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Scared of losing control or the cost, directors delay reaching out to turnaround experts says specialist Michael Fingland. But another reason stands above all others: overconfidence.
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Fear prevents businesses on the brink from calling in SWAT squad
18 September 2023
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11 minute read
Fear lies behind much of the poor crisis decision-making by company directors on the brink of going under, says turnaround specialist Michael Fingland.
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Mr Fingland said fear of losing control, fear of reputation damage and fear of the cost were among the top 10 reasons why directors failed to reach out for help when their business was in dire straits.
But Mr Fingland, who is the founder and CEO of Vantage Performance, said the top reason for going it alone through a crisis was overconfidence, “and that was always the number one reason.”
Businesspeople genuinely believed they could solve their company’s problems because they had a track record of handling issues and surviving.
“It’s one of the key traits that got them to scale in the first place,” Mr Fingland said on the latest Accountants Daily podcast.
“They believe, falsely, that they’re meant to have all the answers. They’re not, and very rarely do they. It’s a very unique individual that can come up with all those answers on their own, without involving their team and their advisers to chart a path through.”
He said directors in failing companies needed help recognising the signs that they were buckling under the stress.
“When you’re in the thick of a fight, like a turnaround, it is a fight.”
“You’ve got all these stakeholders bearing down on you, all the weight is on you to come up with the solutions and keep them all at bay as you execute.
“They get blinded, blinkers on … they’re either in high stress or depressed. People become more fearful, so they stop talking to their bank. They become less trusting, they stop bringing in people to help.
“So it becomes even more critical for their accountant, their lawyer, their banker to identify the signs that the director might be acting more erratic, or they’ve stopped talking, or they’re not answering phone calls or emails – that’s a big red flag that you need to inject yourself in there to ask them how they’re going, and get the last financials and see if there’s a way you can help.”
Another reason directors failed to reach out for help was a lack of awareness that turning around a company was a specialist job, with its own set of skills.
“They always say, ‘If only we knew that this service existed or if only we’d met you six months ago.’ It’s not just us – they say this to everybody because they’re just not aware of the service.”
When jittery creditors and financiers were bearing down on a business, knowing that there was a survival plan in place could be an “injection of confidence” he said.
Fear of the cost was another reason to baulk, but turnaround professionals knew to free up cash and could return 15–18 times the investment.
“Once they understand that, it’s no longer an issue.”
Fear of reputational risk was understandable, but misplaced.
“They’re concerned that creditors might react negatively if they find out you’ve got a turnaround person in there,” he said. “It’s very different to an insolvency person. Yes, I understand why they’d get fearful. But a turnaround person with a track record is actually going to alleviate their concerns.”
And fear of losing control was more of a threat if they failed to get help.
“If they’re not acknowledging the suggestions for help from their lawyer, their bank, their accountant, their peer, their friend or wife or husband, they need a stronger nudge.
“And that’s where financiers come in because they are the ultimate nudge: ‘If you don’t get help, we’re going to have to apply a different type of help, which is a bit more painful.
“So financiers are very attuned to this, they’ve really been pushing turnaround, particularly the big five banks, they’ve all been pushing turnaround and very heavily for the last five to seven years because they don’t want your business to fail.”
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