RSM Bird Cameron calls them ‘zombie’ companies – the walking dead. Just like their irksome namesakes, these are companies that can endanger your business, if you deal with them and are not careful.

Andrew Beck, national head of turnaround and insolvency at RSM Bird Cameron said in the past, many underperforming companies managed to slip under the radar and escape insolvency. He warned that with market conditions changing, these businesses need to change course if they want to avoid going under. 

“In 2014, many indebted companies were able to repay the interest on their debts but not able to reduce the actual debt itself or invest in maintaining or updating equipment or make strategic investments,” Mr Beck said.

“Low interest rates let these zombie companies maintain their commitments to their financiers. As such, it is unlikely that these financiers will seek to enforce their security any time soon and this is how zombie companies will continue to battle on.

“The amount of zombie companies may even increase, given there is no expected increase in interest rates in the near future.”

According to Mr Beck, there are four signs that indicate a company may be heading for zombie-status:

Covering the bare minimum. Companies that can only cover the bare minimum, such as running costs and interest-only repayments, may be heading for zombie-status if they can’t improve their position in a reasonable time frame.

Paying interest but not the debt. After paying initial costs such as rent and wages, companies should at least be able to repay interest on outstanding debts. However, if the business is incapable of paying down the actual debt to an agreed timeline then it may already be a zombie. So, unless their operating practices improve dramatically, they are likely to become insolvent in the end regardless of bailouts and support.

Put a hold on growth. Zombie companies generally are not able to invest in new business or hire new staff. When organisations need to put a prolonged stop to growth and expansion, especially if market conditions are average, this can be a warning sign.

Financiers will be reticent. When companies have reached the point where they are only covering interest and not paying off the actual debts, smart financiers and investors will become more hesitant to continue funding the business. This may in turn lead to additional debt from alternate sources (such as creditors, including the ATO) which may go largely unpaid if the company is declared insolvent and will leave lenders and investors without their money.

“Some companies need support or even a bailout because of extraordinary circumstances, while others simply need a longer foundation period before they can start to turn a profit,” Mr Beck said.

“But when an organisation consistently underperforms financially and is doing the bare minimum to meet its financial obligations, it could be a sign that the business is about to reach zombie-status.

“When this happens, there are two options. The first is to try to save the company with an overhaul of management practices and operational procedures.

“The second is to put an end to the cycle and shut down the business. Either way, a zombie company cannot be allowed to continue to wander aimlessly, potentially taking others down with them.”

RSM Bird Cameron is said to be the largest mid-tier national accounting firm in Australia and is an Industry Expert partner with Victorian Leaders, the organisation developing the next generation of leading companies headquartered in Victoria.

www.rsmi.com.au

www.vicleaders.com.au

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ONE of Amazon’s best-selling business authors, Australian consultant Rod Richards, has a few tips for those starting a business – and they are not too dissimilar from measures he advises business leaders to use in rejuvenating their businesses.  For Rod Richards, success is all about business leaders directing their energies to best effect. Here are some of his latest tips.

WHERE is your business headed?

Perhaps you’ve just launched a new service and are excited to finally convert all that sweat into your very first sales.  Perhaps you opened up shop a few years ago and are at a “respectable” level of success, but are afraid of growing complacent or having the competition gain on you.

But really, do you know where you’re headed – short-term, mid-term or long-term?  The answers lie in how well you know your own business.  

Suppose someone asked you the following three-part question: “What are your financial, business and personal goals?” 

Would you be able to provide clear, positive, definite responses?

These three key areas should be assessed regularly.  It is important to consider where the business is going, where you are going and what needs to be put in place for goals to be achieved. 

When first sitting down with my clients, one of my initial questions is, “What business goals do you want to achieve by the end of the financial year?” 

I look at one-, three- and five-year planning periods.

BUSINESS GOALS

These give clarity and focus to this all-important area. Business goals need to be defined and redefined as necessary as your business develops. They must be specific and measurable.

You can’t manage what you can’t measure. Hazy goals will produce hazy results. Being clear about what has to be done also motivates you and your staff and encourages commitment.  Ensure your business goals are realistic, well researched and achievable.

