Word count: 2978 Technical Level: Low Reading time: 10.83 Mins
Just about every business and every business person at some point will get themselves in the shit! Many will fail to pull out of the tailspin and end up closing down. It is the sad and brutal reality of entrepreneurship and to an extent startups as well. Throughout my career, I have experienced and saved a few businesses and what I will outline is just how I executed the save. Let me be clear some of these companies were in a critical state and it was hard and painful, but we turned them around real quick and became profitable.
Note: Many of these techniques are great for bootstrapping a business or startup from nothing or even just giving your business a good spring clean.
Cash cures all
The statement cash cures all is true in every sense. If you are truly in trouble you need to circle the waggons and count up your cash, stock, credit and goodwill on hand. You need to know exactly how much you have available so we can calculate the best use of those resources to make cash! Gather it and don’t spend it, not a cent.
Note: I am not advocating trading while insolvent. There really is a point where a business can’t be saved or shouldn’t be saved. This rescue plan is more about managing you through a very rough time, which could lead to insolvency if not managed correctly.
Spending
Shut off all non-essential spending. I mean all, unless it’s to keep the lights on, you being locked out of the building or inventory cut off. Furthermore, those employees you weren’t sure on or John the sales person who only broke even and is on his third warning have to go. Essentially, cut every single expense to the bone or all together. If you don’t have to pay a bill for 30, 60 or 90+ days don’t pay it until that vendor is about to punch you in the face. I’ll tell you now people are going to get pissed off with you. You may even damage or even loose some business relationships out this. Just remember this is do or die and you will need to ignore it.
The only expenses you won’t cut are the ones that are bringing in an instant profit now, those you keep going while you work out your action plan. Additionally, if you need stock keep the suppliers happy and try to extend their goodwill if you can. The goal is to pool as much cash into your bank account as you can now! I can’t stress how important it is to stop spending on everything.
Note: Do not spend a fuckn dime on anything that doesn’t give you an instant and guaranteed return. Nothing, not lunch, not gas, your wages …nothing!
Reality check
Honestly take a look at your business. Look at all the expenses and all the earnings. Bullshitting yourself now won’t help you. You need to be brutal and focus on highest ROI only.
Take a good honest look at those expenses and cut every single thing, until you are down to the absolute minimum. Break contracts, stop orders and if they won’t break don’t pay.. you will need to be absolutely brutal it is either them or you. Every expense that doesn’t directly make bring in cash has to be stopped.
Get rid of any dead weight staff, if they aren’t producing a product and you can get away without them get rid of them. It is probably going to really suck, but likely they are in part why you’re in trouble today. Cut your own salary back to the bare bones.
The goal for stopping each item is to increase your cash on hand. I once stopped a clerk from cancelling a contract and paying a $10k break fee, when the monthly commitment was just $300. Cash on hand is key! Delay the payment if you need to, but keep as much cash on hand as possible.
Other handy tips: Find a cheaper professional, take on more tasks yourself after hours, look at ways to do things more efficiently or not at all. Anything to keep you and everyone else focused on selling.
Take a good hard look at what is actually bringing in the most cash, the fastest for the least amount of effort and cash outlay now. No unicorns can be in this list. We can only be concerned with the now and what has been proven to be consistent. The next step is to double down on these best items to increase sales and focus. These will be the only things you will be spending money on. (It is likely not recognising these products or stretching yourself to thin has contributed to the problem).
I literally discovered a store owner with half his capital tied up in stock that hardly ever sold. When I questioned him about it, he said ‘…yeah but the profit margin is great…’ my reply was, who cares if you had that money in the items that sell you could have turned it over 100+ times during the same period you turned over a 10th of the dud stock…the penny drops….’shit I never thought of that..’ he says. No Shit!
Any outstanding debts need to be collected asap with no prisoners. Collect as much as you can with the least effort. Offer discounts to get debtors to settle up. Offer discounts to get new accounts paid in full. Pass anyone who is still overdue to debt collectors. You need cash now and they are in part living off your credit making the problem worse.
