WP-3 Restructuring & Revitalising.
With the business operations stable and key stakeholders on board and supporting the turnaround, the focus widens. We now have the opportunity to set new goals, take a new direction, to restructure and revitalise.
This starts as an analysis of the internal and external position of the WP-2 business. In plotting our next leg our efforts are directed towards making the remaining business operations effective and efficient. The company must be restructured to increase profitability and its return on assets and equity.
Achieving an acceptable return on investment capital is the most difficult leg of the journey. It requires clear strategic direction, thoughtful tactics and a commitment to action. If the financial state of the core business is damaged, it's tough.
If the WP-2 business has a long term future, then it must be restructured so it operates smoothly from existing facilities to generate sustained profits. Over the next 6 months we work over each part of the business...
Revising the Current Market Strategy
The turnaround may have changed the product mix requiring the company to do some repositioning. Core products neglected over time may require immediate attention to remain competitive. The company may even withdraw from certain markets or target its products toward a different niche or market segment.
Reworking the Sales Systems and People
Sales people and the system that support them may need to be revamped. We looking for improvements in gross profit margin $'s (you can't bank a %), and that's what we will reward.
Crunching the Costs
The turnaround process may have left some supplier relationships damaged. Others that stayed through may be expecting an over market price to cover prior losses. Our supply focus is about getting costs down. This includes labour costs.
Reworking the Overheads
We have reduced sales (by say 20 -30%), then the fixed cost structure has to be reduced by at least that. We may change the way we do business to convert fixed costs into variable costs.
Reshaping the Team & Building Teamwork
The "people mix" becomes more important as the company is restructured for competitive effectiveness. Reward systems that reinforce the turnaround effort get people to think "profits" and "return on investment." Regrowth, not tradition, determines the new shape of the business.
Making the Numbers - EBITDA
At WP-3 we are measuring success by the EBITDA, (Earnings Before Interest, Tax, Depreciation & Abnormals). Depending on the industry, we're going to be targeting 15 - 20% EBITDA.
This measure of earnings is now our focus, because the other deductions (ITDA) take time to clean up after a turnaround. There will be write-downs, future tax benefits etc that you & your accountants will use once the business is consistently generating a positive EBITDA.
WP-3 Outcome = Restructure smaller business
. Revitalised for new growth.
The business, albeit smaller is slowly returning to profitability.
Relationships with lenders, creditors and other stakeholders have
normalised. Up to here it's been about correcting problems, the next leg
is about growth and performance.
Owners feeling... Refocused. Clarity. Motivated to rebuild in a new direction.