Daniel Booth, director at Leonard Curtis Business Solutions and restructuring expert, offers SMEs in the sector advice on how to approach and deal with difficult situations which could involve a recovery solution.
SMEs are the cornerstone of the UK economy. They represent over 99% of businesses, provide 60% of private sector jobs and account for almost 50% of all private sector turnover.
So the support and positive strategic advice we provide them is essential.
By knowing what to look out for – and what steps to then take – a business has more time to react. The longer it takes to acknowledge difficulties, the quicker they accelerate. Often, by the time debts are unable to be repaid, options are very limited.
Even at this stage, we must remember that that distress doesn’t mean disaster. It’s important to bear in mind that from time to time, we are all posed a question or faced with a situation that we don’t know the answer to.
Ask for help
We shouldn’t be afraid to ask for help as without it, we don’t – and often can’t – succeed. The number of British businesses collapsing hit a four-year high last year. One in every 330 fell into an insolvency process. A significant proportion of these could have been saved had issues been recognised and specialist advice sought earlier.
This data emerged just days after the downfall of construction giant Carillion – the UK’s biggest corporate failure in a decade – after announcing it was in trouble and losing money, with mounting debts, last July.
Confusion surrounding the insolvency process – and fear of repercussions from seeking advice from a corporate recovery professional – means that many owner managers often leave it too late to get help. There is a misperception that asking an Insolvency Practitioner (IP) for guidance will automatically lead to the closure of the business.
On the contrary, our priority – and that of all restructuring firms – is always to try to save it if possible. Where we are referred early enough, we can usually develop a practical strategy to put the company back on a steady footing.
It’s very easy for an owner-manager to fall into the “hoping for the best” trap whilst watching an ever-decreasing sales pipeline, a falling working capital number and a cost base that remains stubbornly high. The alternative is too awful to contemplate. Sadly, it is this reaction that is most likely to lead to the failure of their company. And even if a formal insolvency process becomes necessary, it doesn’t always mean the end of the road.
It can happen to the ‘big boys’
Only recently, Toys R Us and Maplin entered administration, reportedly putting over 5,000 jobs at risk. Their downfall is attributed to increased competition from online retail and the ongoing pressure faced on the High Street. Unfortunately, with limited options and time, failure was inevitable.
And not long ago, many thought Carillion was too big to fail and yet it went down with £2 billion of debts and a £900 million pension deficit.
So if it can happen to the big boys – Carillion employed 43,000 globally, including 20,000 in the UK and with contracts worth £1.7 billion – it can happen to the best of SMEs.
We often see SME owners diversifying their business activities as they feel this ‘de-risks’ and removes ‘eggs from the basket’. What we saw with Carillion was over-diversification – a business that started out digging holes expanded their operations to serve school lunches. Our advice is to keep it simple and do what you’re good at. As the saying goes, stick to the knitting.