FINANCIAL GOALS

Know the numbers and determine what gross turnover, gross profit and net profit are needed.  It is important also to know your business cost centres.

Analyse running costs (fixed, variable and semi-variable). This will help you understand their impact on your cash position. Forecasts help you avoid possible pitfalls.

PERSONAL GOALS

Does your business run your life or are you in business to support your lifestyle?  It is worth giving careful consideration as to how close you are to the business. 

It is important to discuss with family the commitment required to run the business and the impact it is likely to have on family time. Organising a balance between work and family can be achieved with input from those involved.

In summary, be specific about what you need to achieve. Setting goals does work if you persist and review them regularly.

-          Rod Richards, Richards Consulting.

www.richardsconsulting.com.au

www.businesstipstosucess.com

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EXTRA >>

TOUGH conversations – confronting staff about behavioural, budgetary or even business survival problems – cast a spectre over most managers. Most would agree it is the hardest aspect for even the most capable managers.

According to behavioural scientist and co-founder of Pragmatic Thinking, Darren Hill – one of Australia’s most in-demand strategists working with companies such as PepsiCo and Suncorp –  it is how managers handle these tough conversations that defines them, and their careers. 

Mr Hill, the bestselling co-author of Dealing with the Tough Stuff – how to achieve results from key conversations, said whether it is an emotionally-charged discussion around a job termination or another colleague’s behaviour, “the common denominator is that all of these conversations will be tough”.

“Difficult situations at work weigh heavily on us and while making minor changes to how you deal with the ‘tough stuff’ might seem small today, over the course of time, those small changes can make a huge impact,” he said.

From his experience and out of his research for the book, Mr Hill has created some tips for managers having to deal with what he calls “the three toughest conversations you will ever have in the workplace”.

‘YOU NO LONGER HAVE A JOB’

The dismissal or restructure conversation.

“Don’t even attempt to remove emotion from the conversation,” Mr Hill said. “There will be emotion and you will have to deal with it. Recognise that tears and sadness are okay but tread carefully with sympathy v. empathy. Statements such as, ‘it looks like you are really upset’ are helpful while ‘I’m sorry this is happening to you’ sends the message ‘I’m glad it’s you and not me’. “

‘KEEP YOUR TONE AND VOLUME DOWN’

“Always remember to keep the tone and volume of your voice underneath the other person’s,” Mr Hill said. “If it does get heated, voices can be raised. Never be tempted to match the escalation. People do not usually shout for very long if the other party doesn’t reciprocate, as it makes them feel uncomfortable.”

‘EYE CONTACT IS DANGEROUS’

Mr Hill said the social rule of direct eye contact is dangerous. “Although we’re taught to look someone in the eye, this is the most personal communication medium and the person on the receiving end often has no choice but to take the message personally,” he said. “Share an independent visual medium such as some written notes to help you talk about ‘it’ (the restructure or termination) instead of ‘you’.”

‘I DON’T LIKE YOUR ATTITUDE’

Mr Hill calls this the “awkward personality conversation”. “Never use phrases like ‘I don’t want you to take this the wrong way.’ This is a classic priming statement and now the person is on the lookout for a way to ‘take it the wrong way.’ Always prime the person towards the successful outcome, such as ‘I need us to both be on the same page’.”

‘AVOID NAMING UNHELPFUL TRAITS’

‘I want to talk about you being arrogant.’ “Ouch. I can guarantee this conversation will head south, fast,” Mr Hill said. “Take the unhelpful trait and find a strength – cynical becomes realistic and interfering becomes inquisitive. This paints a different picture yet remains on topic. For instance, when addressing arrogance: ‘One of your strengths is that you’re a confident guy, but there are times when your confidence can be a little overwhelming or misplaced. Let me give you an example...’”

‘YOUR WORK IS JUST NOT GOOD ENOUGH

The underperformance conversation. “One of the biggest mistakes people make is to focus on ‘traits’ instead of ‘behaviours’,” he said. “Firstly, confusion occurs because the definition of a certain trait varies from person to person. I may consider dedication as taking on extra tasks while you might interpret this as more thoroughness in your projects.

“Secondly, traits are often enduring patterns. Thinking you can change them in a half hour conversation is ambitious. Don’t tell someone they ‘lack initiative’ – highlight that they rarely put their hand up to lead projects and you will have a much higher chance of success.”

