Random Musings

Business rescue!

2007-01-22T12:15:00.000-08:00

What to do if it starts to go wrong?

According to Forbes magazine only 44% of new companies make it as far as their fourth birthday. Some business sectors – notably retail, personal services (for example hairdressers) and catering – have even higher failure rates.

Now no-one ever plans for a business to fail. We all set out our plans at launch with the expectation that – just like Del Boy – “this time next year, we’ll be millionaires!”. As a result that cold feeling as you realise that your business is struggling usually comes as something of a shock.

So what do you do when you tot up the figures and realise that you’re losing money? Here we’ll go through the five key survival strategies that can turn a failing business into a winner.

Strategy 1 - Cut costs

The simplest – and most obvious – step to saving a struggling business is to take control of expenditure. All businesses have two types of expenditure. They are Critical and Discretionary. Critical spend you cannot avoid. For example loan repayments, insurance premiums and the like. Discretionary spend however is expenditure where you – the business owner – can control the timing and size of the spend (and indeed if it happens at all).

Sit down with a couple of months of recent bank statements and go through them with a critical eye. For every single expense ask a series of questions. Was it necessary? Could we have gone without this item / spend? Could we have substituted something else for this spend (eg e-mail customers rather than hard copy mailshots). Learn lessons from the past and take control of your expenditure. Ensure that you have final sign off on all company spending and always look to either avoid the expense or minimise it.

When you have worked out your overall costs then you can use this as the basis for your projections and sales targets. Depending on your business keep a daily / weekly or monthly tally of costs and sales so that you can tell instantly where you are financially at any point. The more notice you have of problems the better equipped you will be to manage them.

Cutting costs also carries some simple rules for financial management. For example if a body of work that you have supplied involved an element of sub-contracting then pay the sub-contractor in full when your customer pays you. Don’t pay in advance and whatever you do don’t use the client payment to cover other over heads or running costs. This kind of financial segregation ensures that suppliers will be paid on time allowing you to maintain working relationships.

At all costs avoid “bouncing” cheques. Suppliers will accept (occasional) late payment but nothing shreds your credibility faster than items being returned unpaid. Suppliers will start insisting on payment in advance, which usually makes a difficult financial situation impossible.

Strategy 2 - Increase sales

Another obvious answer but most companies have sales resources that are underutilised when times are good. When times get tougher you need to ensure that everyone in the company – and especially you – is sales focussed.

Revisit you current clients. Are they all spending as much as they could be? Are there any add-on services you could sell them? Do they have other departments that could use your goods or services? Do they have other plants or related companies? The first sale is always the hardest so work on maximising your revenue per customer and exploit the goodwill that you have built up. Don’t be shy about asking for testimonials and references from your best customers as well – especially important to build credibility for new companies.

After this look at your ex-customers. Why did they stop buying from you? How can you win them back? Again do they have other departments or sites that you could approach?

When you have exhausted these avenues you can look at new business opportunities. This doesn’t just mean the usual round of cold calling. Are there any networking groups you haven’t joined? Are you making the most of the groups you are affiliated with? Is your promotional strategy working? How can you (cost effectively) raise your profile?

Remember that sales is a “numbers game”. The more potential customers you can make aware of you the more people will buy from you.

Strategy 3 - Be ruthless

Your business has one objective – to make money. Any barriers that prevent you making money must be removed as quickly as possible.

This means that you have to adopt a very selfish and ruthless attitude. Earlier we looked at how important it is to have an exact understanding of your costs and to regularly compare them to your income. If, for example, your projections don’t work with your current head count then you have to act and reduce your staffing levels now (not tomorrow or next week). Cutting back on staff hours and numbers is always difficult and unpleasant. Not cutting back and spending more than you can afford will be even more unpleasant…

Likewise you will need to work out a hierarchy of creditors. Obviously you have to pay everyone. However some bills are more important than others. Your critical spend items will always be paid first. After that will come any supplier whose continued goodwill is important to your business. If there is any money left over then it can be paid to occasional suppliers. This means that some debts will be paid before others which will affect your relationship with some creditors. Remember though that it is in everyone’s interest that your company survives. When you return to profitability you will pay all the bills but a bankrupt company can’t pay anyone.

This ruthlessness extends to your customers as well. Credit control is another of the unglamorous jobs that no-one likes to do. However there is no point doing the job if you’re not being paid for it! Companies don’t fail because of debts – they fail because they run out of money and can’t pay their debts. Many businesses have run out of money despite having full order books – they simply haven’t been able to get paid in time to keep up with their own suppliers. Make your credit terms clear at the point of purchase and re-state them on your invoice. As soon as you reach the payment limit (traditionally 30 days) start chasing and don’t stop until your bill has been paid.

