Updated: 23rd May 2008
According to Simon Lundy partner at the Newcastle office of Begbies Traynor, the leading independent business rescue, recovery, and restructuring specialist in the UK: “Those who learn at the school of hard knocks generally take note of the lessons provided. There are many entrepreneurs who have suffered more than one failure before going on to create highly successful businesses.
“In this country there is still something of a social stigma attached to business failure, although more reasonable attitudes are increasingly emerging, currently aided by a generally challenging economic climate. Very different attitudes prevail in some other parts of the world. In the USA, owners of businesses in difficulty have greater personal protection than in the UK, and business failure is very much viewed as a learning experience which, rather surprisingly, can lead on to prosperity.”
The idea that someone who has been involved with a failed company should not establish and run another such business is flawed. Certainly some business failures are a direct result of poor management, or even fraudulent trading. But in other cases it may be sudden market changes, credit crunch, technology, or bad debts which make the difference between survival and demise, rather than an inherent lack of ability on the part of the owners and managers of the business.
Provided directors do learn the lessons of business failure, there is no reason why many should not go on to succeed either in completely new ventures or in ‘phoenix’ companies established after proper purchase of an original organisation’s business and assets.
The idea that the former directors/owners of a business can purchase the assets of that business and then take it forward does seem strange, but such purchases can only be undertaken in line with strict regulatory controls. The owners benefit from existing knowledge of markets and clients, as well as established supplier relations. Client trust is not necessarily destroyed if the reasons for previous failure are legitimate. Similarly, in appropriate circumstances, suppliers may regard the potential for future business as more important than any losses sustained as creditors of the original business. The usually enhanced realisations for the assets is to the benefit of creditors.
Explains Simon Lundy: “As soon as the warning signs are noticed in any business, it is important to seek professional advice as there will often be ways of correcting the problem, or re-structuring the organisation to allow it to move forward. If the worst happens and business failure is unavoidable, then for some owners this should not be regarded as the end but rather as a time to take stock. It is an opportunity to consider whether they have the talent and energy to try again and, if the answer is yes, use the lessons learned to help create the next, hopefully successful business.
“Even at the darkest hour it is worth remembering that of all companies that become insolvent, around 50 per cent end up giving birth to a new business in some form.”
Begbies Traynor is part of the Begbies Traynor Group plc which is an AIM listed specialist professional services organisation, providing independent professional advice and solutions to businesses, financial institutions, the accountancy and other professions and individuals in areas of finance, recovery, investigation and risk management, specialist financial advice and commercial finance.
Julie is a law graduate who qualified with Price Waterhouse in 1994. Julie joined Smith & Williamson in 1997 and became a partner in 2001. With Mike Stevenson, Julie set up Middleton Partners offices in Salisbury and Southampton, both of which are now part of Begbies Traynor.
Julie is a member of the Insolvency Practitioners Association and is a Fellow of The Association of Business Recovery Professionals. Julie deals with all aspects of Corporate Recovery and turnaround work and takes all form of personal insolvency appointments.