of downturns in their career which means that they do not have sufficient experience to successfully turnaround a troubled or unprofitable business. A turnaround consultant, on the other hand, will usually manage several downturns a year with clients across different industries. That is far more experience than the average business owner or manager, which means they can usually quickly and accurately identify how to turn around the business.
Turnaround consultants come with a variety of titles ranging from investment bankers to lawyers to basic turnaround advisor. The right specialty will naturally depend on factors such as the specific reason the turnaround is needed, the size of the business and the industry.
When choosing any turnaround specialist, look for the following qualities:
- Listens and customizes their approach to your situation. Be wary of salespeople pushing packaged solutions.
- Has a plan but adjusts and evolves to new information. A turnaround is a dynamic process responsive to changing conditions and new data.
- Does not work on a commission basis. Professionals who take commissions on debt restructuring often have a myopic goal and do not always have the snow removal and ice management business’s best interests in mind.
- Does not work for equity. Although equity is more readily available than cash, giving up equity to a consultant my cost more in the long run.
- Works primarily on turnarounds. Turnaround work is a specialized profession which means most CPAs, bankers or business attorneys are not experienced enough to ensure success.
A transformation is underway in how businesses operate. As restrictions ease, businesses must determine whether measures implemented during lockdowns or during the turnaround were only temporary or are they the new normal?
As the turnaround progresses, the operator will see significant changes in how they work, buy supplies, access services, etc. Many turnarounds mean reinventing the business to survive.
Bottom line, it’s impossible to overstate the importance of timely execution. Will the snow removal and ice management business revert back to the old way of doing business or adopt new strategies and policies? All the most comprehensive turnarounds will mean little if they’re unimplemented or implemented too slowly.
Mark E. Battersby is Snow Magazine’s financial writer. He resides in Ardmore, Pa.