5 Areas That May Need Restructuring

Does your company need to be restructured?

Before you answer, “No!”, think about this.  What is Restructuring?  Yes, it can be a bankruptcy restructuring, both financially and operationally.  But truly ALL BUSINESSES at one point or another need restructuring, or if you prefer, process refinement.

Think of a high growth company.  Now at $25 million in revenue, can they use the same business processes that they used as a $5 million company?  Or like the lab business we just finished, it was a $30 million company and now with reimbursement changes it is a $12 million company.  Can they run the business the same way at $12 million as they did at $30 million?

Of course not.

We suggest that there are at least 5 areas that management needs to consider restructuring.

  1. Revenue Cycle Management

The process of completing an order, billing and then collecting the receivable will absolutely change over time.  Often different systems come together to produce a bill.  In the lab business, for instance, there is a lab information system that receives information from the lab equipment and transmits certain data to the billing company.  In a multi-location retailer or restaurant, the local store data is funneled to corporate.  Is the process working as efficiently as it could?  When was the last time someone really dug into the process?  At the lab company, we found that hundreds of samples were not being billed!!  Why?  One system didn’t always communicate well with another system.

  1. Balance Sheet Management

Businesses often take a long-term, set it and forget it attitude about their balance sheet.  Equipment was purchased on a five year term loan, so they just make the payments.  The business needs additional capital spending but can’t find the cash.  Yet the cash flow of the business could support repaying some existing debt and extending lines, leading to freeing up cash for growth.  When most financial people think of “restructuring”, what they are really thinking about is bankruptcy.   Settling one creditor class for X cents on the dollar and another class for Y cents.  Cramming down the common shareholder, or other creditor class.  Yes, that is an important form of restructuring, but the day to day running of a business takes our eye off the balance sheet.  Maybe we could reduce our cost of goods if we paid vendors a little faster.  Or perhaps we should lengthen payables to generate some cash for our recent A/R growth.  Balance sheet management needs to be actively analyzed and changed as needed.

  1. Sales Management

How a business generates sales and how the salespeople are compensated are hugely important areas to be discussed.  In a medical transport company, for every flight the salesperson got a commission, the pilot and co-pilot got a bonus, the nurse also got a bonus for taking the flight.  The bonuses were paid monthly, and it instilled in the company a culture that said, “When we do well, you do well.”  As a result, when the pilots had already done 3 or 4 segments and another call came in, what do you think the flight crew said.  Of course, they took the extra flight, and between them took home an additional $200.  Software companies are notorious for ever increasing the quota for salespeople.  If the quota was $100,000 for the quarter and the salesperson hit the quota, the next quarter’s quota was $125,000.  Why?  If doing a good job for the company is a $100,000 quarter, why would a business owner want to alienate the sales force by making it harder, harder and ultimately impossible to hit the bonus?  It’s stupid.  They can tell themselves that “it’s a motivator to do more”, but in fact it’s a motivator to find a new job.  Sales are a business’s life blood.  The management of sales is critical.

  1. Customer Service

Is your business a “my pleasure” business?  Ritz Carlton and then Chick-fil-A turned “your welcome” into “my pleasure”.  While that response isn’t necessary in all businesses, making your customer feel special is necessary.  Even if it’s a software or large expenditure hardware business, making the customer feel special can be as easy as making sure they know that the decision they made was brilliant, and that as a result the company will be able to do A, B, C and D.  Does the CEO ever call a customer?  How about the sales manager?  Think of it like the restaurant manager checking on tables.  While we don’t want to be intrusive, letting the customer know that they are special and worth talking to is important.  Just like thinking through the sales cycle, or the revenue cycle, think through the decision cycle for your customer.  Put yourself in their shoes.  What’s important to them.  Provide it, and you’ll have a lifelong customer.  A friend of mine is semi-retired.  When the Atlanta Falcons have a home game, he works the event at the stadium.  He is responsible for a section of high cost seats in the stadium.  During training the owner of the NFL team told the trainees, if one of our customers has a problem, solve it, no matter what it takes.  He gave an example of a family going to the NFL game.  Traffic was horrible.  It was raining, they couldn’t find a parking spot.  They got to the game in the middle of the second quarter … and the dad was livid.  The little girl wanted cotton candy, but the stadium doesn’t have it.  The family’s shirts were soaked.  It was horrible.  The NFL owner suggested the following — take them to the NFL sports store and buy them all new shirts — then take them to get something to eat, at no charge — the cotton candy was the tough one.  Send a runner down the street, outside of the stadium, to buy some cotton candy and bring it back to the girl.  Let the family know that the NFL office would be in touch and make sure they received free tickets for the next home game.  What do you think that did for this one customer?  Is the family coming back … you bet, and they will tell this story for the rest of their lives!

  1. Employee Management

Employees make everything happen — treat them as your best and most treasured customers.  Some companies attempt this by changing “employees” to “associates” or “partners”, or some other term that implies ownership and authority.  Every employee wants to feel special, wanted and valuable.  Celebrating birthdays.  Annual holiday party.  Notes of encouragement from the CEO.  One of my favorite stories is about Dr. Frist, Sr., the founder of Hospital Corporation of America.  He had a habit of sending handwritten cards to employees every day.  Years later a CEO of a multi-billion hospital company told me about his appreciation to Dr. Frist for encouraging him early in his career.  If your employees think you are on their side, pulling for them, they will go above and beyond for the company.  One last suggestion — empower your employees.  If you’re in a retail business, give the clerk authority to fix a problem, even if that costs the company money.   Southwest Airlines was famous for this.  Employees go out of their way to please customers, and customers respond.  Remember the NFL story?  The owner of this NFL team (multi-billionaire) empowered a guy earning little over minimum wage.  The employee was empowered to do virtually anything to make the customer happy, and that has the power to change the attitude of each and every employee towards your business and your management.

Every business needs to restructure from time to time.  It might be a massive, tear it down and start again, or it can tweak things that the business is already doing right.  In these restructurings, it is of paramount importance that a third-party navigate the restructuring with management.  Why?  Ask McKinsey & Company.  Why do the largest of the S&P 500 (and governments & large non-profits) hire them for millions of dollars to solve a problem.  An outside perspective can provide valuable insight into what’s working and not working.  An outsider can talk with employees and find out about problems in the business that are totally under the radar of management.  We have often found valuable insights in the mail room, or with the receptionist.

We are here to help CEO’s navigate the growth and health of their companies.  Let us know how we can help.  We can be contacted at Jeff@JeffVillwock.com.