The recovery of the recovery – Snow Magazine
Today, many snow and ice control operators face a critical question: Have we closed the door to the fallout from COVID-19 and entered a new phase of recovery and growth? Or are we in peace before another storm of operational uncertainty, mandatory shutdowns, etc. ?
One thing is certain, running a snow removal and ice management operation will be even more difficult than usual over the next two years. Some businesses may be able to resume regular operations with very little or no modification. The majority, however, are faced with the question of how to turn their business around amid the lingering uncertainty.
THE TURNAROUND STRATEGY
Healthy, well-capitalized companies have faced severe liquidity crises, and even the most cautious entrepreneur and business owner have found they lack many of the usual tools and abilities needed to deal with uncertainty. While a number of companies have used the pandemic as an opportunity to reimagine the workplace of the future, others are incurring substantial costs in keeping customers and employees safe, embracing digital ways of doing business. and, in general, just to cope.
Companies incur, for example, costs to provide personal protective equipment, health examinations and frequent deep cleaning of stores and equipment. While these and other unforeseen expenses made planning, annual budgets and forecasts obsolete overnight, many snow removal companies were forced to scramble to raise capital to weather the storm. Fortunately, many traditional recovery strategies have retained their usefulness.
The first step in turning around a struggling business is to understand the problems and analyze the options for the snow removal operation for the future. Surprisingly, the lingering effects of the pandemic may not be the only problem the company faces.
This analysis of the snow and ice control operation can require difficult choices. If they are allowed to operate, for example, is business coming back? How fast? If the operation was in difficulty before, an objective view of the direction the company is taking must be made.
Manufacturers’ prospects for recovery obviously depend on the products. For retailers and restaurants, it all depends on their customer base. In the case of a snow and ice control business, as with many businesses, the operation’s very loyal customer base can help with the recovery.
Every business needs to be flexible. It should be ready to seize a rapid recovery as well as quickly reduce if demand declines. The future could see a change in customer preferences, price changes from suppliers and a whole new way of doing business. Thus, the first step is to ensure that the snow removal operation can survive in the new conditions. Once you’ve achieved that goal, consider expanding your business.
In a turnaround, one of the main causes of companies forced into a second round of restructuring can be attributed to the inability to resolve their underlying operational problems the first time around. Short-term solutions, such as a new influx of capital, can mask a number of fundamental problems.
STAY ON TRACK
When transforming a business, it is essential to stay focused, measure progress and ensure accountability for priorities. It means:
Examine the services. Reducing or eliminating some less profitable services, especially low-volume ones, always makes sense. And don’t forget to cut off customers that may not be profitable to deal with.
Examine the costs. Obviously, no service or customer can be cut until the cost is known. In addition, operating costs could increase, productivity could decrease and the cost of special “benefits” offered to certain customers could increase. However, unless it’s a matter of survival, be careful where the cuts are made.
Renegotiate with suppliers. Will your raw material supplier survive if your business does not survive? This is a great time to see what breakouts can be traded, at least in the short term. Longer credit payments can help cash flow. Renegotiated rental conditions may be possible depending on the situation of the transaction. A large tenant in the building has better luck.
Price. Many snow removal and ice management operations may have no pricing power due to the lower pricing options of competitors. On the other hand, the time may have come to raise prices. After all, customers may find that there are additional costs incurred today or be immune after seeing similar price increases at the grocery store.
Owner “Benefits”. Many owners often pay themselves minimum wages while neglecting the fact that the company pays their personal car rent, regularly inviting associates to dinner, and taking distributions throughout the year. Analysis of these expenses can reveal a significant amount of cash leaving the business.
Cash flow. If times are tough, cash flow projections can give an idea of how long the snow removal operation can withstand a downturn in business and / or an increase in costs if a new wave of the virus hits.
Fund the recovery. It is important to recognize that a turnaround will be successful and the business will survive. And it’s the cash flow projection that will tell the story. Only the owner of the snow and ice removal operation can decide how much is needed and whether the shortfall can be financed by loans or capital contributions. Missing a bank payment, getting a third notice from suppliers, and not having made the employment tax deposits for the month can all cause problems.
GET GOOD ADVICE
Obviously, now is not the time to go it alone. The CPA of the snow removal operation should be able to help with the recovery, at least with the numbers. Chances are he can give advice on many other aspects of the business as well.
Help may also be available from a local chamber of commerce, the Small Business Administration, and other local sources. At the very least, they might be able to provide a list of so-called “turnaround consultants”.
Most business owners will only experience a few slowdowns in their careers at most, which means they don’t have enough experience to successfully turn around a struggling or unprofitable business. A turnaround consultant, on the other hand, typically handles multiple downturns per year with clients from different industries. That’s a lot more experience than the average business owner or manager, which means they can usually quickly and accurately identify how to turn the business around.
Recovery Consultants come with a variety of titles ranging from Investment Bankers and Lawyers to Basic Recovery Consultants. The right specialty will naturally depend on factors such as the specific reason the turnaround is needed, the size of the company and the industry.
When choosing a turnaround specialist, look for the following qualities:
- Listen and personalize their approach to your situation. Beware of sellers who offer packaged solutions.
- Has a plan but adapts and evolves based on new information. A turnaround is a dynamic process sensitive to changing conditions and new data.
- Does not work on commission. Professionals who take commissions on debt restructuring often have a myopic goal and do not always have the best interests of the snow and ice management business in mind.
- Doesn’t work for fairness. Although equity is more readily available than cash, it costs more to sell equity to a consultant in the long run.
- Mainly works on rollovers. Turnaround work is a specialized profession, which means most CPAs, bankers, or business lawyers don’t have enough experience to be successful.
A transformation is underway in the way businesses operate. As restrictions ease, companies must consider whether the measures implemented during shutdowns or during the turnaround were only temporary or is this the new normal?
As the turnaround progresses, the operator will see significant changes in the way they work, purchase supplies, access services, etc. Many turnarounds mean reinventing the business to survive.
The bottom line is, the importance of speedy execution cannot be overstated. Will the snow and ice management company go back to the old way of doing business or will it adopt new strategies and policies? All the most comprehensive adjustments will make little sense if they are not implemented or implemented too slowly.
Mark E. Battersby is the financial editor of Snow Magazine. He resides in Ardmore, Pennsylvania.