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 Other books by Mark Blayney

Buying a Business & Making It Work

A step-by-step guide to purchasing a business and making it successful

Buying a business is not just a case of doing a deal. You buy a business
to become the owner of a successful business that achieves your personal
and professional objectives. This book takes you through the five essential
phases that will help you to achieve those objectives.

Selling Your Business for All It's Worth

How to prepare your business for sale and get the best possible price

This book gives first-hand advice on deciding what you want to sell,
picking the best time to sell, doing market research, preparing the
paperwork, marketing your business, dealing with enquiries and
completing the sale.

'An excellent guide to the complicated process of selling a business and

helping you get the best possible price. Describes the process in detail
and is full of useful tips.' The Letting Update Journal

Send for a free copy of the latest catalogue to:

How To Books
Spring Hill House, Spring Hill Road
Begbroke, Oxford, 0X5 1RX, United Kingdom
email: [email protected]
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TURNING
A BUSINESS
AROUND
How to e
and
ensure
stays healthy

MARK BLAYNEY
howtobooks
To Pat, for all her support

Published by How To Content,

A division of How To Books Ltd,
Spring Hill House, Spring Hill Road,
Begbroke, Oxford 0X5 1RX. United Kingdom.
Tel: (01865) 375794. Fax: (01865) 379162.
email: [email protected]
http://www.howtobooks.co.uk

All rights reserved. No part of this work may be reproduced or stored in an

information retrieval system (other than for purposes of review) without the express
permission of the publisher in writing.

The right of Mark Blayney to be identified as the author of this work has been
asserted by him in accordance with the Copyright, Designs and Patents Act 1988.

© 2005 Mark Blayney

First published in paperback 2002

Second edition 2005
First published in electronic form 2007

ISBN: 978 1 84803 114 2

Cover design by Baseline Arts Ltd, Oxford, UK

Produced for How To Books by Deer Park Productions, Tavistock, Devon, UK
Typeset by PDQ Typesetting, Newcastle-under-Lyme, Staffs, UK

NOTE: The material contained in this book is set out in good faith for general
guidance and no liability can be accepted for loss or expense incurred as a result of
relying in particular circumstances on statements made in the book. The laws and
regulations are complex and liable to change, and readers should check the current
position with the relevant authorities before making personal arrangements.
Contents

List of illustrations ix
Preface xi
Acknowledgements xiv

1 Introduction 1
The importance of business skills 1
Managers are critical in a crisis 4
What to do in times of difficulty 5
Take the time to do a business health check 7

2 Turnaround 10
Obtaining support for a turnaround 10
Understanding your options 12
The conditions necessary for a successful turnaround 15
The phases of a turnaround 16
The turnaround process 16
How this book is structured 19

PART1: RECOGNISE THE NEED FOR ATURNAROUND 21

3 Spotting the Warning Signs of Business Failure 23

Why businesses fail 23
The types of business failure 24
Normal business failure 26
Avoiding failure 28
The symptoms of normal failure 28
Checking your business's health to spot the warning signs 31
Take an 'A' score test 37

4 Understanding Why Businesses Fail 39

The causes of normal failure 39
The five key areas 42
Key points 54
How serious are your problems? 54

V
vi / T U R N I N G A B U S I N E S S A R O U N D

PART 2: STABILISE YOUR FINANCES 57

5 Understanding your Immediate Financial Position 59

What you need to know 59
Insolvency 60
Cashflow forecasting 63
Support from the bank 74
Key points 84

6 Managing a Real Cash Crisis 85

Wealth warning 85
Achieving balance 85
The key steps to survival 86
Controlling the cash you have 87
Obtaining more cash from normal trading 88
Obtaining more cash or credit from elsewhere 89
Reducing and/or controlling outgoing cash 94
Reducing the amount of cash needed to trade 96
Improving profits 99
Improving management 102

7 Understanding and Controlling your Financial Performance 104

What you need to know 104
Profitability 105
Financial stability 109
Using financial information 111
The management/financial information you need 121
Setting financial targets 122
Setting financial targets for your business 123

PART 3: DEVISE A PLAN 127

8 Setting the Strategy 129

It's your business: what do you want to do? 129
 C O N T E N T S / vii

Setting your personal goals 130

Industrial trends: TEST' analysis 134
Industry structure: 'Porter's five forces' 135
What products to sell into which markets? 135
Product lifecycles and product portfolios 139
Meeting customer expectations (the critical success factors) 140
Competitive advantage 142
Unique selling propositions 144
The value chain 145
Family businesses 145
Setting business goals and deciding on an action plan 156

9 Managing Marketing 157

Successful marketing 157
The importance of marketing 157
Deciding whom to sell to 158
How to sell your product 160
Tailoring marketing strategy: the four Ps of marketing 162
Managing the sales process 163
Managing the salesforce 164
Key points 167

PART 4: MAKE IT HAPPEN 169

10 Managing Change 171

Managing and motivating yourself 171
Self-motivation and time management 171
Understanding your business's structure and culture 173
Assessing your team 176
Managing people and the process of change 179
Managing a project 186
Getting stakeholders on board and keeping them there 186
Assessing how well your project team operates 189
viii / T U R N I N G A B U S I N E S S A R O U N D

11 Managing the Risks 191

Identifying the risks 191
Dealing with the strain 192
Insolvency-specific risks 193

