08/03/11

By Robert Wildmore, Managing Director of DASPV

For anyone involved in the world of business it would be very easy to become despondent looking at the current economic climate - the situation undoubtedly exacerbated by reports in the media and recent suggestions that insolvencies are set to rise by 10% in 2011. The tightening of credit, job cuts, rising unemployment and the VAT increase, in conjunction with reports of higher inflation, mean the economic recovery may still be some way off. However, recovery is achievable and will be lead by a vanguard of confident businesses and entrepreneurs who can provide the best products and services to the right markets. The road to recovery will also offer savvy investors a chance to be part of rebuilding the wider economy whilst realising their own opportunities and aspirations in the process.

The demand for the right products and services at the right price will always be high but companies must operate efficiently and profitably to survive and flourish. Unfortunately mismanagement and the onset of adverse market conditions can combine to push once successful businesses into decline. The directors and decision makers may have become ineffectual, unable to find a resolution and unaware that the same level of thinking that created, or did not avoid the problems, cannot fix them.

The demise of a once thriving but now failing business is fortunately rarely a fait accompli. However, rapid action is required and possibly the advice and guidance of experts who have successfully piloted recovery before. Sometimes the best people to help a business turnaround are professionals who have seen the demise of a business first hand and have learnt from the mistakes it highlighted.

Naturally every business has its own strengths and weaknesses. However a number of key areas regularly spring up when analysed by professional trouble-shooters, such as reporting mechanisms, which can easily be mismanaged. Without the right metrics, decision makers will struggle to promote successful business practises and rectify failing ones. Managing a company without adequate reporting mechanisms is a bit like flying an aeroplane without an instrument control panel — fine when its clear, but potentially a disaster in bad visibility. If the company’s management is making decisions based on old or inaccurate information, it can easily head in the wrong direction. Limited or inaccurate reporting is potentially even more damaging as it can lead to a false sense of security.

Fully understanding the business, its aims and relationships with customers, suppliers and even between internal departments is key in getting to grips with its problems. For example, customers are the lifeblood of a business, yet if they are not paying properly for the services or products supplied, they drain resources and become an obstacle to restoring the right profit streams. Similarly a supplier that gives poor value for money or regularly over-promises and under-delivers will have a knock-on effect on the declining business. Internal problems that lead to delays or inefficiencies are just as common and need to be addressed.

It’s easy not to recognise the expertise and knowledge that the incumbent management and the main team of employees have. Just because a company has fallen into decline does not mean the team behind it are universally to blame. Often the original founders or long-term members of staff will have key roles in which they may have mostly been highly successful. Experienced business recovery specialists recognise that a company and its former success is down to the team as much as its services or products. Knowing which parts of the business need to be replaced or streamlined and what needs to be preserved is essential. Equally, having a good relationship with the company’s team and motivating employees leads to better trust and understanding, and helps to put the company back on a even keel.

In many instances the relationship that the founders and managers have with the business will be similar to a marriage, and just as that can hit rocky times, so do the individuals’ own relationships with the business. Bringing despondent Management and staff back out of their depressed and fearful state and helping them to focus clearly on the task in hand and recognising their ongoing efforts, creates a completely different atmosphere. Motivating individuals to give a little extra effort at a crucial time goes a really long way in turning the business around.

Rapidly bringing in outside help to assist the business recovery has several advantages. As well as providing specific, experienced help, fresh sets of eyes can objectively look at the problems and opportunities. External business turnaround specialists have no political agenda or other obligations to family members, clients or obstructive players to colour the decision-making process needed to ensure a strong future for the company. Because the business recovery team has a vested interest in ensuring success (through personal investment, both reputational and often financial) it will rapidly take the necessary steps to ensure the company’s survival and renaissance, away from what otherwise would have been certain corporate failure.

Successful business turnaround undoubtedly benefits the subject company and its employees, fuelling the recovery of the struggling wider economy. It also gives investors the chance to be a part of the process, funding businesses that deserve a second chance. With the right management and professional expertise the company can then be profitable again, ready to be sold on as a lucrative ongoing investment for others to grow further.

Whilst the economy is undoubtedly still finding its feet, the much-anticipated ‘green shoots of recovery’ are most certainly making a timely appearance. What the recession, and the tough economic conditions that followed, have shown is that the business world should never be complacent. Whilst a downturn in spending makes earning a profit more of a challenge, it also highlights any weaknesses, and polarizes companies that run efficiently from those which have let things slip. Business recovery experts aim to remove these weaknesses, build on the team’s strengths and help them find their feet again, keeping them fully employed and productive which is good for us all.