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How to build a financial action plan for your business?

To turn around a company's financial situation, you need to develop a solid, costed action plan

5-minute read

Any entrepreneur can go through difficult financial times. The important thing is to take charge of the situation by drawing up a solid, costed financial action plan.

Caroline Comiré, Assistant Vice-President, Business Restructuring, and Daniel Massicotte, Director, Business Restructuring, at BDC, explain the items to include in your plan.

We have to understand the past and present to figure out what the future will look like and plan accordingly.

1. Diagnosis

Before you consider introducing measures to address your financial situation, you must first obtain precise data on the status of the situation and make a diagnosis.

“Financial results are like a report card for the business: You see if there are problems, but they don’t explain what's behind them,” says Daniel Massicotte. “You have to dig to see what's not working. Is it a problem of staff turnover, inventory, etc.? You need to know. Then, you can tackle it directly with actions that are costed in a detailed plan.”

2. Restructuring items at the operational level

Some actions will have to be taken at the company's operational level. These measures relate to current operations. An example would be reducing rejects.

“If you have a 20% reject rate and the industry is at 5%, you have to reduce it,” says Comiré. The financial impact also needs to be calculated. For example, a 15% reduction in rejects will yield an additional $2 million in profit once the expenses for implementing the measure, such as consulting fees or the purchase of a machine, are subtracted.”

Costing out the measure will also enable you to prioritize it in relation to others so that a schedule can be set. The objective is always to start with the easiest actions that achieve the best results, “the low hanging fruits.”

“If a corporate executive orders a machine, waits for it to be delivered, installs it and then trains his or her employees, it can definitely take a year to see the results, whereas, for example, reducing the payroll can be done fairly quickly,” says Massicotte.

You must always assign someone to implement the measure. “This improves the chances of success and makes regular follow-up possible," says Comiré. “Of course, the manager would get help to carry out the measure from his or her team or from colleagues in other departments. But someone must have the ultimate responsibility. When there are too many people responsible, no one acts.”

3. Restructuring items at the balance sheet level

The next step is to look at the balance sheet, that is, the assets and liabilities. The current situation, the turnaround and the post-turnaround situation all need to be assigned dollar values. Below are some of the many strategies that can be considered.

Selling assets

A transport company that owns 15 trucks but uses only 10 on average may decide to divest itself of five. It can also meet its occasional needs through short-term rentals.

Liquidating inventory

A store with excess inventory that is no longer in demand from the previous few years can have a liquidation sale. In this way, it will convert these obsolete assets into cash.

New loan

Let’s say a company decides to refinance its building to increase its working capital. If the initial loan was for $5 million but the building has increased in value to $10 million, the company could seek additional financing from its financial institution. The bank could lend it, say, $8 million in new financing, which would inject a net $3 million in liquidity into the company.

Converting debt to equity

A company that is indebted to an entity or individual could convert the debt into share capital. The debt therefore disappears from the balance sheet and the company's debt-to-equity ratio improves.

Loan rescheduling or moratorium on monthly principal payments

A financial institution may grant a moratorium on principal payments for a certain number of months or even extend the amortization period from, say, 10 years to 20 years. The company will have more working capital by reducing the monthly principal payments to be made.


When a shareholder of the company or one of his or her family members makes an investment in the form of cash advances (generally without a repayment term) or share capital, the company's cash and therefore its working capital are improved.

BIA or CCAA proposal

When the situation is critical, company leaders could consult a licensed insolvency trustee and make a proposal under the Bankruptcy and Insolvency Act (BIA) or the Companies' Creditors Arrangement Act (CCAA). For example, when the company is on the verge of ceasing operations, it could offer to provide 20% of the debts owed to its ordinary creditors in order to reduce the debt load and improve the company's balance sheet. Instead of shutting down, the company will be able to continue operating and meet its new reduced financial obligations.

4. Finding the winning recipe

To achieve a goal, such as coming up with $5 million in liquidity, a business leader will typically need to take several steps. “For example, he or she could reduce waste, sell trucks and refinance the building,” says Comiré. “That's why you can't just go in blindly. Decisions must be based on an overall plan that looks at the balance sheet and the results.”

The plan must also be able to evolve over time. “We have to follow up on the action plan, see whether or not the measures are working as planned and readjust if necessary," says Comiré.

“Sometimes entrepreneurs will look at the next set of financial statements and realize that they are in even more trouble than they thought, or on the contrary, that the situation is better than expected so, then too, they have to readjust the plan,” she adds.

During this process, transparency with partners such as employees, the union and, above all, the banker is essential. “The more you try to hide a bad financial situation, the worse the reaction,” says Comiré. “Bankers hate surprises. They need to be brought up to speed because they will find out anyway. You have to protect the relationship of trust with them. They're partners.”

Lastly, you have to be creative. “Most entrepreneurs will eventually go through a bad cycle in their entrepreneurial life," adds Comiré. “Nothing is ever perfect. Being an entrepreneur is difficult. But, with creativity and by working together with the various stakeholders, solutions can be found.”

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