Kintsugi, also known as kintsukuroi, is the Japanese art of repairing broken pottery by mending the areas of breakage with lacquer dusted or mixed with powdered gold, silver, or platinum.
The beauty of this process is that because the pottery is broken, it will never be the same again. In fact, its flaws are enhanced by highlighting the lines where the pottery broke.
When a company becomes distressed, it has passed the point of no return. If the business is a candidate for business rescue and business turnaround, the business that emerges will never – and should never – be the same again. Human Capital will have learnt key lessons. Costly process and inefficient ways of working will have been eradicated. New markets and customers will have been developed.
In some of my recent reading I came across an article that pointed out the three key decision factors to consider when choosing your recovery path.
The article points out that you want to be ready and have a feasible path to grow your business when the economy starts to recover.
- Choose suppliers who will allow you to increase your production quickly if necessary.
- If you have a physical space, know when you will need to start looking for something bigger and where you might be able to find it.
- The need to scale up or down often comes suddenly, but if you work scalability into your decision-making process, it’s much easier.
Making your business easily scalable might end up costing you more up front, but it could save you money in the long run. For example, if you are confident your business is going to grow rapidly, opting for a larger warehouse than you currently need might be a good idea, so you don’t end up running out of space quickly and having to move.
When some entrepreneurs start their business, they make substantial investments in the enterprise resource planning software at an early stage of the company. It was an expensive system for it at the time, but the system paid off well since the company did not have to keep changing and updating it as it grew.
The article points out that scepticism is a useful approach when someone approaches you with a business proposition. It could be someone who believes they have the perfect product for you or someone who has the perfect space for your business. It’s best to look at these situations with a sceptical eye. That perfect product or perfect space may indeed turn out to be a good thing, but you owe it to your business to be diligent and see whether this opportunity really is in your best interest, especially if it was brought to you by someone outside your business. Remember they have their own agenda in mind.
Many companies sell products and are constantly approached by unsolicited suppliers to sell their products or use their service. Whenever this happened, companies should approach it with an air of scepticism and put in extra effort to research whatever was being offered. Recovering businesses will make better decisions when they sought something out rather than having something land in their laps. So, when a seemingly lucrative business proposition comes their way, they would put even more time and effort into the decision to make sure it was worth it. The decision-making capacity of the business has grown through the experience its employees gain in the restructure. This is a key post covid question. As we recover, how do we build a better business using all of the knowledge accumulated by our staff? How do we do that remotely and how do we invest in learning systems and processes to make our organisation capabilities even more robust? I suspect that those companies that harness these learning will thrive in a period of recovery even as will struggle with the ongoing Covid pandemic.
The article adds that, when talking about cash in relation to making business decisions, the most important thing to keep in mind is not necessarily the cost, but how it will affect your cash flow.
That may or may not mean choosing the cheapest option, which in business, may not be that cheap anyway.
You may have the choice between two suppliers for a product and Option A is cheaper, but only gives you a 30-day window to pay whereas Option B is more expensive but gives you a 60-day window to pay. Is it better for your business in this case to take the cheaper option or is it better to take the more expensive one that gives you longer to pay for it? The answer is: whichever scenario is better for your cash flow.
We have had many of these evaluation techniques for many years. Net Present Value of options still remains the best technique to evaluate the options. Internal rates of return also add value. These require us to understand the cost of borrowings as the incremental cost of capital.
Companies that understand their cost of capital will also do better in understanding these techniques. It is an expressing of both the Country and the entity risk. Lower cost of capital will mean better growth.
The article points out that, at an early stage many companies get the opportunity to get their products into a major chain store, but they may only get paid as their products sold and that payment would be delayed by 60 days. Even though it may increase their footprint, companies should be aware that, as a small company, it may put too much strain on their cash flow to have thousands of products sitting on shelves and only being paid two months after they are sold. Companies need to evaluate projects on their entire working capital cycle and the total investment required. In cash constrained times rapid growth can kill you.
By being mindful of scalability, approaching every offer that comes your way with a bit of scepticism and always thinking about the effect on your cash flow, you can choose the right fork in the road more often than not when making business decisions.
Robin Nicholson is the Director of Corporate-911 and is a Senior Business Rescue Practitioner.