With their heads firmly in the sand, these businesses are in denial – to themselves, their customers, their staff, funders and suppliers. Companies like this who refuse to face up to harsh realities are frequently the ones who view turnaround and restructuring as dirty words. They will cling onto the wreckage of their struggling ventures and go round in circles like the proverbial hamster on a wheel rather than bringing in experienced advisers who might be able to steer them back on course and out of the red and into the black. The reality is, they could lose everything but I would urge any business owner to speak with a trusted advisor as soon as they fear change.
Having spent my career in the turnaround and restructuring market, I know from first-hand experience that there are many businesses worth saving. In fact restructuring with help from an objective third party is the lifeline that many companies need. However, directors have to be prepared for a ‘warts and all’ investigation of their business and to work in new ways.
I invariably walk away from more companies than I help because if the MD isn’t prepared to make changes, and some tough decisions, there is no point considering restructuring. We likewise can’t always work magic and have to be selective with the businesses we work with. Due diligence is a must at the outset.
So what are the warning signs that a company is hurtling towards a crisis and should seek outside help?
· The financial health of a business is the key indicator of whether it is in crisis. It might have been making a profit followed by a year when profits plummet to zero. If that situation is allowed to continue unabated then the business is on a slippery slope to failure.
· “Cash is king” – if creditors are stretched the business will be receiving more calls for payments.
· Accounts showing losses are filed which could result in suppliers withdrawing credit facilities.
· Not paying HMRC on time and allowing VAT and PAYE arrears to pile up is one of the most common signs that a business could be hurtling towards insolvency.
· A business leaves the payment of an old invoice until it needs delivery of a new order of goods.
· Suppliers are sending increasing numbers of final demands and writs for unpaid invoices.
· Some businesses in trouble will instigate disputes over bills as a stalling mechanism to delay payment
· To avoid dealing with an existing supplier who is owed money, a company in dire financial straits will seek out new suppliers who will offer credit
· Diminishing sales are another obvious sign that all is not well and owner managers should be concerned if they have to slash margins and cut prices drastically to clinch a deal – perhaps because competitors are taking a bigger market share.
· Staff can be attuned to a company’s success or failure, so if key employees start handing in their notice then business owners need to be asking themselves why.
2014 could be a year for change with many businesses, let’s work together to eradicate the perception that ‘restructuring’ is a dirty word – instead let’s embrace it as a positive step and transform what people may perceive as a failure into a success.
Melanie Hird, Director, Seneca Partners Limited
As director of Seneca Investments (part of Seneca Partners Limited), Melanie sources and executes deals involving SMEs – managing an investment portfolio and investor relations together with driving the strategy for the businesses. Melanie co-founded Seneca in 2011 after a career in restructuring and turnaround markets that started at Ernst and Young at the age of just 17. Melanie joined Kroll – global leader in risk mitigation – in 2004 to focus on corporate assignments within the national and international markets – becoming the youngest member of its management team and the youngest person to gain an Insolvency License at that time.