12 Summary and Conclusion 195

Recognise the need for a turnaround 195
Stabilise your finances 195
Decide what to do 196
Make it happen 196
Conclusions 197

Further information 198

Index 203
Visit https://ebookname.com today to explore
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List of Illustrations

1. Procedures under the Insolvency Act 1986 14

2. The phases of a turnaround 17
3. Priorities in each phase of a turnaround 17
4. Turnaround management 20
5. Normal business failure: the decline curve 27
6. The symptoms of normal failure 34
7. Company B: maximum and minimum account balances 36
8. Management structure problems 46
9. Strategy challenges 50
10. Company F's cashflow forecast (£) 66
11. Checking the arithmetic in the cashflow forecast 71
12. Realisable values 82
13. Prioritising actions 87
14. The working capital cycle 96
15. Company J: borrowing requirement 97
16. Types of cost 106
17. A personal goals summary 133
18. PEST analysis 134
19. Porter's five forces 136
20. A product/market ('Ansoff') matrix 137
21. The product lifecycle 139
22. The Boston Consulting Group matrix 140
23. Critical performance factors 141
24. Graphing critical performance factors 141
25. Assessing competitive advantage 143
26. Stakeholders 146
27. Stakeholders in a family business 147
28. The family/business continuum 147
29. The value chain 154
30. A project timetable 156
31. Customers'preferences for airline tickets 160
32. Customer buying behaviour 161
33. The product 'package' 161

ix
x/TURNING A BUSINESS AROUND

34. The sales funnel 163

35. Culture styles and structure types 174
36. Entrepreneurial and functional structures 174
37. Specialised culture styles and structure types 175
38. A matrix structure 176
39. Management assessment: checklist 177
40. The barriers to change 179
41. The change process 180
42. Management approaches to change 182
43. Management styles to employ during a turnaround 182
44. Adapting management style to meet the needs of staff 186
45. Managing a project 187
46. The fears involved in running a business in difficulty 192
47. Risks directors face in the event of a company failure 194
Preface

This book is intended for the owners/managers of small and medium-

sized businesses who may have had little or no formal management
training and, worse, no formal training in how to deal with a business
that is getting into difficulty. It has been written with two main purposes
in mind. To act as a business:

1. fire extinguisher for use in a crisis (if you are firefighting at the
moment and you need a tool to help put out the flames)
2. smoke detector (to help spot the early warning signs of approaching
difficulty while there is still time to do something about it).

Business difficulties are widespread throughout the whole UK.

During the recession of 1992, company liquidations were running
at over 6,000 a quarter. Even during better times significant numbers
of businesses still fail: company liquidations were running at about
3,500 per quarter in the mid-1990s and that figure does not include
those partnerships and sole traders who also went out of business.

If you are in difficulty, therefore, the first things to realise are:

+ you are not alone

4 there are specific skills and techniques that can be used to avoid
failure

* that other people have been through this and survived there are
ways out, particularly with help!

xi
xii/ T U R N I N G A B U S I N E S S A R O U N D

Note: To avoid unnecessary complexity in the examples given in this

book, VAT is ignored in all cases unless specifically stated.

Figures shown in brackets, e.g. (45) are negative sums.

PREFACE TO THE SECOND EDITION

There have been many positive developments since the publication of
the first edition in 2002 in the growth of what is known as the 'rescue
culture', together with the development of the turnaround profession.

In reforming the insolvency regime with the Enterprise Act, the gov-
ernment has actively attempted to encourage business rescue and
turnaround. Meanwhile there seems to be an increased awareness
and acceptance by business people of 'turnaround' as a normal
part of a business's lifecycle. There is also increased realisation
that specific skills are needed and to a degree with some strong caveats,
an increased availability of funding to support rescues.

However at the same time one could argue that 'turnaround' as an

activity is becoming more difficult.

Firstly both professional practitioners and those directors trying to do

it themselves face ever increasing risks as the standards by which
directors are judged are raised higher and higher by both the
courts (such as the ongoing development of directors' disqualification
case law) and legislation (such as the 'moral hazard' clause of recent
pensions legislation). It is truer now than ever that this is an area where
you need to know what you are doing, or to obtain support from
people you are confident do know.
 P R E F A C E / xiii

Which brings us on to the second problem, which is that as turn-

around becomes more accepted as an activity, it has ironically become
more difficult in some ways for those seeking expert advice to find the
real experts they need.

It has always been the case that there have been those seeking an
opportunity to make a fast buck from distressed directors and/or to
pick up a business at a knock down price of whom directors have had
to be wary. When I described myself as a 'company doctor' a few years
ago, few people had any idea what I was talking about. But as turn-
around has become fashionable the 'company doctor' profession has
become a victim of its own success as now every self-employed con-
sultant and interim manager lays claim to turnaround expertise.

This is why I am delighted that the Society of Turnaround Profes-

sionals (STP) has endorsed this book. As the only body in the UK
currently acting to accredit turnaround professionals, STP and its
placement and introduction service represents a way for businesses
to ensure that they are obtaining appropriately qualified and experi-
enced help, that will have credibility with key stakeholders such as the
banks.

As with the first edition, rather than being prescriptive, much of this
book is set out in the form of structured sets of questions for you to ask
yourself about your business. These should lead you through a process
that will help you to create and implement your own tailored plan.

Mark Blayney
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