By the time a financially distressed company requests assistance, many are too far along to help – this is the warning from Michael Fingland of Vantage Performance, an expert in corporate turnaround.
But while many businesses are unaware of just how much trouble they are in, Fingland says several recognise their issues and come to third parties for help. When they do, he says there is a trusted formula of bringing a business back to life.
How does a case come to your desk?
Many times a client will come to us where they are already in a state of receivership. We won’t operate the formal receivership part, but we will help with project management to get them back out and running, so we do all the restructuring and help clients through that process.
We often get leads from insolvency firms who have a client in VA, when they need someone to help out with a plan to get them back out. We also have law firms, banks and private equity firms coming to us, with clients coming to us directly as well.
So what happens when you start off a case?
Essentially we take what we’ve got, and do a strategic review of the business. It’s a fairly intensive process; it’s all about getting to the bottom of whatever the business’s cashflow requirements are. We look at what part of the business is making money, which ones aren’t, and we look at the serious gaps in their management team and so on.
The strategic review is really like a base or blueprint for the management plan. Depending on the review, it could be a sales problem, a pricing problem, they may have a giant return issue where stock keeps getting returned. We really look at the two or three main issues and go from there, we go back to what the root cause of the problem was… often it’s cashflow.
Is there a common thread between your clients?
There is always a very poor focus on cashflow and working capital management. Businesses are usually in the death spiral already and are thinking about more sales and more sales, but 40% of the time they have a loss-making product and are hastening their demise by selling more, rather than having a review on their business.
They also have very poor internal systems and controls. They are not able to determine if a product is profitable or not, they have anecdotal evidence but can’t take the next step. They don’t know how to interpret data and sales figures, and what’s more, don’t have any systems or controls in place to give them meaningful data on behalf of the business.
What happens after that initial plan is put forward?
We work with all the stakeholders to determine the viability of the business. So we will be talking with receivers, banks, creditors, shareholders, employees, unions and so on, to get them all to approve to the plan we put forward and after it’s approved, then we get to work with the actual turnaround plan.
During this phase we put our own people into the business, and they are in charge of putting forth the initiatives included in the report, whether that’s a cashflow issue, sales issue, etc. They are down on the ground working with these businesses and making sure the individual recommendations are carried out.
We will provide support to the senior management team of the business along the way, giving them advice about implementing issues, telling them how to avoid risk, and we will help them manage their working capital to ensure good cashflow.
Do business owners take your advice well?
No, it’s actually quite well received because management often knows they’re in a point where they need an outside view. The management’s credibility is short, and stakeholders need the view of a third party. Typically we’d be with them for one to three months to bring a company out of VA, and then a turnaround plan takes 12-18 months to implement, so we are with them for awhile.
What do you think was your toughest case?
Brisbane Concrete was probably the toughest. We had the receivers trying to sell the business, we had to put up an alternative plan to convince them our deal was better, we had to raise $2 million, we had to get financiers on board, and we had to do a merger all at the same time. A lot of cases are difficult, but this was extremely difficult to pull off because of all the factors happening at once. Thankfully that doesn’t happen all the time.
Do you have any other advice for businesses who might be struggling?
Don’t assume this is something the business can do itself, not so much because of a lack of skill but really because by the time a business gets to this point their reputation is very low and they don’t have credibility for putting forward a new business plan.
Don’t assume you’ll be able to raise funds or equity on your own, because credit is tight at the moment and with a shot reputation it’ll be even harder.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
