Debt Restructuring, Corporate Turnaround Or Shutdown ... What Takes A Company To That Juncture ?
With the evolving global business arena from the traditional brick & mortar form to the wireless and securely unsecured form, the world's economy is undergoing a drastic metamorphosis. From a company that sold a tangible product and once ruled the world because of the highest headcount nearing shutdown, to a company with 55 employees being sold for US$ 19 billion ... We're seeing it all !!!!
There has been a complete turnaround in the marketplace since I first dreamt of becoming a management consultant back in the first decade of 2000's to when I actually become one in 2014 ... Times have changed !! Thankfully or not, due to the current economic condition worldwide, I have had a chance to work with several clients who seek advisory not in the usual process management but rather, in the challenging sectors of debt restructuring and corporate turnaround. On one hand, the need of a corporate turnaround could be seen as just another business that wasn't working out due to the market conditions that adversely affected it or probably due to another alternative that owned less itself but gave more to the customer. However, on the other hand, when you actually get down in the battlefield, you realize that a business kills itself more than being killed by external forces.
By now, I am sure you must be wondering "why would someone be self-destructive or probably feed on itself to ultimately result in its own demise ?" ... Reiterating the title of this article, Debt Restructuring, Corporate Turnaround Or Shutdown ... What Takes A Company To That Juncture ?, Read further to know ... Each reason is complementary to the other and cannot be read or construed in isolation as the only problem or solution, whatsoever.
Reason 1 :"If something is to grow, is to change"
Quite rightly said by some visionary who saw what the future had for the businesses ... Several companies, with the fear of failing, fail to evolve with the changing times and consumer demands and prefer hanging on to the traditional forms and practices of business and ultimately, all it does is damages itself !! Nokia's CEO Steve Ballmer had broken down in while saying his speech and quoted "We didn't do anything wrong but somehow, we lost". Who would think that once a giant would reach such a juncture in its company history.Why ?Because it fell back in competing with the ongoing rage of smartphones. From physical markets to online marketplaces, from road signboard to handheld navigation devices, from petrol and clutch controlled cars to battery-operated and driverless vehicles, its all changing !!
Reason 2 : "Expand When Bullish (Hot), Contract When Bearish (Cold) ... Thus, abide by the laws of nature"
The above is nothing but a middle school teaching as a part of the science subject but is it just applicable to doors and wires that expand during summers and contract during winters ? I don't think so !!
When the market goes south or when the number of players increase, businesses often face a problem of plummeting sales but that’s not where the real problem lies... Businesses, in reality, do not tend to make their operating costs adaptive to the sales and thereby resulting in the increase between the gap of falling sales and similar to increasing costs ultimately resulting in a loss !!
A business must be like a balloon, inject and expand during a favorable upturn and release and contract during a tightening economy.
Reason 3 : "Focus On Your Core"
Expansion, diversification, or whatever you call it, definitely signifies progress and growth. But however, sometime in the pursuit of catching up with your competitors, business owners fail to recognize what they're known for or what they're best at and explore avenues that sometimes do not complement their core line of business. Of course, if one has the bandwidth monetarily as well operationally to enter into completely different lines of business, there's no harm in taking the risk as 'no risk, no gain' ...
However, where businesses falter is that they tend to focus completely in developing the new business venture and take the core business for granted as something that would run itself to survive without any additional time and effort. Eventually, a business suffers from overall cash flow crunches due to extensive diversification, operational clumsiness, increasing recruitment and manpower expenses and most importantly, leadership shortfalls.
Therefore, whenever a business owner intends to expand into a tangent vertical, it must be backed with a strong business plan with an industry expert business head who would be accountable for the success of the business.
Reason 4 : "Financial Mismanagement & Capital Injection"
I personally dealt with some oil companies in the recent times who had to undergo debt restructuring and financial remodeling. One would simply think that if the oil industry suffered due to the fall in price, how can an oil refiner or trader be spared ?
