Option #1 Turnaround the performance of your business
Some of our clients have successfully gone down this path.
It is a tough path but for some business owners, it is the only path.
They don’t want to die wondering and, they want to be seen by their stakeholders as having done everything they could to avoid insolvency. And, they want to pay their creditors in full.
The required outcome:
Whether it takes months or years, the outcome has to be that the business has generated sufficient surplus cash to pay all creditors so that it can continue to trade and pay its debts as and when they fall due.
What a turnaround requires:
- The 3 Cs – cash, capacity and capability.
- Cash is needed to effect a turnaround and keep creditors at bay. Cash can come from:
- Sale of surplus assets or sale of assets at full or close to full value.
- Unused debt facilities (eg undrawn overdraft).
- Cash injections from related parties or third parties – either debt or equity.
- The capacity of the management team and other resources to implement a turnaround. If you are flat-out running the business then chances are you will need some additional resources to assist you manage the turnaround process.
- The capability of the management team including a cool head under pressure and a high ethical and transparent stance when dealing with stakeholders.
- Energy and resourcefulness – this is not for the faint hearted, particularly if times are tough.
- A sustainably viable business model. This means that even if not now, at some future point in time the business will be able to generate profits and positive cashflow, sufficient to pay all freshly incurred debt as well as all overdue amounts owing to existing creditors.
- Agreed consensus on adopting the turnaround by the directors and shareholders.
What you do not want:
- Rarely are surprises good in a turnaround. More often than not, the ‘really bad news’ has not been dealt with and when it rises to the surface….. yuk!
- Insurmountable pressure from stakeholders.
- Pressure might arise from trade suppliers, the ATO, customers, employees or even management, directors or even shareholders. If this pressure is too high, then it can undo a turnaround very quickly.
- Putting others at risk.
- To rob Peter to pay Paul is not a good idea. For starters, Peter will get really annoyed and he may even pursue you to the corners of the earth if he has to if he feels you have not treated him fairly.
- Personal liability issues for the directors.
- We often say, you cannot change the past, but you can control your future. One thing you don’t want to do is increase the personal liability for directors and guarantors. However, their risk is clearly secondary to the risk of third parties.
If the risks are too high and/or the resources required to turn around the performance of the business are too scarce, then one of the other options may need to be considered.