Lawyer Monthly Magazine - February 2019 Edition

56 Professional Excellence www. lawyer-monthly .com FEB 2019 CORPORATE Business turnaround and restructuring is shrouded in myth and fear, much of it at the behest of those that profess to offer a specialist service to businesses in trouble; however, the plain truth of things is simply that most SMEs get into financial trouble either because they aren’t selling enough of their products, whether those are widgets or professional services, or because too much cash is being taken out of the business by those that own and run it. Sometimes it’s a combination of the two, however, having a realistic grasp on what is happening and why, is essential to survival. What Should You Do if You Think Your Business Is Failing? can provide an independent overview of not only how things stand, but why they are that way, and sometimes, those results surprise everyone. With smaller businesses, my experience has always been that the rules of big business models don’t necessarily apply - whilst the idea is for all businesses to make money, big players do this in very different ways to SMEs and there are different drivers and expectations which apply. Whilst there are all sorts of management and restructuring procedures, stress tests and KPIs which will give you a mathematical certainty regarding a businesses’ performance; there is nothing like spending a morning on the shop floor or at office phones, talking to the secretaries and looking at which type of cars the directors drive, to give you a real appreciation of the business, its culture and ultimately, its problems. Sometimes with SMEs, the cashflow fix is simple, in that by reducing overheads, cutting salary and requiring some flesh in the game from key players, people suddenly become invested in the company’s future; but this also means opening -up, letting go and ceding control, which is never easy for business founders and in-with-the bricks management. Financial stability and a sustainable future are great soundbites, but in today’s economy with To use a metaphor borrowed from a medium sized engineering business I helped a few years ago: ‘that grinding sound you hear when you’re changing gear, usually means there is a lack of oil in the engine!’; however, putting more oil in the engine is not always the answer, as a structural problem can easily be disguised by a cash injection or lender recapitalisation and the problem is simply kicked further down the road, waiting to happen again. Exploring where the problems originate from as soon as they crop-up is obviously the sensible option, but it’s one that not many SME owners are willing to take, preferring to think that it’s just a bad month and that things will get better. So, asking why the engine is burning so much oil, as opposed to where we can get more of it, is my preferred approach. Discussing the state of a business with an owner always involves a degree of sensitivity, as inmany cases personal pride and a hardened resistance to change are important cultural factors to overcome if change is to be implemented. Whilst all businesses experience ups and downs in performance, a restructuring consultant Usually it’s the cashflow difficulties that are the first sign that things are not going according to plan and for most small businesses, this may become a daily trading reality as owners start delaying on payment of invoices, which means effectively borrowing from company creditors to finance debtors. Whether this state of affairs is a consequence of a decline in market share, failure to ingather outstanding fees or a falling profit margin, it shouldn’t be allowed to become the operating norm, and should be seen for what it is: it spells danger.

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