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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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