In a business turnaround and recovery situation, cost cutting is an unpleasant but necessary activity and a regular event in a recession.
In Day 1 of the Seven Day Business Turnaround Kit from Mark Joyner and Simpleology, you were told to identify your motives for saving the business and then you made sure you knew your financial position and identified all your costs.
The first step in the turnaround plan is to stop the bleeding of unproductive time and money and the second step is to reduce your stress by dealing with your problems and knowing where you are heading.
Day 2 of the Business Turnaround Kit is when you put your cost cutting plans into action and you speak to your creditors.
Make no mistake, Day 2 is a nightmare
You have to make hard decisions, take action and live with the consequences. Cost cutting is never pleasant but you will feel purged.
If you are serious about turning around your business cutting costs is 100% necessary.
I talk about cost creep in my coaching. It is much easier spending money that earning it and that's why you need to go back and review you costs. In a business turnaround situation saving $1,000 of costs in a month is just as good as earning an extra $1,000 of margin from your sales.
You will not survive if you don't stop the bleeding of cash and wasted time. Day 2 of the Business Turnaround Kit is the day that you take action.
Cost Cutting 101
Stop incurring unnecessary costs and anything else which doesn't give you an immediate payback.
When you are fighting for business survival with possibly only a few weeks to go, the "must go to" exhibition in six months time doesn't matter.These are the type of costs you have to cut, the "nice if's" as well as the wasteful and extravagant costs.
If you didn't read about the zero based thinking for making difficult decisions in my Day 1 review, do so now. Take each cost in turn and ask yourself, "Knowing what you know now, would you still start incurring this cost?"
If not you have identified a cost to be cut.
In the cost cutting phase you only have three options:
- Keep it
- Reduce it
- Stop it
Let's take office cleaning as an example and imagine you have an office of 15 people and you are considering whether you can cut your cleaning costs.
Can you stop the contract with the cleaning company and ask your own team to clean their areas? Is this the best use of their time? Will it retain their goodwill and serve as an example of the stringency measures required? What are the consequences if some people take up the cleaning chore and do it but others don't?
If you decide to keep office cleaning but to reduce the cost can you:
- Reduce the quantity and move from cleaning every day to three days per week?
- Reduce the quality so that certain cleaning tasks are taken out of the scope of the work?
- Reduce the cost by negotiating a lower rate per hour?
Cost cutting means looking at your external purchases and being ruthless. If your business goes bankrupt, they have lost the business anyway so don't feel bad. Cost cutting also means looking hard at your own employee team.
Now is not the time to be trying to carry passengers and it's not fair to your other employees who rely on their salaries from you.
The 7 Day Business Turnaround Kit takes you through a generic process for reducing the number of people you employ although you must take legal advice. Mistakes under the employment laws are very expensive. In the UK, you may want to join the Federation of Small Businesses which gives you access to a legal helpline.
Cutting future costs is a great start but if your business has a cash crisis, you have a long list of creditors who expect to be paid and the next step in the 7 Day Turnaround Plan is to deal with these creditors.
Facing Up To Your Existing Creditors
The 7 Day Business Turnaround Kit encourages you to approach your creditors and come to an arrangement. It even gives you a sample script.
This is on the basis that the worst thing you can usually do is to go into hiding and avoid any contact with your suppliers/vendors. They will lose patience quickly and start proceedings to recover their debts and restrict future supplies.
The Business Turnaround Kit doesn't tell you to take insolvency advice but you do need to consider it so that you are clear about your legal responsibilities.
One of the definitions of an insolvent company in the UK is a business which is unable to meet its debts as they fall due. Once you are insolvent, there are serious issues to consider both for your business and for you personally. In the UK the directors become liable for company debts if their company is insolvent and continue to trade when the business has little or no chance of recovery.
There are two options:
- Delayed payments - you agree a schedule for past debts but you pay immediately for current purchases.
- Waived payments - the supplier agrees to settle for a certain percentage of the debt and to waive the remainder.
You may think that there is no way your hard nosed suppliers will accept this but they have little other option if your business is close to collapse. Some money is better than nothing.
The Seven Day Business Turnaround Kit takes you through the process of doing these difficult negotiations yourself or bringing in a debt restructuring company to do it for you. One debt restructuring firm is recommended but they only cover the USA.
There are risks in talking to your creditors (but there are big risks in not talking as well). Some vendors/suppliers may act precipitately out of self interest on the basis that they can extract their cash before you become bankrupt so you can't hold back on just how serious the situation is.
In the UK there is a formal insolvency procedure called a Company Voluntary Arrangement which covers the agreed reduction of creditors while the business is in a legally protected position. These CVAs require the involvement of a licensed insolvency practitioner. (see CVA for more details).
If your cash crisis is so bad that you believe that you need to consider talking to your creditors, and especially if you are thinking of proposing a reduced settlement, I strongly recommend you take legal advice about the local insolvency/bankruptcy laws.
At The End Of Day 2
Day 2 is as tough as it gets in your business turnaround.
You have cut costs and may have admitted your problems to all the businesses who depend on you for payment.
It is likely that you will have heard tales of hardship and how your actions are ruining the dreams of employees and putting your suppliers' businesses at risk.
But you can look yourself in the eye when you see a mirror. You are facing up to your difficult circumstances, you are taking action, you are being honest and you are dealing systematically with your responsibilities.
The 7 Day Business Turnaround Kit is supporting you throughout the process and by the end of day 2, you have achieved so much.
You have stopped the bleeding.
Your stress levels should be lower. People know the situation and can make their own informed decisions. You can move on to thinking about how you can find your cash injection to give you more breathing space which is covered in Day 3 of the turnaround plan.
Day 2 Assessment of the Business Turnaround Kit
There is no way that the business turnaround kit can cover the local legal compliance issues so you will need to supplement it with legal advice about employment law and insolvency/debt.
The Business Turnaround Kit supports you through the cost cutting process and shows that however difficult and unpleasant Day 2 is, it is an essential part of the process.
Skip over Day 2 and your stress levels remain sky high because you haven't dealt with your problems. Without reviewing your costs and cutting out the non-essential items, you are forcing your business to carry a heavier weight and you are reducing the likelihood of a successful turnaround.
Also included in the Day 2 material is an excellent video from Spiker Humer, an experienced turnaround manager who is now Chief Operating Officer for the Jay Abraham companies which looks at the turnaround process in larger small businesses. [Turnaround is different in a one or two person business compared with a thirty to fifty employee business but they are both considered to be small businesses.]
There is also a long, very quiet video from Internet marketer Tellman Knudson which is well meaning but self indulgent. I would be surprised if many people watch this video given how much has to be done on Day 2 and I would recommend that you skip it.
The intention is to show that you can overcome any obstacle but Tellman does not have the ra ra style of a motivational speaker and I doubt that you are interested in the problems he has overcome. The lessons probably won't be relevant to you and you don't have much time.
Everything else in the Business Turnaround Kit has been short, concise and very focused.
The Day 3 of the 7 Day Business Turnaround Kit review will appear in a few days.
In the meantime, if you need to know more about business turnaround quickly check out this link to the 7 Day Business Turnaround Kit (affiliate link) if you want to know more about it.
Seven Day Business Turnaround Kit Simpleology - general introduction to the program
Business turnaround: Finding your cash injection - Day 3 learning how to generate extra cash quickly
Business turnaround: Generating cash urgently - Day 4 to 6 three fundamentally different approaches to raising cash.
Disclosure - I am an affiliate for Mark Joyner and Simpleology and if you click through from my link, join Simpleology and buy I will earn a commission. I was given a copy of the 7 Day Business Turnaround Kit for review purposes.