Unless you
have been marooned on a desert
island for the last 2 years or so
you will be all too aware of the
fact that we are in the midst of a
recession with substantial cuts
anticipated in public sector
expenditure which threatens to
derail a fragile recovery. With many
UK companies facing a myriad of
challenges which threaten their
economic stability the demand for
external advisors who are
experienced in dealing with
“turnaround” (or in other words
delivering a business recovery plan)
is at a premium.What
constitutes turnaround, the
advantages of engaging a turnaround
professional, who to talk to and
when are some of the key issues
examined in an article by
Andrew Livesey Head of Corporate
Recovery at Taylors.
Q. What are the most common
signs of a company in trouble?
A. The company can find itself
in trouble for many different
reasons and in most cases more than
one reason in combination. Commonly
we come across the following issues:
Lack of Operating controls where
management are “flying the business
blind” because of old or inaccurate
information. Ineffective management,
either because the central figure
cannot or will not delegate, or
because of lack of experience in
crisis management. Over ambitious
growth which has leveraged the
business to such a degree that
management are operating with no
margin for error. Poor lender
relationships often arising out the
above issues, so that the business
is exposed in the climate in which
lenders are looking to move away
from “risk” business or at the very
least to re-price the cost of their
ongoing support.
Q. What is turnaround?
A. Basically it is a short term
emergency business plan based on
survival to identify whether there
is a viable business, to identify
key issues, to refocus management
energies on addressing those issues
and to set a new course for the
business “controlling” the
inevitable negotiations which will
have to take place on the road to
recovery.
Q. Why can a company not
implement is own rescue plan?
A. There is no reason why a
company cannot implement is own
plan. In practice however it very
often requires outside help. The
trend to reducing management costs
has led to many companies
de-layering their senior management
teams, leaving only a small core to
be supplemented by external advisors
where necessary. Very often the
skill set is not present, or
management unwilling, to focus on
the key issues. Management inertia
is one of the biggest inhibitors to
delivering a rescue plan. Also if
the company becomes insolvent
because it is not paying all its
obligations as they fall due,
different legal constraints fall on
the directors and the complexities
of the regulatory frame work, the
potential liabilities for delinquent
directors, and the need for a
catalyst for change within the
business all lead to a situation
where external advice is necessary.
Q. What does a turnaround
professional do?
A. For a start form an
objective view on the business. It
is a common feature of the first
meeting with a client that
management are describing the
business they want to have and not
necessarily the business they
actually have. The job of the
turnaround professionals is to peel
away the layers of the onion to help
management achieve focus on what the
key issues for the business really
are. Thereafter, the role of the
turnaround professional is
developing the survival plan and
keeping management focused on
measuring achievement against their
objectives. Very often a rescue
package has to be delivered within
very severe time constraints where
there is simply not the resource for
management to go it alone.
Q. In what ways does the
turnaround specialist add value?
A. Turnaround is a bit like
intensive care and most people will
readily understand that in an
intensive care situation you can
significantly improve the chances of
recovery by using the best doctor
you can find. Helping management
understand the reasons why the
business is failing. Focusing on the
time frame in which they operating.
Stopping the haemorrhaging quickly.
By setting a series of rolling
objectives the professional can
change the focus of leadership in
the business and set a time frame in
which key individuals have specific
roles to fulfil.
Q. Will it go better for me with
the bank if I use turnaround
professional?
A. It is wholly understandable
that if a bank is presented with a
business in crisis, but no solution,
it will look to work out is own
position unless it has confidence in
the management strategy. A lender
will draw confidence from the fact
that there is an objective view on
the business and that management are
guided by someone who has
experiencing of delivering a
successful business recovery plan. A
key role of the business recovery
professional is in managing the
external relationships (which may be
seriously damaged by that stage)
with those third parties whose
continued support is required.
Q. Is a turnaround professional
the same as an insolvency
practitioner?
A. Not necessarily. A turnaround
strategy may involve, in the most
extreme cases, the company or
business going through some form of
insolvency procedure. However, any
insolvency procedure should be on
the company’s own terms and an
insolvency practitioner should be
brought in to run that procedure as
and when it is appropriate to do so.
Q. Who do I choose?
A. In reality there are a number
of aspects to a business recovery
plan. Some of these skills are
accountancy based and are focused on
cash flow and cost saving. Some of
the skills are legal focused on
legal regulation of the activities
of the directors, protection
strategies for the directors, and
the application of the laws on
insolvency and corporate government.
In most situations in which we are
involved we work alongside an
individual whose skills are
accountancy based and who has
substantial experience in managing
distressed business. In some cases
it is a full time interim manager
who displaces the existing
management function. In others it is
an advisor who works along side
management on a project basis
devoting as much of his time to the
business recovery plan as is
necessary to achieve the objective.
Very often it is this type of
professional who is most effective
in assisting an SME business as his
involvement on a regular but
nonetheless not full time basis sets
a time frame and agenda to which
management work.
Q. If I need help where do I
start?
A. The short answer is speak to
us. We are happy to talk to you and
once we have some basic information
and an idea of what the issues are
we will discuss with you a suitable
individual whom we would recommend
to talk to you. We would then adopt
a joint approach with that
individual in discussing the
requirements of a business recovery
plan. We have many successful
assignments of this nature under our
belt and we can help find the right
individual for your requirements. We
will remain on hand to help you
through the legal mind field. We can
provide reference if you wish!
Q. What if I need a refinance?
A. There is still finance
available. As the market has
contracted there are still
organisations and individuals who
are prepared to fund and/or invest
in a recovery plan. However how and
when they are approached is
obviously fundamental in securing an
offer of funding and if it is
required this will be a key stage of
the recovery plan to be negotiated.
Q. When should I start the
process?
A. As soon as you recognise one
of the signs that the business is
suffering issues which are either
beyond its capacity to control or
are not likely to be overcome in the
short term without changing the
basis of operation. By the time you
have identified that the business is
at risk the clock is already
ticking. It goes without saying that
the more time there is to examine
the issues and look at the
alternatives the more robust the
recovery plan will be. Many
businesses leave it too late so that
the company is fundamentally
impaired and the chances of a
restructure holed below the
waterline. Best advice is to take
advice at the earliest opportunity
as it offers the greatest degree of
protection to the directors of the
business in the event of a corporate
collapse. |
