Buyers to see more opportunities through increased insolvencies

Company insolvency figures were up 7.4 per cent in the final quarter of last year and it is predicted that many more are on their way in 2012. Buyers looking for a challenge can take advantage of these opportunities to turn businesses around, providing they offer sound propositions.

The latest figures from the Insolvency Service reveal a 5.3 per cent jump in corporate insolvencies on the same period in 2010. These comprised 324 receiverships, 658 administrations and 191 CVAs.

Experts claim that there are a huge number of firms in major financial turmoil that are hanging on by a thread. Ian Gould, the head of Corporate Recovery and Insolvency at PKF, told Insolvency News: “Looking behind the numbers, we’re seeing businesses stagnating or in slow terminal decline that are just about able to hang on thanks to low interest rates and forbearing bank managers reticent to pull the plug.”

Anyone considering taking on the challenge of a turnaround project will certainly have plenty of options to choose from this year and with the right approach, many could return these struggling businesses to profit.

Establishing why a business has failed is perhaps the most important initial step. Buyers need to ask themselves whether the insolvent firm is a theoretically sound business proposition. If the answer is yes and the reasons for failure are clear, then there is no reason that it could not return to profit providing the buyer puts in the hard work to get it there.

Cutting wastage in the form of unnecessary overheads is an important first move for many once the money has changed hands. Staff numbers may have to be significantly reduced, but buyers should identify who is worth keeping. For example, a company founder could have lost his way with the finances, but could still be a great salesperson. With some tweaking of roles and hierarchy, management can often be kept on.

To what extent can the overheads of the target business be reduced or even eliminated? Does it need to operate from its own premises or can it be run from the buyer’s offices?

Identifying poor working practices and nipping them in the bud can help to increase productivity, improve employee engagement and reduce waste. These decisions are tough as they are sometimes detrimental to turnover in the short term, but will produce benefits in the long run.

Once the turnaround project is working efficiently, buyers can look for new markets for its products and services to improve turnover and boost margins. This can be one of the central ways to turn around a business and new owners, with fresh skills and expertise, may be able to spot opportunities the previous owners did not consider.

Running a business bought out of administration separately from other companies, even if it was bought as a potential bolt-on, can be wise in some cases as a merger can easily take place once the turnaround is complete.

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