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Straight Talk

Business rescue using voluntary administration

Business using Voluntary Administration

We saved four businesses last year. A plumber in Napier, a retailer in Havelock North, an engineering firm in Auckland and a mechanical engineering firm in Fiji. All businesses were facing liquidation, but all now have a solid future. There is still more work to be done but at least they’re on their way and have avoided the risk of liquidation.

It isn’t magic but it sure feels like it when you’ve saved a business for the owners, the creditors and the community it deals in. One of the most gratifying for me, in last year’s achievement, was the ladies dresswear shop in Havelock North. This business has a long history in the area, but absent management had ground its reserves down to dust. A late stage employee showed all the hallmarks of a sound business person and the business was transferred to her and is now flourishing.

Every business and its difficulties are unique. The goal of Voluntary Administration is to avoid liquidation if it is possible to do so. Our objective is to work alongside the Directors to find the problems and to solve them so that the business can start it rehabilitation. It’s not an easy thing to achieve but worth every bit of effort when the business is saved.

Voluntary Administration

Voluntary Administration is a legal model that has as its central purpose the objective of providing a stressed, but viable business, with the means to rehabilitate itself wherever possible as an alternative to liquidation. BWA Insolvency Limited specialises in the field of business rehabilitation through voluntary Administration and has achieved a nationwide reputation for the results earned.

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Straight Talk

Where’s the flywheel?

Where’s the flywheel?

STRAIGHT TALK NO. 2

Energy is imposed upon an object to transform it or create motion in respect of it. Lighting a match, moving a weight or climbing a hill all require energy and are imposed for a purpose of changing state, shape or direction to someone or something. Mostly, when that igniting energy stops so too does the change. But not always! For centuries developers have used the mechanical benefits of a flywheel to efficiently store and distribute energy. It serves to smooth, store and amplify the energy derived from the source that created its rotation.

In contrast, a company is a creature of statute and lifeless without the driving impetus of its Directors. It will lie inert unless its Directors cause activity to take place and return to dormancy when the activity stops.

Although it is accepted that the company cannot act by itself and that its energy must come from the Directors, I do not accept that the company’s energy is Director based alone. Consider as an example the circumstances where the law observes that a company has committed a crime or become negligent. The causation of those events will certainly be Director based but the energy that prosecutes them will be external to the Company.

In the same way, whether desirable or not, what the company does through its Directors creates the existence of an impression that, in varying degrees, repels or attracts. This is residual consumer energy and is framed by the breadth and depth of recognition in the marketplace, valued by the degree of acceptance and measured by the volume of sales commitments that surface.

Drawing a parallel between the phenomena of a flywheel and marketplace acceptance of the company’s behaviour is perhaps an odd one to make but consider for moment how the attributes of both are aligned. The efficient flywheel delivers its energy product smoothly, stores energy from its source for later and creates more energy than is used to rotate it. Customers perception of the company will be based in the friction around its delivery, the afterglow of that delivery and the value provided for their cost incurred.

Every company has a flywheel, it’s size, shape and latent energy is what distinguishes it from any other. It isn’t a constant and is as capable of change as time and resources are available. Furthermore, it’s not even complex! When you consider that people buy from people and in that context, it’s no different to the interest, or not, that one person has for another. What makes a company attractive is how the Directors weave into the commercial activity those things that customers appreciate and value.

Below are five simple hints that will make a difference.

