If the direct and indirect costs are scaled down in line with the loss of business, hopefully this is sufficient to alleviate the capital shortage. In addition to cutting costs, the company should also look for ways to increase revenues to temper the financial impact of some of the loss of business. While much of the other recommended work falls to senior management and the human resources department, this component of the recommendation falls mainly to the sales staff, along with senior management. The sales staff must creatively pursue new opportunities for incremental revenue growth that will, in concert with the cuts, allow the company to stabilize its financial situation. Increasing revenues, unfortunately, often means increasing the R&D budget due to the time-consuming nature of courseware development (Kang & Goodyear, 1996). This means that new sales growth will likely come from the re-purposing or re-marketing of existing products. The company should therefore not count on strong short-term profit increases from new revenue streams.

Lastly, depending on the firm's circumstances, management may wish to consider finding external sources of financing. The credit markets are weak and unlikely to extend credit to a firm facing severe capital shortage, although it may be possible to acquire a working capital loan or revolving credit, depending on the firm's existing capital structure. An equity infusion may be tough to come by. For a firm this size, it may face acquisition under these circumstances. SMEs with weak infrastructure and capital shortages are prime takeover targets (Lu, 2006). Having three strong established customers but being in a position of financial weakness makes it a good acquisition target. Management may try to find either a good buyer match...

This may be beyond the scope of the functional management team, but is certainly not out of the scope of the executive suite and the board of directors.
Conclusion

Management is in a difficult situation. The company needs to be contracted in order to alleviate the capital shortage. This will involve a quick downsizing of the firm's operations at least in line with the revenues that have been lost. Care must be taken to retain the best staff, even if it means significant shuffling of employees and duties. The company should also look for new revenue streams, although the lead times associated with the courseware industry make this unlikely -- if good revenue streams existed, management should have tapped them already. However, no matter the steps that are taken the firm may be a good takeover target at this point. Management should take steps to prepare the firm for that eventuality and if avoiding takeover is considered essential by management then dramatic restructuring may be required to avoid acquisition.

Works Cited:

Kang, B. & Goodyear, P. (1996). Representations of instructional purpose in courseware requirements engineering. Computer Aided Learning and Instruction in Science and Engineering.

Lu, C. (2006). Growth strategies and merger patterns among small- and medium-sized enterprises: An empirical study. International Journal of Management. Vol. 23 (3) 523-534.

Rasheed, H. (no date). Turnaround strategies for declining small businesses: The effects of performance and resources. University of North Carolina Wilmington. Retrieved June 6, 2010 from http://www.howardrasheed.com/articles/TurnaroundStrategies.pdf