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Why So Many Businesses These Days Need To Turn To A Turnaround Consultant

18/08/2016 11:07 | Updated 18 August 2016

Changes in the business environment mean that turnaround consultants are in increasing demand. Factors which have given rise to this phenomenon include increased competition, the pace of change and the financial environment in which businesses now operate. Bigger businesses can find themselves short of experienced executives because of downsizing. In my experience, the main problem that smaller businesses have is that they get into trouble because of a failure on the part of the business owner to face up to reality.

Turnaround consultants can step in and provide what's missing when businesses get into trouble. They are able to do this because they have a fresh pair of eyes, are familiar with working in crisis situations, bring complete objectivity to the situation and they possess the necessary knowledge and skills. They are able to spot problems and suggest solutions that they have seen work in similar situations.

There are over 40 reasons why businesses fail. Ten of the most common include the following causes.

  • Leadership failure. Businesses do not just run themselves. They need direction, decisions need to be made and someone needs to take charge.
  • Lacking uniqueness and value. There is so much competition around these days. So you need to offer real value and stand out in the crowd.
  • Not in touch with customer needs. You need to be in tune with the needs of the marketplace. On an ongoing basis you need to know what your customers want. You need to seek their feedback.
  • Unprofitable business model. Even if you have a fabulous business idea, the business will not succeed unless you know you fit within the value chain and have one or more proven revenue streams.
  • Poor financial management. When it comes to small businesses, only 40% turn a profit, 30% breakeven and 30% make a loss. You must know your numbers precisely in terms of money coming in and the money going out. It's also a good idea to have a contingency fund to cover you during the downtimes.
  • Rapid growth and over-expansion. Too many sales and growing too quickly can bring a unique set of problems. You may not be able to fulfil all the orders. Alternatively you may invest too heavily in your expansion and, for example, end up with stock you cannot sell.
  • Starting the business for the wrong reasons. Sometimes people start a business to escape from a job they hate or because they want to have more time and less stress. Its okay to want these things but you should always start a business with your eyes open. Sometimes you can end up disappointed because you don't always get the benefits you are seeking.
  • Poor management. It's not uncommon for entrepreneurs to not have the kind of business and management skills that running a business needs. Expertise in areas such as finance, purchasing, selling, production, and hiring and managing employees can be required. It is important to know what you can can't do and get help in areas where you are weak.
  • Having the skills to start a business, but not to grow it. A problem that can affect companies that are successful early on is that they have the management skills needed at the beginning but, as the business grows, they don't have the different management skills which are required.
  • Insufficient capital. A common problem is having insufficient operating funds. Some businesses have the potential to be successful but don't have sufficient capital in place to stay in business long enough to get to that point.

The turnaround process encompasses three stages.

  1. Defining roles. This is where everyone gets clear on who is going to do what. In some cases the turnaround consultant will actually take over the business as the CEO for a set period of time. In other cases, the turnaround consultant acts as a trusted adviser.
  2. Diagnosis.In some respects, a turnaround consultant acts as a paramedic. The survival of the business often depends on the consultant checking the vital signs, accurately diagnosing where things are going wrong and reacting quickly and competently.
  3. Implementing the survival plan. Tough decisions need to be made and all stakeholders need to be communicated with. This can be a very painful process. Once the business has been saved it needs to be returned to profitability. This can take years, particularly for larger businesses.

Every business struggles at some point. We don't think twice about calling 999 in the case of a medical emergency. So as business owners, we shouldn't think twice either about calling on the services of a turnaround consultant if our enterprise is facing severe dangers.

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