Know When to Exit, Do Not Be the Living Dead

Within the corporate world, there are the living dead, which are the sick companies that

go on a wretched existence, without any hope of turnaround. These companies need a

miracle such as a resurrection from the dead. Many of these companies need a change of

DNA or business models. They are technically commercially insolvent and the owners

will face the fate of bankruptcy if they close down the operations. Therefore, these living

dead just hang around, waiting for the death sentence. For some, the death sentence may

take years before the owners decided not to throw in good money anymore to chase after

bad money. For others, the bubble keeps getting bigger such as the construction

companies in Singapore that continue to clinch loss-making projects to cover up for the

earlier losses.

Some of these living dead are large companies with huge amounts of bank debts.

However, the banks are unwilling to wind up these companies, as some one said: When

you owe the bank lots of money, you owe the bank. These banks may go under together

with these living dead. Therefore, these living dead are allowed to survive in the short

term. An example is Donald Trumps corporate empire that went into massive financial

difficulties in the 1980s. He owed the banks a lot of money then and the banks were

unable to press the trigger to stop the flow of credit as they would be dragged down with

him

If companies are caught in such situations, the owners have to take some tough decisions

to get out of this quandary. It is important to know when to exit. An optimised exit is one

of getting out of non-core or under performing businesses, where there is a loss of

confidence in the management and further losses and declining profitability are expected.

Removing such under-performing assets can free up capital for investments in the core

businesses

If you are able to optimise your exit, then it is no longer perceived as organisational

failure but rather unlocking of your values. Optimised exits should be made strategically

rather than be done out of desperation. This is because when it is done out of desperation

and panic, quite often the value of the company is diminished. Successful exits require a

lot of planning and can maximise shareholders value, minimise cost, liability and

disruption as well as enhance the value of the enterprise.

Optimised exit is necessary for many living dead. For some it may mean cleaning the

deck prior to an acquisition or integrating a large acquisition that included non-core or

unprofitable assets. For others, the business model needs to be revamped with the market

changes. The management needs to be able to bail the company out of the dire situation

and scarce resources need to be re-deployed elsewhere for better returns. For some

others, it may be a case of the shareholders and owners getting tired of the business and

deciding to move on to do something else.

There are various channels to bail the company out. One way is to sell the business as an

ongoing concern. Another way is to attempt to turn around the company from financial

losses before disposal. If the company has a grim chance of turning around, it is better to

close the company immediately, cut losses and move on. There is nothing to be ashamed

about with your company going bust. Many successful entrepreneurs suffered failures in

their earlier ventures. They are able to make subsequent comebacks. It is better to bite

the bullet, avoid bankruptcy and recoup the losses and to fight another day than to be totally dragged down

to the bottom because of trying to save a hapless situation.

Usually, it is difficult to get a good price or premium when selling a troubled company.

Many acquirers try to avoid buying a loss-making enterprise like a plague. They will find

it extremely difficult to convince their shareholders to undertake the risks of acquiring a

loss-making enterprise. For instance in China, some loss-making and state-owned

enterprises are offered for sale at one dollar without acquiring the past liabilities. Yet,

there are few takers. You never know the full liabilities that you can be buying into.

In Singapore, some businesses are conducted at a loss. The high rental overheads,

expensive manpower staffing, etc, have eroded all the profits. However, many

entrepreneurs felt trapped and reluctant to shut down their business as they will have to

proceed with bankruptcy procedures immediately. However, any delay in closing down

such businesses can dash any hope of recouping the losses.

There are some points to consider before you embark on saving the company. Is it worth

the pain and effort? Do you want to keep it going by throwing good money to chase after

bad money? Therefore one needs to ask whether ones company is worth more dead than

alive? If it is much like a vampire, neither dead nor alive but living on the nutrients and

sustenance of the living blood, then it is time to drive a stake through the heart and

relieve the misery of the living dead. It is worth more to be dead than alive.

http://www.corporateturnaroundexpert.com

Dr Mike Teng (DBA, MBA, BEng, FIMechE, FIEE, CEng, PEng, FCMI, FCIM, SMCS) is the author of the best-selling business book Corporate Turnaround: Nursing a sick company back to health, in 2002. In 2006, he authored another book entitled, Corporate Wellness: 101 Principles in Turnaround and Transformation. Dr Teng is widely recognized as a turnaround CEO in Asia by the news media. He has 27 years of experience in corporate responsibilities in the Asia Pacific region. Of these, he held Chief Executive Officers positions for 17 years in multi-national, local and publicly listed companies. He led in the successful turnaround of several troubled companies. He is currently the Managing Director of a business advisory firm, Corporate Turnaround Centre Pte Ltd, which assists companies on a fast track to financial performance. Dr Teng was the President of the Marketing Institute of Singapore (2000 2004), the national body representing some 5000 individual and corporate marketing professionals in Singapore

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