How SMEs can pull themselves back from the brink: Top tips from an insolvency expert
Wednesday, August 7, 2013/
Corporate turnarounds in Australia were once the domain of publicly listed companies, driven by groups of debt and equity holders.
These days, small business entrepreneurs are becoming increasingly sophisticated in their approach to dealing with a failing business, and their financiers are more comfortable rebuilding their businesses through a controlled turnaround.
The process is time-critical, requiring urgent cash and strong stakeholder management.
It means finding the source of the downward spiral. This can be difficult, as it requires an objective and unbiased approach to diagnosing your business’ financial, operational and strategic positions.
If your business is on the verge of collapse, here are four things you need to do to get back on track:
1. Be proactive on critical issues
Being proactive on critical issues is essential – if you snooze, you lose. Turnaround advisers face many time-critical issues, especially in the early phases of turnaround, where cash and stakeholder support are needed. Indecision at this time can be fatal to the chances of a successful turnaround, as it creates uncertainty among key stakeholders about an owner’s appetite and ability to deliver results.
2. Be realistic about outcomes
The need for cash may mean you need to dispose of non-core assets or put in place a divestment strategy in order to refocus on your core business, so be realistic about the value of your assets.
The turnaround adviser will usually get professional valuations of these assets. It may be that these values do not meet the expectations of an owner, but there is no time in turnaround for a long, drawn-out marketing and negotiation process to achieve your desired prices.
A director owes a duty of care to a company’s creditors and shareholders to obtain proper value, and this is why valuations are important. There is also an obligation to act in the best interests of those stakeholders. Unrealistically holding out for a better and, quite likely unattainable, price is not generally the best solution.
3. Trust your adviser
The existing owners and management might know the business better than anyone, but that is often the problem. Small business owners can be too close to their business and fail to recognise the need for improvement or change, so it’s probably best you listen to your trusted advisor.
It may be the environment has changed, possibly through advances in technology or social factors, which has resulted in a need to change “the way that business has always been done”. Don’t disregard the advice of a carefully selected turnaround adviser who will understand the need for change and likely know the right people for the job.
4. Stick with the turnaround
The turnaround process is not just about establishing normality. Long-term change and process improvements are essential for future growth, cashflow and profitability, so it’s important to see the process through to the end.
While the role of the turnaround adviser will likely lessen during the latter phases of a turnaround, there is still a role to be carried out. The turnaround process can be long and difficult but, if successful, will be morally and financial rewarding.
Daniel Cooksley is a Principal in Restructuring Recovery Turnarounds ? Insolvency at Pitcher Partners, Sydney.