When buying a business that is in trouble, it can be an opportunity of a lifetime or quickly a problem of a lifetime. Ever see a location that keeps changing and each new owner is very optimistic they will finally be the business that will be successful there? All too often it looks easy from the outside to fix a faltering business. Are you ready for the heavy lift?
The basic process for a turnaround has three components. First, before trying to take on the business is doing your homework. Why is it failing? Do you have the resources to work through the issues for the amount of time it takes to improve the business results? Unlike a successful business, speed for change is critical. More details on the three areas:
1) Research – Try to understand the root cause of the issue before considering making an offer. If you are not familiar with the industry, would suggest this is not the time to learn a new business. Even experienced people will have a challenge determining if it is a people, product, process, or an external issue. If external – what can you do different to address the challenge. If internal such as a product issue, how long will it take to resolve? Is it a skillset or other people issues, theft, absenteeism, etc. Ensure you are allowed to talk with current customers, suppliers, and do your homework. The issue could be as simple as an absentee owner neglecting their business. If caught in time, this is one of the easier problems to solve.
2) Resources – Much like project management uses the rule of threes, so does turning around a business. The rule of three’s means it will take 3 times more time, effort, and money for the expected results. You may have heard the saying all it takes to solve any problem is people, time, and money! Have you planned for the 3x factor?
3) Speed – Unlike a successful business, moving fast to address root cause issues is critical. Are the suppliers charging a fair price and delivering quality products? Do you have the right people on the team? Jim Collins, author of Good to Great made this phrase popular “Get the right people on the bus and the wrong people off the bus.” As long as you did your research, you should have 80% of the core issue identified before you assume ownership. Just hope the 20% you didn’t discover doesn’t consume more than the resources you have before turning things around.
Think through
Before jumping into a turnaround situation – be candid with yourself and the people that you will count on for support. Do you have the capabilities to diagnose the situation? Do you have the resources to ride through the difficult times? Can you move fast and have the stamina for the long road ahead? The return on investment can be phenomenal. It is high risk, high reward.
Would love to hear your experience buying or selling a troubled business and welcome feedback. Feel free to post comments or email them to me. Small Business, Big Lessons ® How will you manage the turnaround?
Small Business
About the Author:
Gregory Woloszczuk is an entrepreneur and experienced tech executive that helps small business owners grow their top and bottom line. Gregory believes in straight talk and helping others see things they need to see but may not want to with a focus on taking responsibly for one’s own business. He and his wife, Maureen, started GMW Carolina in 2006.
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