5 Steps To A Successful ‘Business Turn-Around’
Published 5:56 am 3 Mar 2020
If you’re looking to enter the business world but don’t have the cash reserves to buy a business outright, the ‘leveraged business turn-around’ strategy could be for you. DG Institute’s Founder and CEO Dominique Grubisa explains the five steps involved.
There are countless Australians who have the skills needed to become successful entrepreneurs but who are held back by a lack of cash. Up until now, buying, running and selling businesses has required substantial sums of money – creating a major barrier to those without large cash reserves.
But an approach known as the ‘leveraged business turn-around’ is now putting entrepreneurship within the reach of ordinary people. The concept involves identifying a business that is faltering or underperforming, but that has real potential. You then negotiate with the owner to acquire control – potentially on a no-cash-down basis – and use your acumen and business skills to put the company back on track. Finally, you sell the business – or your share of it – and repeat the process.
The turn-around process can be broken down into five distinct steps, explained below. Read through these and consider whether the turn-around approach could be right for you.
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Here Are The Five Business Turnaround Strategy Steps
Step 1: Develop a strategy.
Before you meet a single business owner, you need to work out a plan of attack. Will you be targeting highly distressed businesses on the verge of collapse or more stable businesses that just need a nudge to get back on track? Will you be working part time on turn-arounds and keeping your regular job, or will you devote yourself full-time to the approach? Are there particular business sectors where you have expertise or are more comfortable working? What skills do you have? And what skills do you need to attain? If you already have a business, are you looking for an enterprise that will allow for vertical or horizontal growth?
Step 2: Source leads.
Now that you have a plan of attack, it’s time to find target businesses that you are interested in turning around. Finding the right businesses to invest in is typically a numbers game, you will need to look at a lot of different options before you find the right proposition for you. Some owners will be eager to enter a deal with you, but the nature of their businesses or the business model required may not work for you. Others will have ideal businesses, but they may be reluctant to enter into the kind of agreement you are proposing. It takes work and good judgement to land the right deals. Be sure to consider both on- and off-market business opportunities.
Step 3: Acquire the business.
Once you find a business that matches your goals and where the owner is interested, it’s time to negotiate a deal. If cash is an issue, you will want to come to an arrangement whereby the owner hands you control of the business in exchange for being paid out over an agreed span of time. Or you might earn shares in the company by reaching certain profit or performance targets. Once you have agreed on a model, you and the vendor will work together to create a ‘heads of agreement’. This is essentially a non-binding understanding about how the acquisition of the business will take place and the form payments will take. It encompasses everything that you have both agreed, all spelled out in layman’s terms. Next, it’s over to the lawyers who carve out the formal agreement for you both to sign to cement the deal.
Step 4: Turn around the business.
Once you have formally acquired the business or a stake in it, it’s time to take action to turn it around and increase profitability. This starts by carefully going through the books and taking stock of assets, staff, intellectual property and liabilities. With an outsider’s objective eye, you analyse the business’s strengths and weaknesses. Next you’ll remove any fat and redirect the energy of staff into profitable areas. If the business is highly distressed, part of your job will be negotiating with creditors and finding ways to reduce debt.
Step 5: Exit the business.
Once the business is back on track and turning a profit, it’s time for the next step. Depending on your financial situation, you might elect to hold onto the newly profitable enterprise and keep running it for cash flow. Otherwise, you will aim to take a ‘capital event’ which is industry-talk for selling it and taking a profit. You will prepare for sale by having the business running smoothly and having its books in order to make it an attractive proposition to buyers. Once you receive the pay-out, you’ll be free to return to the market and repeat the process again. There’s just so much opportunity out there.
So, don’t give up your dreams of becoming an entrepreneur. By using your skills, judgement and business acumen in a leveraged turn-around, you could be closer to financial independence than you realise.
Lawyer, Asset Protection Specialist and Property Educator
Dominique Grubisa is a practising legal practitioner with over 22 years of legal and commercial experience. She is a property investor and developer, an entrepreneur with businesses in Australia and Southeast Asia, a speaker, educator, writer and published author. You may contact Dominique at firstname.lastname@example.org
This column has been written for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.