Business Survival Series: Many Turnaround Consultants Don’t Want to Turn Your Business Around

In article:

Domenic Aversa writing in his 2019 book Corporate Undertaker summed up the situation for turnaround consultants. 

You have to marshal all of the employees, all of the suppliers and customers, and all of the assets. You have to keep the creditors and lawyers happy, so they don’t shut the business down. You have to get your arms around all of these parties and items, then you need to make everything and everyone better – quickly. That’s a lot of work that requires a lot of wisdom and a lot of knowledge about business. So why would you want that headache when you get paid the same amount of money just to wind the business down – or more, if you file for bankruptcy?

The reality for small businesses in financial strife is that turnaround consultants do not always want to turn your business around. 

Why?

Many don’t have experience in running a business and so don’t have the know-how required to launch a turnaround and, even if they do have the experience, undertaking a turnaround is not worth the extra effort. 

Turnaround consultants do not always know how to turn your business around

While many turnaround consultants know a lot of technical information about turnarounds, they do not always understand how to start, grow, manage or lead a company when it’s in trouble. 

Insolvency is complex. 

Successfully turning a business around involves hard decisions. 

This is why the most useful advice will come from those with industry experience advising directors and success in managing turnarounds. 

Understand that it is a windy and pothole-ridden road to restructuring and make sure your driver knows the route, which side streets to take and which intersections to avoid.

Turnaround consultants do not always want to turn your business around

Turning a business around requires a tremendous amount of hard work, skill, forethought and often luck. As outlined above by Dominic Aversa, for turnaround consultants who get paid an hourly rate whether the company is turned around or liquidated, there may not be a strict incentive to achieve a turnaround.

Furthermore, many turnaround consultants are hired by creditor banks, and so their primary focus is to keep those referrers happy. In this context, the successful turnaround of a company may be seen as a happy bonus, but not the main priority. 

The lesson to be learnt here?

Be careful which turnaround consultant you use to help you with your problems. Make sure they share the same commitment to your business as you do. 

What to look for in a turnaround consultant

We suggest looking for turnaround consultants that have the following attributes:

• Real world experience
• Memberships and accreditations with professional bodies
• A respectable employment history 
• Transparent pricing structures 
• High ethical standards
• A strategy that you are comfortable undertaking 
• No conflicts with existing or past clients
• Adequate time and resources to allocate to your business
• Experience with formal insolvency appointments, such as small business restructuring or voluntary administration. 

An effective consultant might be an insolvency practitioner, insolvency lawyer, experienced business person, or some combination of those individuals. Interview these professionals and see if you connect with them personally and if they have experience and previous success in undertaking business turnarounds. 

Also make sure you understand how they charge and ensure that it is fair for the work at hand. The importance of understanding compensation cannot be understated.

Terrible consultants include general public accountants (i.e., with no special insolvency expertise), failed liquidators, commercial lawyers, receivables financiers and short-term lenders, unqualified advisors, general technicians and yourself. They will not have the skill base required to help so avoid them at all costs! Don’t let a shoddy consultant working on an hourly rate drag their feet and waste your time and money.

One last piece of advice.

Don’t put off getting advice. Your company is in trouble and you need someone to help pull your company out of the hole as soon as possible. Don’t be left regretting your inaction. Nice guys often lose. 

What will an effective turnaround consultant recommend?

Any turnaround consultant worth their salt will look to find the root causes of liquidity issues. 

Just like a doctor who treats broken bones rather than just giving the pain medication, an effective turnaround consultant should identify what is causing financial troubles and consider the options for fixing these problems instead of providing a band-aid solution to lagging indicators. 

This will include taking stock of the company’s assets and liabilities and determining whether or not the company is insolvent. 

The next step is to advise a course of action based on the information they have gathered. The 3 main options for businesses in a pre-insolvency scenario are:

• informal restructuring (through pre packs and safe harbour restructuring); 
• formal restructuring (voluntary administration or the small business restructuring process); and 
• business closure (liquidation).