Mr Hill also has some advice for those on the receiving end of such criticisms.

“It’s hard to rationalise without the full picture, so even if you’re seething with rage, you need to match the tough conversation with tough questions,” he said.

“And remember this; all bad seas are followed by calm weather. It won’t last forever. Focusing on next steps rather than dwelling on the wrongs will help you to make the best of your situation.”

www.darrenhill.com.au

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CLEAN technologies are providing their economic and community worth for a great many Brisbane business leaders – most engaging through the Brisbane CitySmart collaborative program – but there are a lot more gains and efficiencies to be had.

That is the headline message for the October 23 CitySmart Leaders Project lunch at Brisbane City Hall, which features insights by one of the global leaders in accelerating business and community outcomes through ‘cleantech’ collaboration. 

Jim Waring is Cleantech San Diego’s executive chairman and co-founder and he will outline to the Brisbane CitySmart event how the high adoption of cleantech systems and behaviours has not only transformed that city’s economic environment but also helped create a thriving new area of industry.

Mr Waring will explain how Brisbane – with some of the most innovative cleantech companies in the world – can adapt the experiences of San Diego to its own advantage. Through collaboration and leadership, the San Diego region has established itself as a global leader in the cleantech economy.

With more than 800 cleantech companies in the region, including over 300 innovator companies and more than 400 market enabler companies, San Diego’s diverse cluster of cleantech enterprises makes for a hotbed of innovation and investment.

Mr Waring’s Cleantech San Diego is an industry cluster association which works with government, industry groups, business and academia to incubate cleantech innovation and develop technology solutions at scale.

CitySmart, Brisbane City Council’s sustainability agency, operates through much the same principles and this CitySmart Leaders Project event hopes to inspire further business collaboration in cleantech from understanding where San Diego has taken its world-leading program.

Collaboration was the basis for Mr Waring founding Cleantech San Diego in alliance with the city’s mayor – ironically, as a result of being fired from his job as deputy chief operating officer for San Diego Land Use and Economic Development. He had gained that role as a result of his proven regional experience in real estate development and law.

“Through someone I had hired as a project consultant, I was introduced to our new mayor, Jerry Sanders. Jerry hired me and my title was deputy chief operating officer for Land Use and Economic Development,” Mr Waring said.

“Basically the development regulation, economic development team and real estate assets departments reported to me. I was there for 17 amazingly difficult and exciting months. I learned so much, and met many great people.

“I also learned that action and politics can often collide,” he said. “I was fired while vacationing in Iceland, which is a funny play on words. Seriously, it was a great experience that I would never trade.

“While there (in his San Deigo City role), I suggested to the mayor that the next opportunity in economic development would be developing a city and regional brand around business based sustainability,” Mr Waring said.

“Basically, striving to deliver goods and services in a sustainable manner and at a price normal people can afford. From this idea, and with the mayor’s support, we started Cleantech San Diego.

“At the time the idea of a clean technology based trade association was very novel. That was seven years ago.

“The field is so very different than I thought it would be.”

Mr Waring said he was glad to be able to impart as much as he could about what San Diego had learned to cities that are on similar paths, such as Brisbane.

“Generally, what we have learned is that it does make economic sense to do business in a sustainable manner,” Mr Waring said. “Baseline public policy is critical.

“Companies want to participate, but often don’t know how to do so efficiently.

“We have also learned that technology is way ahead of behaviours,” Mr Waring said. “And companies in America are way ahead of the political system.”

Brisbane’s CitySmart program may also benefit from San Diego’s experience in trying to drive more rapid and larger-scale change to business sustainability behaviours.

“It is much harder to scale projects involving many users than expected, primarily because the marginal individual benefits are not a motivator,” Mr Waring said.

“So we are focused on proving models that eliminate barriers and increase ease of adoption.”

The annual CitySmart Leaders Project explores the role of collaboration between industry, government, academia and the community in meeting market needs to drive sustainable economic development and innovation. 

Mr Waring keynotes the October 23 luncheon event at Brisbane City Hall from noon. Members and non-members of CitySmart can attend.

http://www.citysmart.com.au/leaders-project-2014

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