  • Know the good or service that you provide and the value of it. No one cares how good you think you are or that you have been in business for a very long time. Customer interest is self-interest, as it ought to be. The value that you can deliver to them is what will be top of their mind.
  • Understand your customers perception of value. Get to truly and completely understand what your customer wants and make your offering match. Ignore the selling tricks and luring processes. Bi-benefit sales occur when there has been a meeting of the minds and not before it.
  • Make deliverable promises. Define your value and reduce it into words that communicate. This will not be as easy to achieve as it is to say but the more you search out and describe the value profile the more likely you are to reach a reconciliation of thought with your customers. When done, make promises about that value and then unswervingly deliver against them.
  • Learn how to communicate and do so politely with good commercial manners. Go to great lengths to be respectful. Consider that attraction is a manifestation of will to be near. Nothing acts as a better repellent than sloppy, aggressive, self-indulgent or dogmatic communication.
  • Build a team.Engage like-minded people that willingly embrace the ethos of the company that you lead. It is unreasonable to expect them to be a contributor to the same extent that you are but they can, and should, be wedded to your purpose within the scope of their employment.

Marketers often talk about the brand of the company but it is the branding of our actions that causes the company to gain a life of its own. When you turn the lights out at night you want a positive flywheel energy to remain and that is determined by what you do!

Bryan Williams
Business Director – BWA Insolvency Ltd.

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Straight Talk

Don’t cut cost – cut waste: the beneficial impact of cutting waste

Don’t cut cost – cut waste: the beneficial impact of cutting waste

STRAIGHT TALK NO 1

The basic requirement of a Director is to cause sales to occur; meet expenses while doing so, pay tax on the net result and send the remainder off to the shareholders.

This simple model captures all the activity involved in your business. More often than not the profit outcome is related to the quantity of good decisions that were made over the bad ones. Each decision has a cost to it and that cost will either enhance profit potential or contribute to loss. Business is a combination of process and decisions around that process.

Decisions and the costs of them are not the problem. It’s those parts of the business where no deliberate decisions are being made that cause the surpluses to be soaked up. Endeavour is the essence of a living company striving to be wealthy – don’t cut that activity but consider how you can cut down waste while you are doing it.

Think hard about this! If your business operates on 40% gross profit and you cut 2% from your cost of sales and 2% from your expenses each quarter, your net income will double in one year without any increase in sales.

The ratio between total costs and total sales is a vital metric to be observed. All costs tie to decisions made. Some will be of immediate consequence and some will be for the long term (leasehold interest for example). It is not those decisions that should concern you though. Rather it is the decisions that are not being made about cutting waste.

Commercial efficiency is based in the notion that the business should be constantly striving to spend only the actual cost involved in doing the job. But of course that happens much less than what any Manager would like. Consider the time where you have assessed labour to undertake a project only to find sloppy work practices result in call backs and do-overs. What about the workshop lights that are left on when not needed or driving back and forth when a tiny dollop of forethought will have saved both time and operating expense?

The reality is that there is significant waste in every business. If waste minimisation became a focus of the business then profits have the potential to increase enormously.

Take a look at the table below and the graph that follows. Assuming a gross profit of 40%, waste elimination at a rate of 2% per quarter from Cost of Sales and Operating expenses will result in a doubling of profits in that year without any upward movement in sales.

Compound savings are not available for the long term nor will they be available for the well-run process business. That business will find it difficult to decrease cost of sales by much at all. The most significant benefit will fall to the business that needs a shake-up as to how it thinks about its operations and how it manages its cost curve.

Make a mission with an objective and circulate your intention across all members of the organisation. Some of the rewards should go back as staff rewards in recognition of outcomes achieved and it shouldn’t be too long before the changes made will become standard practice and the culture of the business.

THREE TIPS

My three tips for achieving this result are

1. You are the Boss and it is your job to achieve the most with the least cost. Be the Boss and direct resources in a way that minimises waste.

2. Make deliberate decisions about costs to be incurred and get the detail you require before incurring that spend.

3. Clean up. A tidy organisation makes for ease of movement of both the business and the people that are a part of it. Mess and disarray are great places for waste to hide.

The purpose of being in business is for the creation of wealth. Anything that can be done to finesse that objective will increase profits and advance the fundamental purpose of the enterprise. Waste is destructive, causes mobility friction and damages the potential of the enterprise to flourish and prosper.

Bryan Williams – on a mission to save businesses