Finding the recovery position
When a company finds itself on the brink, what tends to push it over the edge? A recent symposium held by Armida Business Recovery, an Insolvency firm based in East Sussex, identified the causes and considered whether the Enterprise Act is going to have much of an impact.Fiona Monson, partner of Armida Business Recovery highlighted one of the key business failings.
"Whilst directors are good at the work they do, which is why they set-up in business in the first place, they tend to be poor at financial management." It is this poor financial management that provokes the most concern amongst the financial sector but a close second is the reluctance of business managers to seek advice and support at an earlier stage. One of the key findings was the lack of business planning with less then one in ten of failed businesses able to produce a business plan. "Perhaps there is a need to review how businesses are set-up, for example encouraging directors to undertake some basic training to demonstrate they have the ability and experience to direct a business," commented Fiona who has been specialising in insolvency since 1990. "In Germany, they operate a scheme whereby an owner-manager who achieves a certificate in financial management is rewarded with a lower rate of interest. In the UK, a local builder can wander into his accountant for his year end accounts and walks out the director of a company!" added Mark Spofforth of Spofforth's. Without doubt, improvements in the "education" of business managers will lead to an earlier identification of problems, particularly if the business has a close relationship with their advisors, a view shared by the Chairman of the symposium, Paul Winder. "We are moving towards a business culture where ongoing learning and support is becoming the norm. Unfortunately it appears to be only the enlightened few who are taking on these opportunities. Business managers must learn to communicate earlier with their advisors. Not knowing who to turn to can be an issue, but the fear of failure and a perceived stigma attached to personal and corporate insolvency is more likely to cause delay." The personal nature of insolvency is an obvious cause for concern, but whilst the Enterprise Act will remove some of the stigma and penalties attached to insolvency, there is a real fear that the Act does little to help the next generation of entrepreneurs. Already a situation exists whereby a company can go into a voluntary arrangement, but sadly it appears then many of the business managers learn nothing from their previous mistakes. Jeff Longhurst, Chief Executive of Independent Growth Finances was concerned that there isn't enough blame put on serial insolvency directors. "As a prospective lender, I want to know if directors have learnt from their mistakes or whether they are just bad managers. We need to see evidence of personal as well as business turnaround. Let's be honest, we are still seeing good solid companies being undercut by those which will trade for a short time at a low price then liquidate the company and set up again in a new guise." The general feeling amongst the symposium was that whilst the stigma and costs associated with insolvency will reduce, it was still a question of education and advice. The old adage "a company that fails to plan, plans to fail" is still true and it is unlikely that the Enterprise Act will change that. The Business Recovery and Insolvency Symposium was sponsored by Armida Business Recovery. The full contents of the debate are published by "Decision" in a yearbook that also includes an index of related business failures. For a copy of the yearbook, please contact Yvette Beckett on 01825 765077 or by email or visit the website.
Date:17 March 2004
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