Well, fall in the oil prices was definitely one of the key reasons but another reason was flawed financial management. To start with, the business deals were not hedged and to add to it, short-term working capital facilities granted by banks were applied towards long-term assets, partly for business purposes and majorly too add to the personal net worth of the business owner. Moreover, the personal assets were outside the country from where the funds were raised. When the market crashed, hell broke loose !! This takes a business to the vicious cycle of debt trap and ultimately, its the business owner who has to pay for it all ...
There is no harm in using business profits for building ones personal net worth as that’s what a business owner aims for, but, managing the extent of withdrawing such profits and ascertaining the nature of external funding is very crucial for the survival of a business when market conditions are detrimental.
A related issue to finances is cash injection. In lot of businesses where cash is the commodity, injecting or pumping capital becomes inevitable for the survival of the business. Keeping aside cases where they genuinely do not have the sources of funds, business owners often tend to de-recognize this fact and hold on from injecting money, even when they can, in the business with the fear of losing. This at times proves beneficial as the business tends to adapt itself to operative in the finite circle but in most cases, this is the start of the downturn for businesses ...
Reason 5 : "Follow the human life cycle ... Growth, handover, monitor then go"
With young entrepreneurs ruling the world with innovative businesses, the age old saying of "I'm not old enough to know and do that" is gradually changing to "I'm not young enough to know or do that". Yet, a human mindset is something that takes ages to change and not surprisingly, business owners often believe that the older their team, the better it is !!
In todays era, even water has an expiry date so why not an employee ? Without generalizing, some businesses tend to hold on to older employees for far to long until they start burning out due to the monotony ... As a result, motivation levels drop, new employees soon becoming a part of the older crowd and innovation comes to a standstill !!
Millennial's are wanderers ... they (in fact it should be 'We') look for change ... changes in the environment, places, companies, professions, cars, et cetera. Consequently, business owners must focus on having rotations wherein, employees are brought in, trained, grown to lead, then advice the leader and finally, retire !! The retirement need not necessarily be leaving the company but could be shifting to a new division or new geographical location to undergo the entire cycle again.
Reason 6 : "Its not always about making a profit"
Profits are definitely vital to any and every business ... As Steve Jobs rightly said "If you keep your eye on profit, you're going to skimp on the product. But if you focus on making really great products, then the profits will follow".
Unlike the 1950's, today’s businesses are not just about making profits regardless of what the outcome. Giants like Amazon, Uber& Facebook don't make profit but their value is far above a dreamy billion dollars. Why ? Because such companies aim at imparting value rather than focusing on making money ...
Businesses at times rely a lot on reviewing the profit margins and strategies to increase it but fails, to consider the cut-throat price war and increasing customer knowledge about the quality and utility of products. While a business may focus on strategies on increasing profits such as higher margins, lower quality of output, etc. there would be other businesses focusing on having lower margins but giving consumers more innovative and cost-effective solutions that go beyond the traditional practices of providing just what’s been paid for.
In a nutshell, one cannot entirely blame a retail store owner who sold the best at an optimal price having to shut most of its outlets because of e-commerce taking over. Such is life ... evolve or dissolve ...
The above six reasons cannot be considered as the only 6 but rather, are some of the key reasons from my experience that take businesses to the juncture of having to seek external advice for turning around the business.
While some businesses ultimately come on track, there are others that continue to dying maybe slowly, but steadily ...
That’s all folks !!
Disclaimer:
The views and opinions expressed on this blog are generic and not of Ritman. The author or Ritman do not take any responsibility for any views expressed here, which might be offensive to any person, community, religion or any organization of the society.
About The Author : Sagar P. Chandiramani
After graduating with a BA in accountancy and finance from Heriot-Watt University in Edinburgh, Sagar gained accreditation from the Institute of Chartered Accountants of India. Accumulating years of experience in the auditing and management consulting sector, he brings rich expertise in business process re-engineering, financial modelling, restructuring and auditing.
Apart from his professional endeavors, Sagar is an active blogger on youth related issues and technical subjects that revolve around his professional practice.
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