Business rescue explained

Fin24
2014-05-15 19:13
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Cape Town - There are many signs of why businesses are in distress, from cash flow problems, bad relationships with creditors to declining profits.

Business owners cannot put their heads in the sand when faced with the prospect of liquidation and the threat of going under, with early intervention and the appropriate advice the business can be turned around, warns Louis van Niekerk, director of Business911.

"South African companies are slowly leaning more and more on business rescue practitioners or turnaround specialist for assistance," he said.

According to Stats SA there has been a decline in liquidation by 12.6%, a great portion of which can partly be attributed to the new legal framework that allows for business rescue.

"The method of growing awareness concerning business rescue and turnaround contributes to the sustainability of entrepreneurs, small to medium businesses as well as companies that have been established for a number of years," he said.

His concern is that management takes too long to identify, analyse and implement the changes needed to save a business in distress.

"This process can be daunting and directors do not set out to run a distressed or insolvent company so often they have no experience or knowledge on how to deal with the situations that arise," he said.

Business owners can now identify with the following metaphorical stages to assist them with making a diagnosis for when they are in trouble:

Stage 1 Businesses suffering from a "cold or flu"

- If a business has a cold or flu it most likely just needs some fresh
eyes, someone to point out obvious business shortcomings and set it on a path to recovery.

This usually involves some consulting, a little bit of re-engineering and then some execution. The odds are the business will soon thrive if action is taken decisively and without hesitation.

Stage 2 Businesses with "pneumonia" to some degree

- A business already in pneumonia is heading for trouble. It will in
all probability survive, however, it will most likely have to engage a turnaround director to steady operations and turn the business toward profitability and positive cash flow.

There is little time to spare for the business as any further set-back may render the situation hopeless.

Fortunately, most businesses in this state have a positive prognosis as they still have resources to apply toward the change required to turn the business around.

Stage 3 Businesses that are in a "coma"

- When a business is in a coma, things are a little bit more serious
and in many cases have no option but to file for business rescue or face liquidation.

Many businesses that file for business rescue actually survive and prosper, but quick and decisive actions are required.

The reality of this situation is serious since normally there are wolves at the door and most likely creditors considering liquidation.

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