how to avoid business failure part 3 of 3

7/30/2019 How to Avoid Business Failure Part 3 of 3

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How to avoid business failure: 03

There are three main reasons whybusinesses fail, according to accountantsand business advisors, Cooney Carey.Most failures are a result of Financial,Trading or Management issues, or

a combination of all three. If theseproblems are recognised and treatedearly, then failure is not inevitable, saysTony Carey, Managing Partner.

Cooney Carey hassignicant experience incorporate recovery andbusiness structuring. Inthe third and nal of threelinked articles examiningthese issues, Tony drawson this experience. Healso includes some sound

advice from senior nancialand banking experts, aswell as the comments ofIrish business people whohave not only survivedthe current recessionbut have emerged withstronger businesses byfollowing this advice.

The third article examinesthe most commonmanagement causesof business failure.

tHe MostCoMMonManaGeMentCauses ofbusinessfailure

1. Lack of ManagementSkills and inappropriatestructures

2. Inability to Adapt

3. Internal Culture

4. Inability toCommunicate with keystakeholders

5. Lack of Objectivity

6. Excessive PersonalDrawings


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Management is a tal-ent and a skill set, andconstant updating andtraining is required.

Care must be taken torecognise that managementmight not know everything.

For specic issues, wherethe knowledge is not avail-able in-house, experiencedadvisors are essential.Management should becapable in managing theday-to-day activities, havea capability to design andimplement strategy, but alsoto know its limitations andseek advice where needed.

During periods of growthpeople may have been pro-moted beyond their compe-tence. Businesses have beencreated by people not ca-pable of managing them. Atypical example might be a

carpenter who established abusiness during the propertyboom; as the business grew,the carpenter became themanaging director therebyremoving the best carpen-ter from the business andinstalling a poor manager.

The management functionshould not be compromisedby lling vacancies withpeople lacking the neces-sary skills for those jobs.Internal promotion maybe the safe option, but ifthe skill set is missing the

business needs the cour-age to source externally.

Structural defects includethe presence of a dominantand autocratic CEO, a jointCEO, a combined Chair-man/CEO role resulting ininsufcient challenge to theCEO, an ineffective or unbal-anced board of directorsand a lack of managementdepth within the company.

Distressed companies areoften characterised byorganisational inertia andconfusion. They are not ableto make or implement deci-

sions as a result of poor lead-ership or a poorly motivatedworkforce, poorly denedaccountabilities and respon-sibilities and inappropriateorganisational structuresand management processes.

Any signs of a lack ofconsensus among themanagement team orneglect of the core businessalso evidence signicantmanagement weaknesses.

Key point here for me is

Planning. The importance ofplanning on a weekly, monthlyand annual basis is absolutelycritical to future success.Denis Bergin Head ofBusiness Development- Bankof Ireland Business Banking

Pride can be a commonpitfall owners or managersnot recognising that theydont know everythingabout the businessSeamus Carney UlsterBank Senior Manager

01.laCk of ManaGeMent skills and

inappropriate struCtures


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Sentiment and nostalgia caninuence decision making- very often unprotablecustomers, products andmarkets are pursued whenthey should have beendropped a long time ago.

If part of the business isgoing down the tubes,know the right time to exitand concentrate on newparts of the business.

The temptation to hangin too long will resultin larger losses.

Some businesses areunwilling or unable toadapt to modern practiceswhether in marketing,

production or technology,and this can very oftenlead to them falling behindtheir competitors.

In start up situations manynew owners do not recognisethe level of input andcommitment that may berequired to ensure the successof the business. They cantbelieve that irrespective ofthe fact that they are running

their own business they willnot change lifestyle habitse.g. working regular hours.Seamus Carney UlsterBank Senior Manager

02.inability

to adapt

Especially when times are tough there is a need for the culture and internal atmospherein the organization to be right. Staff need to be motivated to be positive and to succeed.Without this motivation it is difcult to see how the business can positively interact withits customers and suppliers.

Lack of condence in delegation can result in the principal trying to do everything including getting

involved in relatively unimportant aspects of the business which can result in him neglecting thebusiness essentials.Seamus Carney Ulster Bank Senior Manager

To be successful in the 21st Century it is more important than ever for companies to have employees,colleagues and co-workers who are engaged, connected and committed to the organisation. Self-awareness and personal insight help individuals and companies build cohesion and organisationalstrength, allowing the business to focus on its primary objectives of success and growth. Next to salesand protability, the need to retain and develop talent and mould it into a formidable, effective teamis an imperative for every company. In a globalised, market-economy it is committed, aware people,realising their potential, that will make the difference.James P McIvor, Managing Partner, The Thinking Lab

03. internalCulture


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Trusted relationships and good communicationswith banks, trade insurers and creditors arean essential prerequisite in order to elicit theirpositive reaction toward the business if help isneeded.

