Thought Piece

Even in the trickiest of situations — business owners have more options than they realise. In two cases I have worked with recently, company owners have been on the verge of doing deals which would have severely undervalued their true worth.

In one case, the company faced a business environment shock that undermined the future of their entire sector. Worried that the business could not outlast such an event, the directors decided a sale was the best option. This led them to entertain offers that were far lower than the value they knew was in their business.

In another, the directors, exhausted from months and months of responding to evolving changes in business conditions and cash dehydration, saw their options dwindle. Worse still, their energy to battle on, ran thin. Typically, once the idea of a sale comes up, the range of options goes down.

It's at exactly this point, we have discovered, it's important to introduce a new energy for discovering alternatives and to take concerted action that ensures that the business sells for a price commensurate to it's true value, if eventually, a sale actually takes place.

In both cases, action was taken to stabilise the immediate financial situation and give the business owners the breathing space to step back and reconsider the value of the offer they were being made. It's this focus on concrete back office finance work that releases the company's directors from attending to short-term financial needs and goals, to working on executing commercial strategy — precisely their area of strength and expertise.

Both companies enjoyed a better than hoped for outcome. The first renegotiated markedly improved sale terms: while the second decided against selling altogether. This proved to be an equally sound commercial decision. Working itself out of its cash crisis, it reached a place where it was more than ready to prosper again.

Banks are not charities. But they do calculate the lifetime value of the customer and they understand the reputational risk to themselves of the slash and burn exercises they are sometimes accused of.

That brings us to the role of the banks, so often the largest creditor and certainly the one with the most intimate knowledge of how a company is faring. We all love a stereotype and the heartless, faceless bank pulling the plug on sound businesses over a minor blip sits deep in the business consciousness. But not all banks fit this caricature. "We want to work with management of a business facing difficulties to help identify the issues and provide solutions to get them back on track," says a senior manager with a leading retail bank. "We can make the most impact when the problems are identified early. We are keen for management to be open with us."

Banks are not charities. But they do calculate the lifetime value of the customer and they understand the reputational risk to themselves of the slash and burn exercises they are sometimes accused of. Most solutions to business difficulties involve access to more funds and/or different products (hedging, leasing, factoring) and that all adds up to continued and profitable involvement for the bank.

A Repositioning Turnaround may mean divestment of a troublesome subsidiary. It may mean embarking on (yet another) cost-cutting exercise, including turning away revenue opportunities if they are not of a sufficiently high margin. It most certainly involves a first step of getting an impartial and pragmatic overview of what the problem actually is, from Turnaround Professionals who also know the kind of language with which to talk to banks. The moment you take this kind of decisive action, you're likely to discover that there's no crisis, no drama, only urgent action that must start now.

Peter Charles 2010