It is a lot easier to prevent business failure than to orchestrate a successful business comeback
I’m sure many of you remember the February 5, 2017 51st Super Bowl when the New England Patriots came back from a 28-3 deficit to beat the Atlanta Falcons 34-28. Although there are other notable comebacks in Super Bowl history, this was by far the biggest and most remarkable one. It is hard to imagine how a team can get themselves into such a large deficit only to work their way out of it in time to win the big game. But it did happen, as other comeback stories in football and other sports have made news headlines over the years.
In business you rarely see such miraculous comebacks and for very good reasons.
The process that eventually gets a company into trouble is usually quite lengthy and never happens overnight. Things like lack of foresight, poor management, product obsolescent, inferior product or service quality, inability to adapt to market changes and others can quickly become big contributors to an organization sliding downhill to a point where rescue is nearly impossible, especially for smaller companies.
Unfortunately for many such companies, the financial health deterioration, though lengthy and with many telltale signs is seldom properly recognized by management. In fact, it is common for management to be in denial, or simply ignore the signs.
Often, the denial is related to the way information is delivered to shareholders, bankers and other stakeholders. After a while, managers start believing their own stories, all the while not engaging in measures designed to turn the company around.
While larger organizations, having a greater ability to refinance debt, issue more equity and debt are less likely to fail and may even exhibit a major comeback (e.g., Apple, General Motors, etc.), smaller organizations, especially those defined as SMBs are less likely to make a comeback and generally experience a much higher failure rate.
Unlike a football game, where a team experiences getting into trouble within a couple of hours or even less, a business enterprise may take years of slow deterioration before the situation is clearly identified and concrete measures to turn the company around are implemented. Often, this effort starts too late and fails to rescue the company.
It is not uncommon to attribute business failure to poor management, or lack of proper planning. However, in many of these business failures, lack of information, or misinformation is a major contributor as well. It is surprising to see how smaller organizations (and some larger ones too) do not have a formal and consistent way to perform planning, budgeting and analytics.
Often, these companies use traditional methods of employing spreadsheets, albeit, a practice that is experiencing a sharp decline, or purpose-built FP&A software applications that fail to deliver critical functionality, such as forecasted balance sheets derived from the budget itself (and not as a stand-alone report, assumption based and loosely connected to the budget).
Not using the right tools or attempting to implement a more traditional solution can seriously impair the ability to forecast the financial health of the company. The telltale signs that develop and intensify over time may not be apparent and sometimes only severe conditions such as a cash crunch are the catalysts for deeper investigation and turn-around plans.
As I stated above, it is much easier to prevent business failure than to mount a herculean effort in order to attempt a business comeback. And unlike sports, an unsuccessful comeback can be much more devastating.
Alan Hart, MBA, is Principal Consultant at Pacific Shine Group in Portland, Oregon, with responsibility for client business development and hands-on client project implementations. Prior to starting Pacific Shine Group, he worked in various executive accounting and finance positions with technology and growth companies. Notable is his 18 years in the hi-tech manufacturing industry where he served as Controller, Vice President of Finance and CFO of several privately as well as publicly held companies in the Hi-Tech industry, such as Hybrid Arts, Inc., Hamilton Bay Associates and Syncronys Software. In his role in management consulting, Alan has worked in diverse industries and with a variety of clients, including fortune 1000 companies such as Boeing, Delta Airlines, Intel, Wyndham Worldwide and others, as well as many mid-market organizations such as Guitar Center, Ducommun AeroStructures, Cypress Semiconductor, TriQuint Semiconductor and others.
Combining his skills and experience in engineering with deep understanding of technical accounting, he is able to assist small and medium-size manufacturing companies establish GAAP compliant accounting and reporting systems.
Alan can be reached at (310) 384-1453 or firstname.lastname@example.org.