In his 30 years with RSM, Frank Lo Pilato has gained a wealth of experience - and a bank of stories to match.
We talked to RSM’s National Head of Restructuring & Recovery about how the industry has made inroads into convincing business owners to get the information they need before they find themselves in an inevitable insolvency crisis - especially service-based SMEs.
Thirty years ago when you started out with RSM the market was a different place.
Yes. However, no matter what the marketplace looks like, businesses still face a lot of the same challenges.
We talk a lot today about what it was like pre-covid. We know a complete recovery is still a few years away. And I’m not just talking about the problems in the supply chain, which is only one of the reasons we’re seeing major names in the building industry go into administration. The ATO is taking court action to chase unpaid taxes. A lot of the workforce needs to be trained or retrained.
Combined, those challenges might feel unique to this time, but there are lessons we can take from situations we’ve seen before.
That’s a wise observation. Shall we consider a hypothetical case study to apply those lessons?
Great idea. We do talk a lot about the construction industry at the moment, but let’s put the spotlight on services. Let’s say I’ve heard from a tech startup. They’re a mum-and-dad business, they’ve been making money from this great little piece of software they developed, but it’s not paying the bills as well as it used to. In fact, they’re starting to lose money. And they want to sell.
Okay, sure. What are some of the things they’ll need to think about?
I like this idea: make your money while you’re running your business because there might not be a pot of gold at the end. A lot of business owners expect that they’ll be able to sell and fund their retirement. That's not always the case.
It’s important to know when to sell.
Absolutely. Ideally, you want to sell at a high point. Unfortunately, you might have missed that boat. You might be running at a loss and waiting for the next big contract to come in. You might have a lot of deposits for work not yet delivered, but you’ve had to take out debt to deliver that work. That can create a spiral.
So start by making sure your financial reporting is in good shape. Your key financial data is the:
- cashflow statement
- profit and loss statement
- balance sheet.
Is there a way businesses can figure out when it’s time to cut their losses?
That’s something RSM helps businesses with every day. If you get help early, we can be in the room right from the start and help you figure out what your options are. Not every unviable business goes into liquidation.
When we’re in the room right from the start, we can pull together all the expertise you need to get your business in shape for sale.
For example, if you’re selling your business, it could be helpful to be in a position to include the premises you’re in. We can help negotiate with the existing landlord so they’re in a position to do their due diligence on the potential buyer.
IT businesses might also have a lot of infrastructure in those premises.
Yes. Say you’re a software developer or an app developer and you have one server in your office that contains everything - all the data, all the programming. That’s the actual asset you’re trying to sell, along with everything that goes with it.
We can help you work with data analysts to make sure:
- everything is there
- you have backups
- your data is protected
- your personal privacy is not at risk.
Why would your personal privacy be at risk?
Often with mum-and-dad businesses, they’ve been running this operation, and it becomes their life - so they have a lot of private information mixed up with the business communications. That creates a privacy risk.
Along those lines, I was dealing with a business recently and one of the first things we noticed was that their logins were all over the place. They had a potential buyer who was interested in the brand and the online community around it. But the YouTube login was with a former staff member. One of the kids looked after the Instagram profile and they didn’t want to give it up. For your business to be ready for sale, it helps if you have all your access points ready to hand over.
Corporate knowledge can form part of that value too, can’t it?
In any business, a lot of corporate knowledge is connected to your staff. They have the history and context, and it might not be documented - especially tech startups, which tend to grow quickly.
Your potential buyer might have their own team they want to bring in, or they might intend to keep your staff. Either way, making sure that knowledge is accessible can help the sale.
It can be a fraught time for staff, and for business owners too.
Looking after your own health and wellbeing is absolutely essential. We talk a lot about personal resilience and business resilience. Once our health goes, if we don't look after ourselves, it’s harder to make the right decisions.
One way you can do that - which also helps from a business perspective - is to look closely at the parts of your business that are not making as much money. An example is a cafe that’s slow on Thursday afternoons. It’s okay to limit your offering.
Is that the piece of advice that’s top of your list?
Possibly! It’s right up there with this piece of advice: if you’re facing any kind of financial difficulty in your business, you do have options if you ask for help early.
Call the RSM Restructure and Recovery division. The sooner you call, the sooner we can help.