10 Business Crisis Management Practices to Avoid Bankruptcy

If your business is in crisis and you are facing the possibility of filing for bankruptcy, there are certain things you can do to avoid that drastic step. Here is an outline of how simple business crisis management can help you avoid bankruptcy:

• 1. DETERMINE HOW SERIOUS YOUR CRISIS IS.
  Small businesses often get into cash flow or marketing problems and the like—that is pretty normal. When you are facing the specter of bankruptcy, however, then you have a real crisis. You shouldn’t take crisis turnaround measures when you don’t have a crisis—a business turnaround is a very serious matter.
• 2. MAKE THE COMMITMENT.
  Business crisis management takes a substantial amount of time and effort to pull off a successful recovery. There will be no long weekends or vacations during the turnaround, and you will be required to put in tremendously long hours. You must make the commitment before you embark on your business recovery..
• 3. LOCK UP CASH.
  This is an especially important part of business crisis management. Immediately freeze all expenditures and take personal control of all cash flow—personally sign all checks. Set up a simple hand system to monitor all cash flow and do not spend in any one day more than you take in. Review your balance sheet and look for items you can convert to cash, such as sales and lease-back, inventory reduction, sale of surplus equipment, return of prepaid expenses, etc.
• 4. SOLICIT HELP.
  Hopefully you have an Advisory Board, or a Board of Directors that you can openly discuss the business’s crisis with. If not, then consult with your attorney, CPA, or any other professional advisor. If all else fails, meet with a business consultant who specializes in business crisis management, and have them review your situation. This is not the time to be the “lone wolf” and try to make the turnaround without outside support.
• 5. DEVELOP A BUSINESS RECOVERY PLAN.
  You won’t know where to start your turnaround if you don’t lay out a plan first. You have to form a plan for your upcoming actions, and you have to share that plan with a number of people, including the bank, your investors, your board members, certain creditors, and employees. You need to include the following in your plan:
• What your business does—in detail.
• How your business got into a crisis situation.
• How you are going to stop the cash hemorrhaging.
• What your new organization will look like.
• What the financial pro formas will look like as you proceed.
• 6. PRESENT YOUR RECOVERY PLAN TO ALL AFFECTED PERSONS.
  This is where you convince related parties (banks, investors, boards, creditors, employees, etc.) that you understand business crisis management and this is how you’re going to turnaround the business. Without this step you will be like a sailboat without any sails.
• 7. BRING YOUR BUSINESS TO CASH EQUILIBRIUM.
  This business crisis management practice ensures that cash-in equals cash-out. You did this when you froze your cash earlier, but that was only a temporary measure. Now you must operate your business over an extended period of time utilizing cash equilibrium. You have to select the areas in your business where you can cut costs in order to achieve this condition. Don’t fool yourself by saying you will increase revenues, because that is unlikely to happen until after you are well into your recovery program. Don’t be overly cautious here!
• 8. REORGANIZE YOUR BUSINESS.
  This is the toughest business crisis management practice—downsizing. If your business is in crisis there is little else to do but eliminate positions in your business and lay people off. It does little good to lay off a few clerks or shop workers, you must start at the top and prune out as many high paying management positions as possible. I would recommend laying off most, if not all, of your managers. Drastic? Yes! Necessary? Yes—in most cases. If you intend to achieve equilibrium (cash in equals cash out) you must take drastic measures. Will you lose your core competence? Maybe yes, maybe not. If these “managers” were achieving the results you expected from them you wouldn’t be in crisis. Now is the time to save your business, and the jobs for the majority of your workers—drastic measures are called for.
• 9. ENLIST THE HELP OF YOUR EMPLOYEES.
  Make no mistake about it, your employees have more intimate knowledge of your business—and it’s problems—than you do. You must tap into that knowledge. Form a “turnaround team” and have them work on all areas of your business with you. If your business has few employees (left), put them all on the team—if you have too many employees to work with all at one time, pick some of your best workers and form them into a team. With your general guidance this team will make your business recovery happen.
• 10. COMMUNICATE.
  Nothing is worse in a crisis situation than a lack of communication. If information—both good and bad—is not forthcoming, and frequent, all parties involved will quickly become frustrated and the crisis will only worsen. Communicate!

If executed properly, this short outline will allow you to turn your business around and get it out of crisis. For an expanded presentation of these business crisis management practices, read Be Your Own Turnaround Manager: A Common Sense Guide to Managing a Business Crisis.