I’ve lived through two experiences over the last 12 months where delays by management to act has led to bigger problems and in one case a terminal situation. Out of respect for the people concerned I won’t divulge the names as in one instance it could lead to people losing their jobs.
The lesson is the need to act fast and early, not wait and hope things will get better.
In one case I was part of a consortium interested in acquiring an existing business and we devoted a great deal of time and energy in assessing the future potential and the implications. In the course of doing our homework it became very apparent that the current owners were running out of money and it was only a question of time before the business would become technically insolvent.
I arranged a lunch with the CEO of the parent company in February this year where we talked around the prospect of them selling the business and I tabled a potential deal. This was rebuffed and the CEO was bullish about their future. I pointed out some major liabilities down the track but he claimed they could trade out of them.
The timing was good because they had milestones of reporting ahead of them and it felt like a sensible strategy to flag their intentions before they came under pressure to act. However this was ignored, I paid for lunch and went off with my tail between my legs.
Some months later the parent company hired one of the big accountancy firms to put the business up for auction with a very short time scale; the reason was the predictable pressure from external sources including their bank.
This meant we were on the back foot, attempting to structure finance in too short a time scale, and without sufficient time to carry out due diligence. We did try very hard to do all of the necessary work but we ran out of time and withdrew from the race. Our business plan presented to potential investors flagged the forward liabilities, the cash required, a plan to improve the revenues and profitability but nobody was prepared to operate at the speed dictated by the vendor.
We wasted a great deal of time and money, the wasted time meant the vendor was faced with a distressed sale and at the time of writing no deal has been completed 10 months after the lunch. As I understand it the business is suffering, there is staff unrest, sales are down, and if the current proposed deal doesn’t complete then the business will have no choice but to close. It will be a great shame if this happens.
The point is obvious; act fast and be decisive. I’ve heard it said many times that some action is better than none. I understand as the owner of a business one will see the glass half full and be optimistic and believe better times are around the corner but if key metrics are put in place to measure progress the management can view life objectively.
When we (Simons Palmer) were in discussion with Omnicom about selling our business we took a hard look at our little group of businesses and decided to jettison two before we agreed the deal with the buyers. One was losing money and kept failing to hit key milestones and the other was in very early days of development. So the first we closed and the second we sold to the management team for £1. I’m delighted to say the second one went on to be successful and is now owned by WPP. However these decisions were correct for us at the time and avoided legacy issues that would have been major distractions when we had a bigger task of merging two advertising agencies plus integrating the subsidiaries.
My heartfelt advice is confront the issues fast, work out the gap between the downside and the upside and take action accordingly. Don’t wait for a miracle because they are elusive.
So if anyone is staring in to the crystal ball, worrying about what’s around the corner, act now, don’t wait and you will stand a much better chance of navigating your way around the icebergs.