Strategy 4 - Communicate

This leads us on to the next vitally important point. You must communicate openly and honestly with everyone as soon as you realise that your business is in difficulties.

This is another of those things that we all find easier to say than to do. And for good reason – a lot of the people you talk to aren’t going to want to hear what you have to say. The important thing to remember though is that people are a lot more uncomfortable when they don’t hear anything at all from someone who owes them money.

This is particularly important with your bank. Where possible have a meeting with your bank manager and outline the steps you are taking to cut costs and increase revenue. Show them your new cash flow projections and ask for their help. They may be able to restructure your debts in a manner that will free up liquidity and cash flow (for example by moving an overdraft into a term loan). Some lending officers have the power to suspend loan repayments for a period of time allowing you to trade your way out of difficulties. Keep in touch with your manager after this meeting and if there is further bad news then tell them in advance.

Likewise with creditors. If someone has extended 30 days credit to you and you are not in a position to pay then the least you can do is extend them the courtesy of a phone call. Being able to go in with a “qualified yes” rather than a “No” is often useful. For example it’s better to call and say “I can’t pay you the €1,000 I owe you this month but I can give you €250 a month from next month” rather than simply saying “I can’t pay you” (or worse just not paying).

Once you run past the credit terms creditors have a number of options open to them. You want them to be patient in the expectation of payment in full. However if a creditor feels that you are avoiding them or may not be able to pay in time then they can involve debt collection agencies or start legal proceedings. In these situations panic is contagious. The bank, your creditors your staff and your customers must all have confidence that you can sustain your business. This forms a spiral of confidence – if you and your staff believe then this transmits itself to customers and creditors. This confidence encourages them to be lenient. This gives you the breathing space to trade out of your difficulties. However if you don’t believe in your rescue plan the creditors will pick up on this and get nervous. They will start to apply pressure to you, restricting your room to manoeuvre and increasing your difficulties. It is vital that you are clear and confident in your dealings with everyone and that you stick to your promises (remember our “no bouncing cheques” rule!)

Strategy 5 -Have a contingency plan

As I said at the very start no-one plans for business failure. However if your company gets into trading difficulties then it is important that you look at all of the options. Talk to your accountant about your situation and your plans and ask them to give you an honest appraisal of your business. Talk to friends and family and gather their opinions. Look at how much you need to keep the business trading and compare that to your historical sales performance. Do you honestly believe that you can trade out of your difficulties?

When you are considering this it is important to disregard any investment to date. Look instead at the future costs of maintaining the business – are you throwing “good money after bad”. Also bear in mind the level of debt that you will be personally liable for regardless of the business succeeding or failing. If you are a sole trader then there is no distinction between you and the business. Effectively you are personally liable for every debt. If however you operate as a limited company then business debts are held within the business. Normal bank policy though is for you to personally guarantee any loans and overdrafts so you can’t simply close the company down and walk away. There may also be long term commitments on property leases. Balance all of these factors and try to make an impartial decision on the businesses viability.

These five strategies are not a silver bullet that is guaranteed to turn round a failing business. However by following them, working hard and staying calm, clear and focused you will greatly enhance your chances of success. Good luck!

About the author:

Andrew McDonagh is the Owner / Manager of Flexability, a training and consultancy company based in Limerick but with a national client base. Andrew is a trained facilitator and consultant who has helped a number of businesses address performance issues. Flexability offer both training and consultancy services and offer a free initial consultation to all potential clients. Contact us on info@flexability.ie

1975 Porsche 911 2.7

2006-08-15T02:11:00.000-07:00

What can you say about the 911 that hasn't already been said?!

Opinion on the Stuttgart icon is firmly divided into those who despise it and those who would sell their kith and kin to own (or even drive!) one. For some it typifies excess, conspicuous consumption and environmental disregard. For others it is the purest of sports cars and a supercar that you can use to drop the children to school in or do the weekly shopping.

The difficulty with icons - especially motoring icons - is that they tend to be expensive, unreliable or involve all sorts of compromise. While most car fans will admit to wanting a 911 few can afford the 100,000 or so that it costs to get behind the wheel of a new car boasting the badge voted "Most Prestigious" by top earners in a recent US poll.

The secret that a lot of us Porsche owners won't tell you is that you can get yourself a perfectly useable example for a tenth of that outlay!

