How Do Turnaround Management And Turnaround Coaching Compare For A Small Business In Financial Difficulties?
There are three main ways businesses get into financial trouble:
- A business start-up that has failed to achieved lift-off to become a viable business.
- A business that has hit a sudden financial problem often caused by a large bad debt, losing a contract with a major customer or a disaster situation like a major fire or flood.
- A business has gone into gradual decline.
If the business is to survive, it must be turned around before the money runs out and before it becomes insolvent without any realistic prospect of recovery.
Please note, insolvency is a legal issue where there can be serious implications for the directors and shareholders and you will need to check the legal situation in your own country. If in doubt, my advice is to consult an insolvency professional.
The turnaround solutions depend on the cause of the problem.
The Turnaround Options
There are three main options if you believe your business can be saved through a turnaround.
Managing The Turnaround Yourself Without Outside Professional Advice
This is the do it yourself option which can be challenging because you need to review why the business has gone into decline and challenge some long held views about how success can be achieved in your business.
You can learn a lot from reading one or two of the best business turnaround books but you can’t afford to spend more than a few days in the learning phase.
The easiest category to do manage your own turnaround is the category 2 turnaround where the business has received a sudden financial hit but the underlying business remains sound. Whilst senior managers can’t avoid responsibility and criticism, existing sources of finance may have sufficient belief in the business to provide funds to cover the shortfall.
It’s harder for turnaround types 1 and 3 because you will have already tried your best but what you’re doing isn’t working. This may be because you were slow to spot the decline until you reached a crisis point or you may have delayed taking actions or made the wrong diagnosis and tried the wrong cure.
An outsider will bring in fresh eyes and new knowledge and skills.
Managing The Turnaround Yourself With Professional Help From A Turnaround Coach Or Other Business Advisory Professional
Responsibility for doing much of the turnaround work remains with the senior managers of the business. They no longer have to rely on their own experience since they are being helped by a business professional who is able to provide an outside perspective of what has happened and challenge the management’s views, pushing them when the responses are inadequate.
I always feel there are degrees of decline that need to be turned around.
I use the phrase “being stuck” for businesses where sales and profit have stalled or gone into a small decline. Things aren’t right and need to be corrected but the business isn’t looking at bankruptcy within the next few months.
I feel coaching is ideal for this type of business situation.
Using A Turnaround Manager To Take Direct Responsibility For The Turnaround Process
This is the most extreme version as the existing owners, directors and managers agree to work under the direction of a turnaround manager.
It is what happens in turnaround situations in large companies. The management who have caused the problem are often fired and a new management team brought in with the specific objective of achieving the turnaround.
This is harder to do when the owners have been the managers since they are handing over control to someone else. It requires them to recognise the two hats they have been wearing – as owners with money invested in the business which is at risk and requires a return and as senior managers who have been “employed” by the business.
Sometimes owner-managers can recognise they are out of their depth and are happy to step back from the day to day running of the business after the appointment of the turnaround manager and his or her support team.
Comparing Turnaround Managers and Turnaround Coaching – The Key Differences
With a turnaround manager, the existing owner-managers hand over formal control of the business to the manager for the duration of the turnaround. Effectively they delegate all or virtually all of their authority to the manager to do whatever is necessary to save the business. Some business owners will fight this but others will be relieved.
The turnaround manager may report to the board of directors/owners/stakeholders but this is more of a formality than a genuine control issue. Any good turnaround manager will expect to have complete control.
Since you’re handing over responsibility for the decisions, the quality of the turnaround manager is very important together with his or her relationship with your important stakeholders like the bank.
In contrast, with a turnaround coach, the existing owner-managers very much stay in control. The coach works through the owner(s) by influencing and challenging them. This may appeal more to the owners but, since they retain decision making authority, many of the good ideas and advice of the coach may be rejected because they are “not the sort of things we do here” and the probability of success with a turnaround coach is lower.
Speed of Recovery
The turnaround manager will be full time, the turnaround coach part time and perhaps only available for a few hours per week.
The turnaround manager can do some of the work like producing the turnaround plan and meeting with key stakeholders whilst expecting the owner-managers and staff to provide necessary support and legwork.
The turnaround coach will probably just talk to the owner-managers who will be expected to take the actions needed.
As a result, turnarounds move faster when there is a good, effective turnaround manager involved.
Seriousness Of The Situation
Turning around a business is a race to fix the business before the money runs out.
If the business is in the zone close to but better than insolvency, there isn’t the time to work with a turnaround coach. Direct and fast action is required to save the business and you’ll only get that from appointing a turnaround manager.
If performance has declined but the financial viability of the business isn’t threatened in the short term, working with a turnaround coach is appropriate. This is what I call “being stuck”. It also has the advantage that it is a fine training ground and the owner-managers should be much more capable at the end of the project.
Impact On The Stakeholders Like Staff, Customers and Suppliers
Appointing a turnaround manager can be seen as a very positive statement of intent that changes are underway.
It does signal that the business is in financial difficulty but this probably won’t be a surprise to employees and suppliers. Employees are often aware of what’s going on and become worried for their own jobs and the knock -on effects. They may well have become frustrated because problems have continued to worsen without correction. Suppliers are likely to have seen payments drift out and, if supplies have been interrupted, customers may also have suffered delivery delays and received inadequate explanations or assurances.
In contrast, working with a turnaround coach will normally be invisible to your stakeholders. As far as they are concerned, the owner-manager(s) have started to deal with the issues which is positive but they won’t know why the owners are more focused and proactive unless it is explained.
Change In Management Style
Businesses can get into trouble by either being too “nice” to employees or with too slow a decision making style because it is highly consultative, asking everyone for their opinions and then keeping everyone involved… almost decision making by committee.
Things will need to change in a turnaround situation.
A turnaround manager is likely to be keen to ask different people for their opinions of what’s been happening during the diagnostic phase of the turnaround and the questions are likely to be piercing to get to the root causes.
At the same time, a stop the bleeding of cash process is likely to be going on and the turnaround manager will be highly directive and controlling. No purchase commitments made without his explicit approval, no money paid out unless he says so, no new employees taken out and no overtime unless pre-approved and actions taken to collect money from customers will be stiffened up despite the whinges that good customers might be driven away.
Of course, good customers pay on time to the agreed terms.
As the turnaround coach works through the owner-manager(s), some of the same issues will come up. The coach will want the owner to toughen up and take more control and to be more decisive.
There is a lot in favour of working with a turnaround manager – they take control, and the turnaround is likely to proceed faster and be more effective – but the big downside is cost.
Turnaround managers are highly skilled and expensive. They may be prohibitively expensive for a very small business and not interested in the challenge anyway.
Your turnaround manager will be working full time and will expect to be paid either in advance or immediately after each week’s services are provided. He or she is only too aware of how precarious your position is. The only exception might be if the turnaround manager has been “suggested” by the bank, who might then guarantee their payment.
In contrast a turnaround coach will not cost anything like as much. The hourly rate may be similar but you will only be paying for a few hours each week. Again payment may be required upfront of some or all of their fees.
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