Jobbers and automotive parts dealers get into trouble for many reasons. It is not all related to a slow market; blaming a poor market is a cop-out.
There is usually a dominant cause–ranging from ignorance, complacency, ego, and greed to outright fraud, and these are often found in combination. There are many visible failures of small and large companies, rooted in human weakness and shared to varying degrees among direct management, major shareholders, directors, auditors, and brokers.
Even suppliers and clients get entangled in the failures. Almost always, any action comes in reaction to a major crisis and there is not much left to fix; it is left to The Trustees in Bankruptcy or appointed receivers (i.e. corporate undertakers) to sell salvageable assets at bargain prices. Since regulators have no involvement in monitoring normal course management decisions, they are almost always left trying to explain what happened and where to attribute blame.
If large public companies fail to flag problems and make reparative changes, what hope is there for smaller private jobber companies? Who is there to blow the whistle early enough so that something can actually be done? Personal pride, stubbornness, or risk of embarrassment usually wins the day at smaller companies. Many just disappear quietly with few witnesses.
To protect their loans, banks sometimes initiate outside reviews of their troubled accounts. A quick, impartial appraisal of the company is needed at the outset. Some situations are terminal, with the only solution being receivership and eventually bankruptcy. Others may benefit from a one-time financial restructuring to wipe out a past major error. Often, where time is at a premium, the best route may be to merge a company with a competitor having similar problems and then to restructure the combined entity.
Another option is to conduct an “operational turnaround.”
The term “turnaround” implies the need for a full court press to remove or reverse entrenched practices that are leading to the eventual failure of a company. This is hard work, typically the two steps forward, one step backward kind. It will normally require the skills of an outside turnaround specialist.
Turnarounds have the following ingredients and principles, which, if applied properly, will greatly increase the odds of success.
There are some general rules:
* Whatever is done or expected should be visible, through weekly checklists or written instructions recorded as minutes of meetings. (Verbal communication is prone to misunderstanding.)
* Establish a base of sound information, not hearsay. Get subjective and qualitative information firsthand.
* Never conduct meetings without clearly stated purposes or leave without arriving at conclusions, and always set out a system of controls to assure that follow-up occurs.
* Recognize that everything is interrelated and that success will come in small increments. Don’t rely on home-run solutions.
* Concentrate on short-term business objectives.
* Work within the financial reporting systems that are in place–focusing all efforts on perfecting the systems won’t save the company. Complement existing systems with temporary operating and financial schedules that flag exceptions and progress. Establish efficiency reports to serve as a base upon which to make operating decisions.
* Share relevant successes and failures with all employees and, when realistic, set up short-term monetary or non-monetary incentive schemes to help with motivational issues.
* You will find that rigid systems or autocratic management styles often lead to compartmentalization (i.e. “not my job”) and quash initiative and ingenuity in employees. All solutions should bring in a measure of trust and attempt to re-humanize and personalize the company.
Finally, to avoid future problems, realize that outside input through regular check-ups almost always flags problems in their formative stages.
For owners and senior management in the automotive parts business, a first line of defence in preventing small problems from growing into large ones is to stay close to your employees. They often have much more to contribute when they are respected for more than just doing their jobs.
Mark Borkowski is president of Toronto-based Mercantile Mergers & Acquisitions Corporation, a mid-market mergers and acquisitions brokerage firm. He can be contacted at email@example.com or (416) 368-8466, ext. 232.