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25.06.2003
By VIKKI BLAND
Asked if he can relate to the movie Pretty Woman, visiting
United States turnaround management guru David
Auchterlonie chuckles and says he can.
This calls for a fast explanation. In Pretty Woman, Richard Gere plays a
ruthless corporate raider who buys struggling companies for a song, takes
them apart and then sells off their pieces. However, after falling in love
with his pretty woman, played by Julia Roberts, Gere's character is
reformed and he decides to help struggling companies survive.
Auchterlonie, who has spent the past 15 years helping businesses reverse
their ill-fortune through turnaround management, likes that part.
As the term suggests, turnaround management (TAM) is the process of
employing managers with the skill to steer a business away from insolvency
and back towards growth and profitability. However, while TAM is a familiar
option for troubled businesses in the United States, South America and
Europe, awareness of its effectiveness and availability has to date been
muted in New Zealand.
Auchterlonie says international statistics suggest a number of liquidated,
insolvent or bailed-out New Zealand businesses would have been on the road
back to health by now had TAM services been employed in time.
For example, a January TrendWatch survey of United States businesses in
trouble conducted by the International Turnaround Management Organisation
found 58 per cent of 269 companies cited poor management as the main cause
of their crisis. Lesser reasons including faulty business models and
increased competition. Of the survey group, 169 companies, or 63 per cent,
were attempting a turnaround. The remainder were looking at selling up,
becoming insolvent or liquidating.
Auchterlonie says unnecessary liquidation is proportionately more common in
Commonwealth countries than in the United States and Europe.
"This is a pity, because TAM gives businesses revitalising opportunities
which may keep them away from insolvency."
Since 1986, Auchterlonie's US-based company, The Scotland Group, has turned
around 117 businesses in crisis, or, as Auchterlonie more delicately puts
it, businesses "which faced uncertain viability".
He says it is not crucial for TAM professionals to have knowledge of the
client's industry; TAM is an abstract process with five distinct stages.
The first of these is business analysis, which includes the examination of
yield management, capacity, the profitability of routes and pricing, and
the underlying cost structures of a company.
Auchterlonie says the next stage, board and constituent presentation, is a
crucial one: "By the time TAM suggestions are made at board level,
insolvency proceedings can be very close."
The third stage involves moving ineffective or process-impeding managers
out or aside, and initiating "emergency action".
"You are looking at anything you can do to generate positive cash flow. We
look at lowering the break-even point, restructuring debt, establishing new
performance indicators and setting up compensation programmes for
employees."
The final stages force cultural change to ensure the company delivers what
customers want, followed, hopefully, by a return to normal and a look at
growth opportunities. Auchterlonie estimates the five stages take an
average of three to six months to action within a medium-sized company.
But there must have been businesses The Scotland Group couldn't help,
surely.
In 15 years there have been three. Auchterlonie says those clients sought
help in the eleventh hour, their businesses found to be unsalvageable.
"Businesses need to look at turnaround management when they hit problems,
not wait until things get dire," he says.
Unfortunately, New Zealand businesses appear to be do-or-dire types.
Statistics from the New Zealand Insolvency and Trustee Service show 488
companies were put into liquidation by court order during the year ended
June 30, 2002.
This is an improvement on the 695 forced to close their doors in the 2001
year, but how many of those 488 now in liquidation could have been turned
around?
More than a few, asserts Bruce McCallum, director of financial specialist
and TAM firm McCallum Petterson, which sponsored Auchterlonie's trip.
"Quite often the chance to turn a business around is missed because the
interim manager isn't inclined, or trained, to look for opportunity," he
says.
Auchterlonie says if New Zealand is serious about business, it needs people
trained in business rehabilitation
While TAM professionals often train others on the job, formal training
takes the form of a Certified Turnaround Professional (CTP) qualification,
an international programme recently made available in New Zealand.
Its requirements are rigorous. On top of a nine-hour examination,
candidates must have a bachelor's degree or better, three years experience
in the turnaround management industry, and the endorsement of three TAM
peers and three TAM clients. To date, only 350 people worldwide have
acquired the certification - Auchterlonie is one of them. While these
requirements may be daunting for candidates, it's a reassuring mark of
quality for businesses that may need help in the future.
Says Auchterlonie: "We have entered a business era where there is an
abundance of complex business issues, an increasingly competitive
environment, and where global reach and global capital have changed the way
businesses perform and succeed."
Warning signs
Here are the indications that a company is at risk, according to financial
specialists McCallum Petterson:
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Poor delegation, dishonesty or fraud; ineffective boards of directors
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Too much diversification, making the business vulnerable to
competition
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Too much debt, not enough capital, over-extended credit, excessive fixed
assets and stock
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Poor lender relationships
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Lack of operating controls: inadequate reporting systems
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Unstable customer base: for example, the business relies on too few
customers
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Family issues affecting business judgement: for example, the death or
retirement of a company founder.
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Operating without a business plan
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