Tom Booth - business recovery; Losses eliminated, Profits restored, Banks placated, Dragons slain, Arguments settled, Wars won

Leicester, United Kingdom

Investment Management

Doing the same thing you have always done and expecting a different outcome is one definition of insanity. Stand still and the market will walk on by.

If you have no debt in your business then you are an endangered species. Most businesses today hold debt on their balance sheet in the form of shareholders or overdraft or other forms of business loan. Once on board - these investors can sometimes try to get in the front seat with you; sometimes competing for the driving seat. They want you to consistently and to plan; add value to your business. Should performance decline - they want to know why and what you're going to do about it. This takes the form of planning, execution and review - and it is no time for shocks, surprises or under performance. Re-tune your business to take account of the change in fortunes. Stick to the tune.

It is irrelevant how large or small your business is Management accounts are just an opinion. your balance sheet and ultimately your cash at bank are the only real measure of business fortune. Insolvency can rush over the horizon at the unwary - get to a point where you can see that you will soon be out of cash, where your balance sheet won't allow for any further cash to be generated from the sale of assets (e.g. net liabilities) and you are probably insolvent. If so, your Directors duties, under the law, demand that you take certain actions immediately. Approaching this point, many owners/MD's and CEO's (often including FD's) realise only too late that different experience, skill sets and knowledge are required to turnaround or repair a previously successful business. These skills and this knowledge usually don't exist in the entrepreneur/manager who created it. This applies especially if an insolvent solution proves to be the only remedy.

Over time, if the company doesn't go under beforehand; the balance sheet can become leveraged, operations unviable, trading impaired and suddenly investor relations come under extreme pressure.

A 4% fall in sales, in a 2% ROS business, all things being equal, will eliminate any possibility of PBT in the black. This environment fosters cash burn, total value erosion and a loss of confidence in management as seen by the investor. If accounts are only presented outside the business annually or at best half yearly, sometimes the only clue to serious business malfunction is exceeding the overdraft facility. Breach of bank covenants such as this will result in the account being referred to corporate risk inside the bank and at this point all the rules change. About now, the Bank may seize control of the business either arms length or formally, in order to increase the chance of seeing their investment returned.

In such circumstances trust and confidence have evaporated. The control of the business effectively transfers to the investor. We are witnessing right now just how easy it is to increase cost and investment in support of more and more profit versus how extremely difficult it can be to pull back those excesses once fortunes change. On a macro economic scale we only need look to Greece, Ireland, Portugal, Spain and even the USA and UK to see living examples of the turmoil this creates.

Have you considered what would happen in your business if sales fell 10% or margins dropped 10% or both?

To maintain your informal licence to operate from your investor or shareholder - you must immediately restore confidence with a plausible and well thought out change and recovery plan. You must also be able to implement the plan faultlessly to a n agreed time line and meet regular way points. This is a specialist field where experience of change management and business recovery, together with a quality track record can make all the difference to whether a business is even considered a candidate for recovery.

Case history's - from a small sample of actual examples of household names;

Lookers, Perrys, Polar, RBS, Stirling Investments , Endless LLP , Interim Partners, Black Horse , Brownhills

Check out our hints and tips here, including business recovery tactics

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