Anything that’s old or that doesn’t move fast needs to be cashed up fast. Offer it to a competitor, dump it on sale, eBay, anywhere you can cash it up quick. Now only order what you can clear quickly for the most profit. Most importantly only order what you need, but make sure you have enough to allow for any sales you might be about to do.
Sell any unused equipment or anything that is not directly involved in making sales. Be ruthless about it. Better you sell it now than the liquidators selling it for you later.
Take a good hard look at your customers.
Go through and cut credit to anyone who pays late, you can’t afford to finance their business anymore you have your own to worry about.
Anyone you don’t make money off or a small profit, either cut them off, put their prices up. No exceptions you don’t need them and they are killing your business.
Anyone who takes a large amount of effort or time to sell to put them to one side for now. Stay focus on the largest, quickest method for making cash now.
Find the customers who you make good money from, who pay their bills on time and focus a 110% of your efforts on them. (You should have before, but now you have extra motivation to so make it count). See if you can get referrals from them.
If you can’t measure the ROI cut it immediately, by any means possible. Find the marketing that a 100% worked that you know the ROI. You’ll be doubling down on these strategies.
If you don’t know what works for you in marketing, let me make it easy for you. PPC Google Adwords, Facebook and instagram they are all very cheap forms of targeted marketing and can give you instant customers if you have a strong offer.
Note: So no branding, no ego, no marketing that doesn’t bring a measurable instant result should be in use.
No more weekends for you. You will be at the business every hour on the floor hustling from start to finish every day. If you need to push paper etc you will do this after hours. Open longer hours, literally every sale puts more cash in the bank.
Regardless of what was going on before everything single activity of the business now has to be focused on making cash and nothing else. Things that make cash are now the top priority and you must make this known. If staff were closing up before with customers in the store…no more. If you were not answering phones, taking long lunches, leaving early this can’t happen anymore. You are no longer a bystander in your business you are micromanaging the crap out of it.
Reverse engineering success
Depending on when your next critical bill is you need to work back from there by reverse engineering your goal.
The wage bill is at the end of the week and is the first obstacle to overcome.
Total wages bill=$2000
Divide it by the number of trading days $2000 / 7 = 285.71 of cashflow per day
Divide it by the number of trading hours per day $285.71 / 10 hours = $28.571 per hour
So now you have your hourly target goal of $28.571 to break even (I also recommend making an additional goal amount)
So you now know you need to be making $28.571 an hour to be on target to make it. It can make what seemed a mountain of money at the end of the week, much more manageable.
Here is a pro tip to make life easier for yourself: Stay open an extra hour and open an hour earlier. In this instance, you would make another 2x $28.571 possibly. Even if you only did it once all week, you’re now ahead and getting some breathing room is what it is all about. This is how the game should be played. Striving to make that hourly allowance as quickly as possible and continuing at it all the time. Regardless of what the essential bills are you need to break them all down just like this. Breaking them down into small chunks keeps you focused on the daily grind that keeps the business running. Often this is what was forgotten and got you into trouble in the first place.
(Furthermore, if you break down some of your essential bills to an hourly cost would they seems so attractive or truly essential. Do you really want to have to make an extra 50cents an hour for a rental watercooler…I doubt it.)
Furthermore, work out how many of the newly discovered top producing services/products you will need to sell to achieve the hourly target.
For example if Widget 1 RRP $10, Widget 2 RRP $5 So you’ll need to sell 3 Widget 1 or 6 Widget 2’s to make target every hour.
Work out how many products each customer would normally buy, work out how you could increase that with a special or an upsell offer and get to work.
Now that you know how many products per hour and how many customers you need to service that level of sales. You can look at organic foot traffic and see if there is enough to service that. If there awesome, because now you know if you use your most effective marketing strategy you will normally get X number of extra clients and you will be able to work out the additional cash you will have.
Now get to it and run this process with everything on generating cash and achieve the goal to stay open or better. Slowly ramp this up until you’re covering your costs and digging your way out of the hole you were in.
Stage two
Note: I am assuming you are testing and measuring the crap out of every cent invested into bringing in new business.
