If your business is moving onto a downturn, you must act first to get back in the right direction. At that point, calling in a professional to help you with appropriate business rescue advice may be your best shot. But, before you do so, you should understand that three phases must be completed for successful business rescue. They include:
- Emergency phase – this focuses on ensuring the survival
- Stabilization phase – includes a comprehensive evaluation of any important changes required to achieve a good business.
- Growth phase – Focuses on securing the future of the business on solid foundations
The primary objects of each phase must be completed before moving on to the next one. That requires a clear understanding from everyone involved in the objectives of each stage. The rescue process aims to obtain a viable business that can survive and shouldn’t be confused with the insolvency process, which is focused on putting a company in the best shape to sell the assets and then liquidate it.
Before Giving A Business Rescue Advice:
Phase one of a business rescue is all about arresting decline and trying to save the company. The phase needs decisions to optimize survival and a complete concentration on becoming cash positive as fast as possible only by paying critical liabilities and suppliers.
It’s far easier to go through the phase with the assistance of a business rescue professional to look at the business objectively and help identify the essentials to obtain what indeed is a viable business, one that’s profitable and cash flow positive.
After the rescue adviser gets a detailed look at the business operation and the accounts to establish the essentials, he or she can then also create a proposal to ensure that there’s enough cash flow to handle the immediate situation in a manner that will let the business continue operating while a strategy is being set ready for the subsequent phase.
Depending on what the adviser will suggest stabilizing the situation, several tools can be utilized. However, there’s a chance that they will identify and prioritize those liabilities and suppliers that are important to put the business on a more secure footing to make it continue to function.
Illustration 1:
Suppose a business with a turnover of $3 million had integrated enterprise management software using a high-end IT system. This IT was developed around a big printer that did all the work and was linked to the bespoke software that integrated accounts, operations, customer management, and quoting. When everyone utilized it, the reports were perfect but the entire system required very costly software, hardware, and maintenance that cost $45000 every month, which translates to 15% of turnover.
The rescue adviser concluded that the monthly fee for all this was contributing to the business failure and proposed replacing the high-end system with an ordinary accounting package for three users and simple stand-alone hardware, a copier, and fax. The original server would be retained. While it’s meant to spend some little amount initially to purchase the equipment, the saving of $45000 per month would put the business in a stronger operating position.
Illustration 2:
Suppose your business utilizes materials, which are imported from India for its production. The materials are held up at the docks because the business has been paying other bills rather than paying the freight forwarder so that it can survive by having stock. In that case, paying the freight forwarder must be considered a priority.
Conclusion
Rescue advisors are part of the business team and even if some of the business rescue advice may appear unreasonable, one must remember that their interests are in ensuring the survival of the company. They are dedicated to ensuring that they give the best advice, which will save a business that might be on the verge of closing to go back on track.
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