Bank and creditors are quoting instanceswhere businesses behaved in an unhelpful andprovocative manner in the good times and nowthat they need a sympathetic ear that is notforthcoming the credits were not built up.

If a Bank feels that the business is untruthful(or not telling it what it feels it should know),the bank will likely lose faith and may look to

disengage. The key issues are 1) transparencyand 2) co-operation

Centre on good communication with banks andcreditors to bring them with you and to enable themto react in good time if necessaryKieran Moloney Bank of Ireland Head of BusinessBanking - Challenged

We have a case where a client is involved in thebuilding of a retail network in the country buthas lost the faith of a key stakeholder. The client isbanked by 3 separate banks and has also brought inmezzanine debt to fund expansion. Client wantedthe 3 banks competing against each other. We hadbelatedly suggested getting a formal syndicate goingbut client declined. We lost faith in clients bona desand wanted out. Client also slow providing nancialinformation and not providing us the full story. We

are now managing a work down of our debt throughasset sales largely, as a renance is out of the question.Clients provocative approach has backred big time.Padraic Kiernan ACC Bank General Manager- Credit Special Asset Management

04.inability to

CoMMuniCatewitH keystakeHolders

It is always helpful to bounceideas off advisors and condants.The appointment of non-executivedirectors can be most benecial.

This objectivity would help to addressissues such as over gearing, overoptimism, lack of condence and risk.

Managements initial success leads to a beliefthat it only makes good decisions. Begins totake an aggressive approach to expansion(usually funded through additional debt)and then nds that things are not going aswell as expected. There are probably loadsof examples but we have one where a guywith a good established retail trade businesslocally, expanded into the UK by buyingan existing comparable business throughdebt (on the strength of strong domestic cashow) and now is struggling. Client thoughtthat he could apply the same model in theUK as here but the market appears to bedifferent and it hasnt delivered. He mayhave to sell at a signicant loss to save Irishbusiness. He would maybe have been betteroff expanding organically in local market.

Padraic Kiernan ACC BankGeneral Manager - CreditSpecial Asset Management

In a difcult trading environment we can bedrawn into a very subjective perspective ofour business. At these times the objectivityand wider experience of professionaladvisors can offer invaluable assistancein enabling us to review not only our

nancials, but also our trading and ourgeneral management of our business.Brendan Flynn, Managing Director,Church Bar & Restaurant, Dublin

05.laCk of

objeCtivity


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for MoreinforMation onHow we Can Helpyou, ContaCt:

Cooney CareyThe Courtyard,Carmanhall Road,Sandyford, Dublin 18,Ireland

t +353 (0)1 677 9000f +353 (0)1 677 9805e [email protected]

A proprietor and his/herfamily living beyondtheir means is a threatto a business. Personaldrawings should notexceed prots. The prudentbusinessperson shouldensure sufcient prots

are retained in the businessfor future developments.

Company directors mustavoid breaching Section

31 Companies Acts1990 by drawing downcompany loans in excessof 10% of the companysnet relevant assets.

If the bank discovers fraud orthe client is untruthful (or not

telling you what you shouldknow) the bank immediatelyloses faith in the client and willlook to disengage. There aremany examples of this (largely

in property development) whereclients conrmed contracted salesonly to instruct the solicitor torelease them (unbeknownst tothe bank) after monies had beenadvanced. The behaviour of thesolicitor is also in question here.Bank will look to disengage or

pursue enforcement of security.Padraic Kiernan ACC BankGeneral Manager - CreditSpecial Asset Management

06.exCessive personal

drawinGs

Cooney Carey Has produCed a projeCtiontool tHat Has beCoMe tHe Central foCus

of Clients day-to-day and strateGiCfinanCial planninG. we would bedeliGHted to Meet witH you to asCertainHow tHis tool MiGHt best Help you.

ConClusion

With proper insight,

planning andimplementation the riskof failure can be reduced,but not eliminated. There is

no guarantee of success inbusiness; however failing toplan is effectively planning

to fail.

It takes imagination,resilience, energy and effort

to build a business fromscratch. The ability to takeand manage risk, to imagine

the future, to never take nofor an answer these arethe necessary qualities forentrepreneurship.

how to avoid business failure part 3 of 3

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