My own car is a left hand drive 2.7 version built and registered in Germany in 1975. Black with chrome highlights it is from the "middle years" of 911 production. This means that it is after the popular and dainty chrome bumper models of the '60s but before the car morphed into a Ferrari eating yuppie chariot in the mid eighties. The models immediately prior to the 2.7 were equipped with the air cooled 2.4 "boxer" engine. This was bored to create a larger, more powerful engine in 1974 although this was replaced in 1977 with a larger 3.0 engine (and the basis for the first ever 911 Turbo) with the 911SC.

Why the fast replacement (no pun intended!)? Well the answer to that will tell you why you can get this model so cheaply... When Porsche increased the capacity of the engine they didn't adequately increase the cooling capacity so anywhere after 50,000 miles many new owners found their engines failing. In a marque known for bullet-proof reliability this was unacceptable and the SC was hurried out as a replacement. Buying a 2.7 will be more of a risk than the earlier models but if the car has reached it's 30th birthday you can be pretty sure that it has had the remedial work needed to bring the engine up to scratch. Things to check for are changed head studs, swaps to an 11 rather than 5 blade fan and changes to the oil circulation. While you are tooling about in the engine bay ask if the owner has had hydraulic timing chain tensioners fitted. In cars prior to 1984 if the timing chain wore out it would simply collapse causing all sorts of fun and games!

So what is it like to own and drive a classic Porsche? Well the first thing that strikes you is how driver and driving focussed the car is. Centre of the instrument binnacle is a huge rev counter with the spedo tucked to the right (and usually hidden by your right hand if you drive at "ten to two"). The floor mounted pedals are heavy - especially the clutch - but easy enough to use and you are unlikely to suffer the humiliation of stalling! Steering is unassisted and heavy at low speeds but lightens as you get moving. Indeed it is the steering that you will notice first in this car - it feels utterly alive, more like the reins of a horse than a steering wheel. Every tiny bump and camber of the road is transmitted back with faithful precision allowing you to be very precise with your steering inputs. This is of course helped by the short nose which is placed with ease by those headlights.

After the steering your next impression is of the noise - a chattering, burbling and spitting racket behind you that growls intently and at ever increasing pitch as you accelerate. The car feels like a force of nature - accelerate from any speed in any gear and you feel the forces, hear the noise, have the jittery steering and you feel as if you are hurtling towards the Carousel on the 'Ring at terminal velocity when in reality you're just going from 30 to 40 mph as you leave an urban area!

It is fast though. My car is clocked in kph and (in a secure area officer!) I have reached 150 kph at under 6,000 rpm in 3rd gear. Acceleration is brisk, even by modern traffic standards, with contemporary road tests indicating a 0 - 60mph time of around 8 seconds. The car can comfortably cruise at 120 - 130 kph (75 - 80 mph) with enough in reserve to blatt past that smug Mercedes...!

At this point someone pipes up with "All very well until you go backwards off a wet roundabout!" The infamous 911 handling question... The car is rear engined. This is great for traction, not so good for throwing round corners! In effect the weight at the rear can act to turn the car into a pendulum, swinging the back out and towards the horizon in more or less the opposite direction to the one you intend. This is NOT a good thing.

However - driven with a degree of respect - the middle year 911's can be tamed. Slow into corners, smooth inputs and whatever you do don't lift off half way round! Power down at the apex and you'll exploit the huge traction available to get away faster than you would if you dived in with heroic tyre scream and an unbalanced car. Be aware though that a light front means that the 911 will initially understeer. To an inexperienced driver this cues panic and they either lift off the power or - worse - hit the brakes. In both cases the back gets light, looses and breaks traction and you will become very aware of just how heavy an air cooled six can be as it pulls you towards an expensive panel repair job. Stay confident, keep your foot in and the car will reward you.

As for practicality... Well it's a 30 year old sports car!

Actually that is a little unfair. The boot space (in front) can swallow a surprising amount of kit and the rear seats can easily handle (small) children. I drove myself, my wife and two children from London to the Irish West Coast in mine in comfort and with all our luggage. And - just like in the first paragraph - it is used for the school run and I have even done the weekly shop in it. To date it has always started so yes, it can be practical.

Prices in the UK range from about £5,000 and up but be aware that it will cost more to run than a modern hatchback. Many countries offer tax breaks on classic cars and classic insurance will help keep running costs down. And remember that if you look after it then your 911 will not depreciate.

So if you need a second car for your family, or need a smallish runabout are you going to buy a second hand supermini or a car that can lay claim to being the best of them all