Business rescue requires a will to survive

Small businesses in South Africa are finding it harder to keep the lights on and their doors open. Voluntary liquidations are on the rise, and unless Eskom is able to become a more reliable energy partner the impact of load shedding will cause more bleeding in the next two to three years.

“Very few practitioners in the field [of company turnarounds] are truly interested in saving businesses and turning them around, which is quite tragic,” says Dorn.

“One cannot rescue a company if you are simply following a legal procedure. Rescuing a company requires entrepreneurship par excellence.”

The right mindset

Dorn is not advocating stepping outside the legal framework of the business rescue process. However, the turnaround practitioner must have the mindset of an entrepreneur or business leader who wants to rescue the business.

“Then you start looking differently at the business. The legal side of the business rescue process then becomes almost like the back-office function.

“You must follow the procedures and rules, but it is not the main priority of the business rescue.”

Dorn adds that there has been improvement since he was involved in his first turnaround in SA in 2015. He has seen a change in the tone and narrative that has been adopted. However, a lot of businesses still end up in liquidation.

His own background is in insolvency, but a major shift in his career came about when he started working in the US. His colleagues advised him to focus on turnarounds from an operational rather than a legal perspective.

“In SA we need to allow business turnaround practitioners to do some operational restructuring for turnarounds so that they can see the other ingredient needed to achieve success.”

Core business

Dorn says when a business turnaround practitioner is called to the rescue, one of the major constraints is the lack of cash. “People generally go into a cost cutting and cash saving mode.”

Operational turnaround specialists look at the top line: how will they be able to grow the enterprise by effectively restructuring it to find and focus on the core business?

“When you think about growth instead of savings you look differently at the company,” he says.

“It is like life. If you want to summit a mountain you must focus on the summit. If you focus on base camp that is how far you will get.”

Key requirements

Dorn has worked in the US, Germany and South Africa. The major differences in more developed countries are the availability of post-commencement financing and the acceptance that failure is not the end of the world.

“In SA I am reminded of what I saw in Europe when I started my career as a restructure and turnaround professional 25 years ago. The commercial banks were dominating the market, and they were all closely aligned, much the same as the situation in SA now. However, that changed when private equity came into play and became more dominant.”

The other differentiator is the cultural difference between SA and the US, and more recently Europe. In modern economies the approach is that everyone fails, but you learn from it and become better next time.

“In SA we are not there yet. People tend to avoid admitting to failure for as long as they can, and once they admit it, they are so far down the drain that a business rescue is quite difficult to do. By then they are very close to liquidation.”

Dorn has a lot of empathy for South African entrepreneurs. “True business turnaround takes a lot of energy, emotional intelligence, grit and resilience, which is a greater challenge in SA where banks and investors are more impatient than in other parts of the world.”

He believes that even in these circumstances if an entrepreneur is committed to making it work, keeps calm, and finds the right support, survival is possible in most cases.