When Plan B means Surivival
When Plan B means Surivival
TABLE OF CONTENTS
In this article, we provide a solution for those advisors whose clients may be facing the threat of insolvency.
As with most solutions, the following advice is critical:
BEFORE PLAN B – THE STRUGGLE FOR SURVIVAL
Having just finished reading Bill Bryson’s excellent book, ‘A Short History of Nearly Everything’, it is clear that just to exist is tantamount to success. To grow, to develop, to transform oneself into something better is a feat of incredible wonder. To those of you who are doing just that – congratulations – and may life continue to give you all the success you deserve.
What is also clear from Bill’s book is that every living thing is in a state of struggle to survive.
Does this also apply to your business? We think so. In fact, in many ways, a business is a living thing, made up of lots of people, complex structures – all with a focus on survival.
Part of the challenge to survive is to recognise that everything has its ups and downs. Nothing stays the same forever. Those who try and stick by the oft quoted principle of ‘if it ain’t broke, don’t fix it’ are often unwittingly in a state of denial.
Change is always out there and to do nothing because everything seems ok is to invite failure to knock on your door.
Sometimes things just ‘go wrong’ despite your best intentions. Every owner and manager of every business has the challenge of identifying where in the cycle are their products, their customers, their suppliers, their business and themselves.
Sometimes even the most prepared businessperson will get this wrong. In our fast changing global economy, factors that can impact the viability of your business can sometimes appear to change overnight. Think of the recent spike in oil prices, a currency change or the growth of the Asian economy (what happens if it slows down?).
Those business owners that stay on top of the process of change and even anticipate change will, however, have a higher probability of avoiding failure.
UNDERSTANDING BUSINESS FAILURE
Business failure does not have to be catastrophic and it does not have to completely destroy all around it. But it will involve either an explicit or implied understanding that the old business strategy has failed, either in part or in full. Some examples of both implied and explicit business failure are:
Scenarios #1 and #2 can often be a good thing for those stakeholders that remain – the employees, the customers and the suppliers. With new capital and/or new management, the business can re-invent itself or take itself into previously uncharted waters, growing and providing opportunities for these stakeholders.
Where business failure is heading towards Scenario #3, however, the cost of failure can be very high for the business and its stakeholders (employees, suppliers, customers, shareholders and directors) if avoidance action is not taken before hitting the brick wall of liquidation.
There is no doubt that a liquidation will give every stakeholder involved in the business the worst result. Liquidation is an end game. Assets are sold and divvied up amongst creditors. There is no continuity of either the company or the business.
Sometimes, due to circumstances this is, unfortunately, the only possible outcome – but it does not have to be this way. Sometimes an advisor will see the warning signs and suggest an alternative to liquidation. This is called the process of voluntary administration. In giving their advice, these advisors have gone down the right path but they have yet to reach the Holy Grail – Plan B.
AVOIDING SCENARIO #3 BY IMPLEMENTING PLAN B AND REACHING THE HOLY GRAIL
Putting a company into voluntary administration is Step 1 in the process towards the Holy Grail. This is a process governed by the Corporations Act and is designed to allow a company or its business the opportunity to survive.
However, too many times, the plan stalls at Step 1. Why? To answer this we must thank a wise man who once devised the 6 P’s – Prior Proper Planning Prevents Poor Performance (the one I learnt had a 7th P to enforce the concept of ‘Poor’ but this is a clean website for families so I shall leave the 7th P out!).
Lack of planning in the voluntary administration process inevitably results in two negative outcomes: first, the costs of the process are very high and second, the prospect of a successful outcome is less likely (often due to the higher costs and the delays in the administrator getting to grip with all the complex business issues).
There has to be a better way and there is – we call it Plan B. Plan B is the art of corporate reconstruction.
Keeping the law on your side, you can work through a restructuring plan that can assist your business in its transformation. You can retain your business and develop a plan to continue the fight for survival and ultimate success. Bill Bryson would be proud of you!
Plan B works really well if:
PLANNING IS THE KEY TO THE SUCCESS OF PLAN B
The planning process has to encompass the following:
Most stakeholders will not be happy when first confronted by Plan B. However, our experience is that when faced with the alternative financial result of a forced sale liquidation, most stakeholders will work with Plan B – as long as it is soundly based and has prospects for success.
Implementation of Plan B is the final step. This takes time, patience, courage, consistency, diligence, adaptability to embrace change and communication and involvement of the key stakeholders. Bill Bryson should add an extra chapter to his tome on this very issue!
THE KEY STEPS TO A SUCCESSFUL PLAN B