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Spark! Business Turnaround - Getting Started

Spark's Turnaround & Remediation Approach

There is no deep mystery to a turnaround, and it need not be outsourced, in fact it cannot be outsourced. If started in time all that is needed is business leadership and discipline, balanced with some humility and the willingness to accept responsibility and to adopt the hard lessons you are about to learn.

Adopt a new Mindset

A new management philosophy must be adopted, focused on survival, for which the guiding principles must be:

  • Allow only business activities which add value for the current customer base from whom you generate income/revenue. 
  • By value for the end customer, we mean any production, service, activity or process cost, for which the client would be willing to pay, as the firm goes about creating the product/service to be consumed/used. (imagine your client in front of you reading an itemized bill! Would they be willing to pay for your CEO’s golf club membership? )
  • The performance of all other activities and processes in the company, which do not add value for the customer and generate non-essential costs to be borne by the customer should now considered unnecessary loses and waste (in this period of austerity)

Demand Austerity

If the crisis is upon you, prudence and austerity are not enough, you might have to cut to the bone, never mind removing fat! Either way you will need some room to maneuver and this requires you remain in a positive cash flow, come what may! Adopt the behaviour of your grandmother's generation!

  • cut-up the credit cards
  • cancel all training
  • insist that all leave balances will be set to zero, if leave is not taken
  • no more travel, unless essential
  • travelers to stay with family, or 2-star hotel and hire only B-class vehicles or insist on "uber" usage
  • cancel entertainment allowances
  • be fair, be consistent, be clear with your expectations and demands
  • create incentive's and reward those who are creative and actively participate
  • review all non-BAU activities that are consuming cash - some will have to be paused or even cancelled - do not chase sunk costs!

Live and die by a new rule - maintain a positive cash flow, and do not use credit.

Time to be a Leader

Recognise that this crisis is a time of opportunity for new leadership to emerge on your business, and indeed for your own leadership to leave its mark and create a legacy. It is not too late for great things ot happen.

  • Lead by example and take your pain - if there is a board meeting, make them have lunch in the cafeteria along with everyone else!
  • Be prepared to have your authority challenged - non-alignment to your austerity directive needs a firm hand.
  • Be present, visible and available to your business at large, folk need re-assurance
  • Start communicating more than you ever have, but be concise and be honest.
  • Take personal control of results and do not oversee actions and tasks - every cheque signed must be accounted for by someone accountable for that cost-centre, perhaps do spot-checks form time to time.
  • First of all, get every cost-centre to resubmit their new austerity aligned cost centres.

Persons inside and outside your business will look to you for leadership. Step up and lead by example, manage by walking around and talking with people, know your numbers and business processes, and be solution oriented.

Lead the Business Diagnosis

Prepare a cash flow budget for 3 months, which is the maximum time horizon you should allow for your diagnosis and remediation plan to be done. You must create enough cash to move through this phase.

There could be a number of reasons why your business is in trouble, but everything distills to one of two reasons:

  • income is down, because of lost market share or lost to a decline in market demand, or price wars with competitors
  • operating costs are up, driven by either fixed costs or variable costs or a combination of the two
  • this leads to profit margins declining and the current crisis

An over simplification of your business? And indeed, sometimes the problems in your business are insidious, if so we'll get there soon enough, and we'll get there by you answering these simple questions

  1. for what period of time is your company's money tied up in inventory and other current assets before customers pay for the end product or services?
  2. what amount of cash is needed to finance each unit of sales and what is the amount of cash generated by each ZAR of sales?
  3. where in your business is the most value created and conversely where is the most value destroyed

But you don't know the answers to these basic questions do you? So let's keep to the basics for the time being.

You can quickly isolate the causes through financial analysis. Look at your company's performance ratios for the past three to five years. (Park the thought why this has not been done previously? )

Do not get distracted by what other companies are doing, even your competitors. The chances re that if you were unaware of what was happening in your own business, looking elsewhere will do you no good for the time being (we'll look at these later, just not now!)

Understand how and where value is being destroyed

If you don't know how to do this refer to this tutorial Understanding Value Destruction in your business

Create your contribution data and understand the value generators by

  • Sales Region
  • Sales Portfolio
  • Sales Executive
  • Sales Channel
  • Product
  • Customer

Now make plans to remove the big value destroyers and remove all associated costs with them!

Align the business and allocate accountability

The tool you should use is the Income Statement, and we will break this down from the summary financial amounts to the operational drivers, if you do this properly you\ll probably ditch all your other business reporting.

If you don't know how to do this refer to this tutorial Deconstructing your Income Statement This step is essential in your diagnosis and essential in assigning accountability to key parts of your business

Review your operating model

We don't want to impose too much change on your business, but if the review of your value destroyers and aligning costs through austerity are not enough, then you will have to review your core business.

Review your business value chain from Product Developmental and Marketing, through Distribution to Operations and Business Support functions, now answer candidly, what are your core business functions?

  • What parts of this value chain MUST you control and what can you do better than others?
  • What parts of this value chain do others do better because it is their core function or because they have economies of scale
  • A typical example is a call centre, most businesses that run a call centre do not do it well and do so expensively and are not protecting any IP
  • You outsource PR - public relations, why not then marketing in general?
  • What about your IT and operations

You need to double check whatever change you plan with the cash required to cycle through your business

If you are unsure of what we mean by Cash Conversion Cycle refer to this tutorial. Your Cash Conversion Cycle - everything you need to know.

Plan your turnaround actions

Write a simple turnaround plan to get through the next year and convince your creditors to stick with you. State your objectives in measurable terms. Describe your core business, sales plan, staff reductions and cost saving actions. Include a cash budget and a set of monthly financial projections. Prove that you can stay in business while you turn things around.

Be honest in your assessment of how you got into this situation and how you intend to get out of it. This will help restore your credibility. You will need this to obtain concessions from your creditors.


You have a matrix of creditors - the first cut is those that want you to stay in business, i.e. those creditors that supply your production and want you to remain as a buyer from them, then have a view of those who are not essential to your production

Where do banks fall? well that depends, some of them are great and want you to survive others are less honorable. You can always bank elsewhere, but if you owe a bank cash, tread carefully. In general, if you don't spring surprises on them and are open you'll be pleasantly surprised. But you be the judge of your relationship with them!

Now meet with different creditors and sell them on your turnaround plan. Be factual and positive. Share the detail with them! Show them how they will be repaid from your successful turnaround and make the comparison to an insolvency outcome. Most will go along with you. Try your best with Type B creditors, but don't let them stall your turnaround!


Do not fail to execute and in your diagnosis pay good thought to whether the failure to execute within the business was a contributing factor in your current crisis - it normally is!

We have supplied useful tactics on how to reliably execute, they are simple and powerful - use these! For a set of tools refer to this link The real differentiator - reliable execution.

Commit or Get out of the way

If you own the business, you won't get much for a broken organisation - to extract value from a sale you will have to fix certain things, if you are lucky you might be able to negotiate a merger, but this just exchanges one set of problems for another......

If you like what you do and can you see yourself happily doing it for another three to five years, you should keep your company and grow it. You now have a profitable company and staying on course should be easier this time around. You certainly know what to avoid and what mistakes you must not repeat.

If you are tired, you probably should sell this company and do something else. There is a reason this crisis arose, and most will place the blame on the shoulders of the current owner and leadership. If you have rescued your business, then who cares, you did what you needed to do and we all make mistakes. Move on. The good news is your company is now worth something, whereas before you turned it around, it was worth little or nothing. Manage it well while you have it on the market, but don't have it on the market for too long - do your own selling before using brokers.