There is a little ‘legal’ restructuring mechanism that has become the toast of ‘good strategic advice’ to businesses of late. A relatively mysterious process called ‘Administration’.
I have to admit complete ignorance in the past about the full meaning of the term, as well as what it means in practice. Perhaps you may have too – but seeing that I have come across this ‘term’ at least 7 times in a period of 4 months – I have decided that I really do need to talk about it!
As an advocate of ethical business and ethical franchise modelling, I am in awe that this business strategy is one that many, many business owners have turned to as a way to ‘get out of hot water’. I realise that there are so many challenges today in running and operating a business, much less surviving tougher economic climes, but I am horrified in this new trend. I almost feel as depressed as when I hear about the increasing divorce rate in the world. My question of ‘why get married in the first place’ can be asked too of business owners who have failed to manage their businesses well and how they are being rewarded with this easy way out to clear their decks.
In layman terms: ‘Administration’ is a method whereby if you find your business in a tough place of not being profitable and not being able to pay your creditors (although not quite at the bankruptcy stage) – you can turn to professional ‘business recovery specialists’ who will guide you through a path of taking you neatly out of the hot water…and then ‘protecting you’ from your creditors and employees asking for money from you. And then, as a cherry on top, give you the opportunity to open your doors again the next day – doing the same business, but under a different name. (Can you feel the emotion behind my words here?)
- A huge backlash on small business who lose clients and are lumbered with bad debt (i.e. they are the creditors who have been dedicated to providing the products and services to help the business owner do his business)
- The employees who have worked hard to help the business owner keep his business going and thriving in the past – don’t get their salaries, get no real notice and get very little in compensation
- The business owner actually has to ‘start all over again’ because no-one wants to touch him or his business because of how he let them down
So, I guess my message to the business owner who is considering this path of ‘recovery’ is to use a healthy balance of good business sense and being compassionate to the parties involved. I realise that sometimes business owners have to take drastic measures to save their businesses, but my only wish is that they engage their employees in the move and be more empathetic to the impact it has on them and the creditors too.
I may be naive, but I do think that great business leaders consider every one of their actions before they take them and step forwards in the best way to lead others carefully to the other side of troublesome situations.