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Spark's Rescue & Remediation Approach

Business Rescue with Turnaround - Managing Expectations

This is serious, as serious as a heart attack! and we take it seriously. We approach Business Rescue planning as if the business were our own. Our base plan requires a set of skills that demand a lot of one single individual, Finance, Strategy, LEAN Process, Change Management, Project Management, Critical Thinking, Effective Presentation and Communication, and this needs to be embodied in someone with Tact, Patience, Abundant Energy and Humor.

Business Rescue - What to Expect

We hit the ground running. Part of the preparation is intense stakeholder management, principally with Creditors. This adds a lot of value, and the alignment and expectation management, and simply giving them a sense of comfort and including them in the process is absolutely essential. The rationale behind this follows in the next few bullet points below. So before we take you through the business rescue process and part of our business rescue plan there are crucial points you MUST deal with now. Obviously time is an issue, which is short, (the court has the mandate to extend if approached properly), however you must think about potential flaws in the process and how a very sub-optimal situation can arise. Consider the following:

  1. Your Creditors are the final arbiters of your business future.
  2. Creditors may have voting rights but where there are decision makers there are always gate-keepers and influencers. Crude examples are your Personal Assistant is a gatekeeper, the nagging child in the back seat of the car, an influencer.
  3. The Legal Team is comprised of members of a single Practice typically comprising Insolvency, Restructuring, Business Rescue and sometimes Dispute Resolution
  4. They will advise the distressed business on how to file for business rescue (they can also advise an affected party).
  5. They must advise on the duties of all the parties involved in the process.
  6. They must advise on various liabilities that different parties may or may not be subject to.
  7. They will have an opinion and recommendation on which Business Rescue Practitioner to Appoint. (This might appear self-serving, but I would work with the Business Rescue Practitioner first: lower costs, more control, better rescue plan)
  8. They will claim (although this is not necessarily part of their mandate or skill set - there are some great exceptions to this) that they can advise on the proposed rescue plan viability and any associated strategy.
  9. This translates into - they advise Creditors on whether to support/adopt the plan or not.
  10. But remember the purpose of the Business Rescue is to increase the chances of the business continuing as a going concern, implicitly the Creditors are better off as a result of this, based on a risk adjusted Net Present Value.
  11. Or so the theory goes and this thinking belongs in the domain of economic theory which embraced rational agents of utility (and is largely discredited, visit our Blog or Read this HBR article) as it never considered decision modifiers that Behavioral Economics now appreciates.
  12. Throw into the mix the following contributors to variance, noise and disagreement:
    • Information Asymmetries - nobody can be sure in this negotiation of what intrinsic and extrinsic motivators the Creditor is subject to (create the weirdest scenario you can behind a Creditors illogical decision and I can assure you real-life will have concocted something stranger!)
    • Differences in Valuation techniques - driven by the different Discount Rates and WACCs (if you do it properly)
    • Expected Value calculation E(X) = x1p1 + x2p2 + x3p3 + . . . + xnpn., where  xn  is a Discrete Value with the probability  pn   of actually materializing
    • Not to mention the cognitive bias and different skills sets at the table (some of the loud voices at the table will not admit how little they know about Balance Sheets, Income Statements and Finance in general, none of us will admit how tenuous our grasp of probability is (but they will after a great experiential learning exercise I do!)
  13. Thus we have Statistics with subjective probability estimations, using valuations with inconsistent approaches and divergent assumptions! What a recipe for discombobulation - Nobody can argue that this is an objective and logical process.
  14. So we must recognize that this process has strong political and negotiation elements to it - and prepare for this.
  15. We are all entitled to our own opinion, but not our own facts. Our plan allows for a far more objective discussion to be had and is appropriately robust and comprehensive considering the impact on people's lives.
  16. Lastly, this plan will allow for the additional option of finding Angel investors or those who target distressed debt ie alternative funding sources, if this becomes a problem.

Straight Talk concerning the Rescue Process

The Business Rescue process is not a pleasant time for the business leadership and even less so for employees who may be far less financially secure. It is fertile ground for recrimination, voicing of resentment, toxic politics, and self-serving behavior. This is at a time when the business can least afford it. Productivity drops, talent flees, all sorts of horrible things can happen. But, it can be the chapter of a new beginning, and the crisis turned into an opportunity for talent to shine, and for great leadership to emerge. In many instances Managing Directors are removed from the business, this is often ill-advised. A partnership formed between the business leadership and the Business Rescue Practitioner can be really powerful. Our preference is for the managing director and leadership to remain and to join us on this challenge and then to take over and earn recognition for the result down the line. Obviously this is idealistic, but there is nothing wrong with trying and if it does not work then to consider different options. At least the leadership should realize that there is recognition that running a business is a tough job, and if you push the boundaries and run where others walk or just sit and watch, then expect a fall, there's no shame in that!