At a point, you will take some of the surplus cash over your minimum running costs and invest further into the best marketing methods you are using. Slowly ramping them up while testing and measuring and keeping everything focused on selling. Every moment of every day should be spent thinking, what can I be doing right now to make some more cash!
Additionally, when cash flow allows you to pay the most urgent essential overdue accounts first. Again start with the ones that can help you make more profit first. Be aware the people you owe money to will not be happy and in a way it is a dick move not to pay them. However, you going broke will hurt more people than just some short term pain on their part. Whatever you do don’t get in long conversations with debtors or make promises you can’t come through with. Do what you need to do to survive and stay focused on selling, tell them to call you after hours if they have to moan. Additionally, don’t be afraid to push it to the brink, if you stay disciplined and stay focused on keeping as much cash on hand as possible and not spending it. If a creditor makes a break and tries to do something to shut you down you will have cash on hand to fight them off.
Stage three
Now you should be getting some breathing room, but you are still living on the bones of your ass and not spending that cash reserve unless you get an instant cash return.
Very importantly, this is where the truly motivated will succeed. After selling hours you will now look at sure thing methods to increase the spread of what you are doing while being 100% sales focused. The first place to look is at your current customer base. No need to pay for additional customers who may or may not be good customers, when you have a great source of customers already. Look at how you can upsell, cross-sell or increase their frequency of buying first.
Do not start taking wild guesses on what will work, only bet on sure things. Never invest a dollar unless you know you will a 100% get a return on it sort term.
Stage four
Now that you have some breathing room you can concentrate on some branding. By branding, I don’t mean go out and spend money on a new logo. What I am talking about is your position in the market. Take a good look at what you are doing now that is working and look to be the best you can be in that space. Work on your unique position and continue on that path. Now, as cash allows, look to fix the negatives about your business that will give you the best ROI.
A good example; Your signage outside doesn’t have lighting and you would likely get more evening foot traffic if you upgraded the sign. So you upgrade your sign modestly
Bad example; Your website is a little dated, but it searches well and all the right information is there for customers and you spend money on getting a completely new site made and you do it on the cheap so it’s not really much more effective than the old one.
Good example: You don’t have a website or your website isn’t mobile friendly and you know you are missing a lot of business from not having one so you invest in fixing this problem.
Bad example; Replacing your old cash registers, because no one likes them, but they work fine. Don’t upgrade them!
Starting to fly
Each customer objection or negative aspect of their experience you invest in solving should bring a measurable ROI. You will start to get some breathing room again if you stay on this course. However, don’t stop your sales focus. Keep pushing and look to invest in solving the next customer objection to using your service.
A great way to keep expanding and not investing in uncertain ideas or to recapture business lost from closing ranks is to partner with other non-competing providers. For example, one business that I rescued had a distributor network with a lot of deadbeat debtors with accounts going over 90 days and some accounts never making a profit. The owner was nostalgic about having them and didn’t want to lose the public perception that he was large than he really was. I firstly called in all debts and made deals to get them all paid up to get as much cash on hand as possible. I then cut off all 30 day terms, but offered them a 5% discount if they paid up front and would allow them to stay in the network. The ones we didn’t make any money on I cut off altogether. Then I add eCommerce, with free shipping to the company website to service out of town customers directly increasing our profit margin on the same goods many times over. To allow maintain and actually increase our service network I negotiated a partnership with a big non-competing franchise to service all our machines. They would become part of our parts (later sales also) network and would be a recommended repairer. The real bonus to them was our product complemented their service also (we did motorcycles they did cars, motorcycle owners often owned cars too). The only cost to us was some paper for the agreement and the upside was grand. We went from a 7 strong crappy outlet network to an instant 215 highly professional repair, sales, parts network overnight one that rivalled the biggest franchise in the country. Did we sell more bikes and parts from it, you bet we did!
Rinse and repeat
As far as growing your business goes you are now back on track and you need to simply follow this plan of only spending as an investment and staying focused on what brings the greatest return on effort.
You are now out of the red and you now need to focus on storing cash reserves for that great investment or upgrade that will give you an even better return.
