The following article, written by Adrian Doble and Susan Moor, was published in Financial Worldwide Magazine.
What happens when a company hits a crisis and the future is in the hands of its stakeholders? What happens when the risk of failure becomes a reality? What should you do and how should you approach survival? Before we proceed we must first define what a stakeholder is. A stakeholder is any person with an interest in the business, for example: a bank, any existing creditor, a supplier, a trade credit insurer, an investor, the management team, employees, HM Revenue and Customs, The Pensions Regulator, or a landlord.
Any of these ‘stakeholders’ can significantly influence the direction in which your business now goes, even to the point of shutting the business down. Some will be more inclined than others to do so and some will want to support with penalty terms attached. Some will be spitting bullets; some will want your blood. Others will want to support you. They are all critical.
The key fact to realise is that, without support from all of these stakeholders, collectively or individually, your control of the situation is significantly weakened. You need to act fast and decisively. So what are the keys to success? Here are seven top tips to survival.
1. Understand cash management or find somebody who does – quickly.
Managing from a position of weakness requires prioritisation of creditors. In most healthy companies purchase ledger clerks pay the bills. In distressed companies those same people tend to pay those who shout loudest. This is wrong and you and fellow directors should remove this burden and share it collectively. Involve the people who have the supplier relationships and use this knowledge to create a list of priorities that support the cash flow forecast. Do not leave it to junior staff. Build a robust rolling 13 week cash flow forecast and you have something to base your discussions with stakeholders on. Why 13 weeks? It’s foreseeable and predictable and will support your discussions with your bank. Once you have a stable cash position you will find that the confidence levels of the bank and prioritised creditors rise immeasurably. Creation of ‘headroom’ in bank facilities will give you more time and your performance will improve too.
2. Continue to build trust through communication and never break a promise.
Sounds obvious? In a rescue, credibility is the greatest asset that anybody can have. So if you are going it alone make sure that you speak with your stakeholders regularly to keep them up to date in order to engender their trust and respect. A broken promise can mean the end. The stress of a rescue situation will mean that some people bury their heads but this is the wrong thing to do. Take the bull by the horns and confront the issues. Be seen to be positive and if you say that you will do something, do it and if you can’t do it – for whatever reason – go back to the stakeholder and realign their expectations. Never dodge the issues.
3. Understand the hidden stakeholder.
“Our suppliers are fantastic.” This is something that we hear all too frequently and then suddenly their attitude changes. One week you have the support of your suppliers and the next they “would love to help” but have had to cut the credit limit. This is more often than not because the trade credit insurers have cut the limits on your company. This often happens when accounts filings are late or requests for information are ignored and the consequences can be fatal. The way to avoid this happening is to open up early dialogue with the main trade credit insurers and ensure that they are kept in the loop. They will be very reasonable if you have a credible plan but ignore them at your peril. The other hidden stakeholder is the Pensions Regulator. If you have a defined benefit (final salary) pension scheme you should call your adviser now. You cannot restructure a company without approval and if you do so then you will run the risk of personal liability attaching to acts of wrongdoing. It is now law in the UK. You have been warned. If you want to know more about these hidden stakeholders please contact the writers direct.
4. Record the pros and cons of trading on.
On a daily or weekly basis take time out to write down the merits of continuing and the merits of stopping now. Sounds strange this one – not so – you will be all too aware of the perils of trading whilst insolvent and nobody will forgive you for losing more money for creditors by trading past the point of no return. So a short list of reasons for and against will help you and the board get things into perspective. A lawyer can help with this.
5. Set clear internal leadership priorities in the early stages of recovery.
Everybody from the receptionist to the chairman’s chauffeur will know all the answers, the right way and will be very keen to give you those ideas. It’s just that they will all have a different opinion based upon their own perceptions from their personal perspectives. Most times they will just restate the problem in a slightly different way. This top tip is very important. Just remember that if you are the leader who’s going to get your company out of this mess then only one opinion ultimately counts; yours. Democracy and crisis do not sit comfortably together. Publicise your priorities; everything within the scope of them is critical. Everything outside is superfluous. Respect the views of others but do not be swayed.
6. Avoid flippy-floppy strategy.
Stakeholders soon lose patience with a management team that one month proposes one thing and two months on changes direction. Worse still, your staff will communicate this to the outside world as a sign of uncertainty. Remember that a supplier or the bank will relate to what you told them when you last met. To hear different messages at a time when they are as worried as you about financial loss is very unnerving and might just lose you the initiative having done all the hard work above.
7. Finally, trust your instincts.
Sometimes you will be faced with a decision and in your heart you know the right answer, but your brain tells you otherwise. Who wins, brain or heart? Be strong and trust your intuition, draw on your experience and take the path that instinctively you will know is right.