The Road Back to Profitability

by

Joan M. Gruber Ridley, CFP

Taking the road “back to profitability” implies a return to the way you used to do things. However, what made you profitable before might not work this time. Perhaps, in the past, you took short-cuts to boost the bottom line, or, maybe certain ways of running the business that worked in your favor before no longer work. Regardless of what brought you to this point, there are a few basic steps you can take to get you back on the road to profitability.

Spruce Up Your Business Plan

Take a look at your original business plan. Does it makes sense today? Maybe you never had one. Either way, retain a professional to write or revise it. The right person will challenge your business model to see if it is viable. Make sure to include short and long term projections. With correct and realistic assumptions, projections serve as a reality check to see if there is an opportunity to build real value. This includes developing an exit strategy right from the start. Without it, you might have a job at best, but probably not an asset upon which to build personal wealth. If the business is not destined to build your personal wealth, why take the risk.

A Job With Debt Is No Fun

Like many businesses, yours might have been very profitable until a few years ago. To get through the rough spots, maybe you borrowed on a short-term basis. Now that revenues are on the rise you might think that profitability is right around the corner. Maybe it is. But working hard today and tomorrow to pay off old and rising debt, will result in wealth for your banker, instead of for you. In addition, working long hours for little or no profit will mean early burn-out for you. Now is the time to renegotiate your short term bank debt in favor of long term debt, especially now when interest rates have nowhere to go but up.

Adverse Contract Terms Can Pull You Down

Perhaps you made acquisitions of other enterprises, capital equipment, or real estate when times were good. Renegotiate the terms or sell assets that do not contribute in a positive way to your bottom line. Once creditors are aware of your current burn rate, they might be very willing to negotiate. The alternative for them is far less attractive. The last thing they want is an uncollectible debt on their books.

Consider A New Strategic Plan

If previous markets or services have dried up, include a plan to develop new markets or services in your business plan. The operative word here is “plan”. Developing new markets or services might include hiring new people or re-training existing personnel. Developing new markets or services will likely require new marketing materials and new strategies. It will surely require projections of revenues and expenses. This is all part of your new or revised business plan.

The Right Financing Could Be The Answer

Be prepared to borrow on a long-term basis to support your plans for expansion. Funding expansion with short-term funds, such as a line of credit, would be a mistake. A well-written business plan, that includes well-documented long-term projections and an exit strategy, will support your request for long-term funds. It is more likely to result in building your personal net worth than borrowing on a short-term basis.

Retain Key Advisors

Perhaps the most important step you can take is to retain the right talent to get you back on the road to profitability. Start by retaining a professional outside of your company to serve as the point person to identify what needs to be done and where to find the talent to perform each task. Introduce that professional to your existing advisors such as your CPA, attorney(s), and personal financial advisor. When you retain the right talent and when all members of your team work together, your chances of returning to profitability and achievement of personal wealth are greatly enhanced.

 

Joan M. Ridley is president of Business Wealth Solutions, a Dallas-based advisory firm that consults with business owners about how to successfully grow and leave their business. Visit our website at www.bwsllc.net. Call us today at 214.692.9192 for a complimentary meeting to learn how we can help you get where you want to go.

Copyright 2004 Joan M. Ridley