A roadmap to turning around your personal finances

A “turnaround expert”, embodied in the C-level position of Chief Restructuring Officer (CRO), is a relatively new concept in the business work. As the title indicates, this person’s role is to basically turn around businesses which have inherent value but need to be saved.  Is there anything that you and I could learn from a CRO if we need to turn around our personal finances?

Certainly. At the end of the day, a CRO’s approach to turning around a company is the same as an individual turning around their personal finances, albeit in different scales. So what can we actually learn from their processes? (I filed this post under the “entrepreneur” category as well given its applicability).

• You have to commit to a turnaround. CRO’s are not cheap (Air Canada’s CRO was paid millions for his work). Thus, a business has to be able to commit the resources and time and, most importantly, believe that help is required. The same goes for personal finance. One has to be committed to a turnaround as something that may not be comfortable but necessary. While you are most likely your own CRO, you should bring in an outsider, like a business hires a CRO, who will give you honest assessments- even if it is unpleasant.
• What is the status of the finances? You don’t know where you are going if you don’t know where you are at.  If you don’t know what to track, Canadian Capitalist provides a four ways to track your personal finance. If you have filed using the shoebox method, take an afternoon to sort through them and start with a simple calculation of your salary vs. your expenses monthly. If you need help, ask your accountant or a friend with a book-keeping background (see below on expenses).
• Determine a goal based on your current status. This is pretty self-explanatory. Where do you want your personal finances to be in the next year. Be realistic in your goals.
• Determine between needs and wants. CRO’s often make headlines because what appears to be their first act is to lay off thousands of workers.  Although this sounds cold, they are basically determining needs vs. wants in a business; an employee who is not essential is let go. The same goes for your personal finance. After you determine the status of your finances, you need to sit down and figure out to keep as a need and what to cut as a want; if you can’t do it, ask someone you trust to tell you want they believe would be a need vs. want.
• Get rid of the bad advisors. You often see a turnover in the board of directors and senior executives in a turnaround. After all, these are the people who lead the business to where it is. In personal finance, the question becomes were your advisors enablers for your behavior or actually gave you good advice you ignored?
• Shed non-core compotences. In business lingo, a non-core compotency is basically anything the business does not do well, doesn’t make money on or doesn’t fit into its business goals. In a personal finance, this relates mainly to your portfolio management. Do you have strange holdings which do not fit into your new goals? If so, you may want to think about getting ride of them.
• Now concentrate on being the best in what you are good at. In a personal finance context, this means knowing yourself. Are you a saver? Earner? The key is to focus in what you are good at and start doing more of it. A good example is the Financial Blogger who realized that the only way to reach one of his goals was to start a side business.
• Make sure everyone buy-ins. A good CRO will speak to employees and be candid about the stituation and why hard work is needed to reach the goal and keep the entire business informed of progress. In a personal finance context, you can’t have one family member only doing everything. Everyone has to buy-in and information should flow freely.
• Track your progress always and make adjustments as necessary. ’nuff said.

…none of this is earth shattering, but I would end with three comments.

One- a turnaround is, by its very nature, uncomfortable and a lot of work. It is easy to get into trouble, it is hard getting out. I have seen too many businesses and people say they want to turnaround their businesses and lives- but only if its comfortable!

Two-a word on advisors. I once sat in a talk where the owner of a successful small business spoke about how when their industry, which was very tourism driven, was hit by the SARS outbreak in Toronto the first thing they did was put money into the business to hire advisors.

Sounds counter-intuitive doesn’t it? You hit hard times and you spend more money? The owner-managers reasoning was that only a true outsider could see what was truly going on in the business and set up systems to let them ride out SARS and any future downturns. The point being a good advisor (emphasis on good) helps you get to a long-term solution which far outweighs the cost.

Three- if this sounds like I am writing my MBA entrance exam, look at Give Me Back My Five Bucks. The blogger bascially does all of the above and tracks it religiously. She just happens to express it differently than I do.  Everyone can turn around their finances provided you have a positive attitude and are willing to work hard.