Businesses falter for many reasons. Competitive forces can stun an industry newcomer once he starts operations. An entrepreneur might underestimate the start-up capital necessary for a new business. The economy could take an unexpected downturn. Serious legal problems can arise. Financial assumptions in the initial business plan may turn out to be incorrect. Any time a business encounters problems that adversely affect the core operation, it's time to “go back to the drawing board” and reassess the fundamentals of the business and its industry. The turnaround business plan is a useful tool for this purpose.
Conduct a fearless assessment of the business and market. The management team must accept the fact that the company’s problems are serious and be willing to make difficult, fundamental changes. What has gone wrong and why? This assessment step will demand more attention than a couple of staff meetings and some memos. Seek the advice of attorneys and accountants, preferably those with turnaround experience. Talk with the company’s bankers, core customers and important outside colleagues. If a trade association is available, involve that, too. Distill the input into plans for corrective action.
Seek outside advice. Some outsiders might be close enough to the business to be considered “team members” and advisers. If asked, they might be able to give valuable advice. The company’s outside legal counsel and accountant are likely already involved in the turnaround process. They might be willing to go beyond their primary duties and offer recommendations. The company’s banker might have valuable insights. Sometimes core customers can contribute guidance. Think of these allies of the business as an advisory board.
Take the company’s existing business plan and modify it to reflect the current reality and what steps the management team will take to turn the company around. If there is no business plan, the team will have to write one. The two most important sections of any business plan are the executive summary and the financial section. The executive summary must clearly state what the company will do to improve the company’s prospects for success. The financial section must show the effect of the corrective action that management is taking. The team must review all sections of the business plan to ensure that they reflect the current situation and the new direction the company is taking. There must be no conflicts between old and new information. If necessary, the company can hire an editor to assist in organizing the business plan.
Introduce any new members of the management team or board of directors. Readers of turnaround business plans will be interested to know whether past problems at the company can be corrected by adding new talent. If, during the assessment phase, the management team decided that it could improve performance by hiring an executive with abilities in a particular area, the revised plan should feature information about the new executive.
Fine-tune the financial section. If the new plan will be presented to bankers, investors or any party that could add to the capitalization of the business, the management team must take special care with the financial section of the turnaround plan. If the section contains a sophisticated financial model, it must clearly illustrate the company’s new direction. If the turnaround strategy involves changes to the pricing structure, the financial section must show it.