Episode 7: First signs of failure with Ron Mitchell from Business Rescue UK transcript

Ed Surman: I’m here today with Ron Mitchell of Business Rescue UK. Ron is the director of this company and specializes in saving and turning around companies before liquidation and other nasty interactions with the crown. Ron has had years of director experience starting at Dunlop, the sports brand, before moving to one of the UK’s largest manufacturers and wholesalers Symphony Furniture Group. Before joining Business Rescue UK, Ron carried out the management buyout of a materials handling manufacturer and has been managing director of that company for 20 years. His work has taken him around the world from Malaysia to Indonesia and the United States. And I’ve known Ron for past two to three years on the London networking circuit and I would just say this that when we first decided to start a podcast I think you maybe been person number one, two or three that I thought of before bringing you on. I think you know, you go through your career, to use that term of the youth, you were a bit of a baller and I think you know we’ve got some really interesting discussion points to cover regarding stress on businesses. I think the best message you bring is that, when you think the end is nigh it could be a lot further away from that than you think and actually there’s a lot of opportunity for recovery and success there.

Ron Mitchel: If you think about it most business owners or directors generally speaking don’t aim to get into problems, they only get into problems once, so they have no experience. So when that hits, what do I do? Who do I turn to? And it depends on whose telephone they ring as to what might happen.

Ed Surman: Yeah. Just tell me a little bit about that journey from starting out at Dunlop to now.

Ron Mitchel: Well I suppose originally I didn’t actually start work till I was 27 because I stayed on and did a PHD but never intended to, and always wanted to go into business of some kind, but it was an opportunity I took and finished up having finished doing a PHD to going and making tennis rackets and cricket bats, with Dunlop sports division and dealing with the likes of Geoffrey Boycott and those sort of days. Saw things were going wrong with where I was at Slazengers and remember wondering why we were working all the hours that God sends when the warehouse was actually turning round saying we don’t want any more tennis rackets. So I saw the writing on the wall and decided to move on and joined the Symphony Furniture Group. And at that point in time they were expanding rapidly and the the M.D. who was an ex PA consultant was looking to do double the turnover every year. So when I joined it around two and a half million, second year five million, third year 10 million, 20 million was more of a problem. We went from one factory, two to four factories within that period of time. It was up in the north, things weren’t going as well as they should in the north. So we finished up moving south and joined a materials handling business and the owners were three brothers and they wanted to retire. Myself and the finance director did an MBO of the business, took it over and run it on for about another 20 years, adding bits and pieces onto it as it went. How we got into Business Rescue was that things got a bit tight with the materials handling company and needed to raise finance fairly shortly and in those days there wasn’t such things as Google or whatever. We spent time in the library got out the yellow pages and found this company called Business Rescue, rang the guy up and he was impressed, and at nine o’clock the following morning he was in my office saying what can I do for you?

Ed Surman: Where was this?

Ron Mitchel: It was in Braintree. So it was a fairly long trip for him, sorted the problem out, but became friends. And so when I came out of the materials handling side, he kept on ringing me up saying well you’re nearer to these people in London than I am, can you just go and pop in and see them. So eventually decided to join and then took it over. So for the last eight years myself and another director well another two directors have been running the company and built it up to what it is, started the franchising around the country and that’s where we came to, to where we are today.

Ed Surman: What a story. I hope if one day I could have the same story, I’d be very happy. So just let’s go over about Business Rescue UK. I mean we’ve gone over a little bit about how you got into the company. What does Business Rescue UK actually do? So obviously you help companies that are stressed, and normally when you read the news you will see Debenhams is going into administration, but then suddenly you see it reappearing and they’re still trading. So that’s obviously, for someone who reads the press, they see this horrible news that something’s going terribly wrong but actually behind the scenes lots of different things are happening. So do you want to describe that process and where you fit into that?
Ron Mitchel: I suppose Business Rescue, for one thing we’re a group of businessmen, so we’re not insolvency practitioners, we’re not accountants. So we tend to look at problems from a business point of view, and like myself we’ve been into running companies that have had difficulties. So you got firsthand experience and I like to think with my own company if I knew then what I know now things would have turned out differently. So, I think I’ve said before that people don’t intend to get in difficulty in business. Things can happen very quickly that cause a problem. And it’s because they’ve got no knowledge as to what to do. It’s a question of who do I go to, to give me some help. And if you go to the wrong people then that may not be help in order to get the business going it might be help in terms of liquidating the business, whatever it might be. What we do is look at the options. Yes it may well be that the best route is to actually liquidate, it may well be to partially liquidate and start something else again. Or as you say with the Debenhams with the CVA so at least they can carry on going. All of those are options but because we’re, I suppose, a business where you look at all the options, we’re not restricted in the sort of products that we can offer that company to turn it round.

Ed Surman: So you’ve touched on a range of schemes and methods of rescuing a business. We’ll go onto debt a bit later but let’s just talk about broadly, let’s go through a list of the kind of things that you can do.

Ron Mitchel: Initially we would ideally like to go into a business and carry out what we call a business medical, which is our trademarked thing. So if you’ve looked at the Price Waterhouse report on a company whatever, that’s the type of report that we do, obviously if it’s a small company it’s a very much smaller report. The difference with ours is that, at the end of it we would actually say the things that could be done in order to improve the direction. So in some respects we’re looking to say well where actually are you now, not where the director thinks he is, where you actually are now, where do you want to go to, and where can we draw the roadmap between there and now, the steps we have to go through. Everyone’s different. So once you’ve drilled down to find out what the problems are, you can start suggesting solutions. And if you go into a company traditionally will turn around and say I’ve got cash flow problems. Yeh but why. Because the cash flow problem is the result of something not the cause. And it could be a number of reasons and depending on what they are, depends on what product you can possibly put in, in order to repair it.

Ed Surman: Yes you might have like a debt problem right so you’ve got big outgoings on interests that you have to regularly commit to. You know in that situation, we’ll talk about that a little bit later we’ll look at some of the debt management side, but it could be something as simple as say you have a really key client that’s crap at paying you on time and that’s really sort of causing backlogs.

Ron Mitchel: There are a multitude of things that go wrong. Some of them are out of the ordinary where perhaps one of your big customers go bust and you’re left with a major debt that cash can’t stand. What do you do about that situation. It may well be you’ve in the past taken out a loan and found out the interest rates are enormous and you want to reschedule your lending or whatever it may be, or it may well be that your life cycle has changed so the product that you were producing yesterday isn’t the product that somebody wants tomorrow. A huge number of different things. And we can look at all of those and decide on what is the best way to move forward.

Ed Surman: And how often. So obviously we don’t want to talk about insolvency at all really today because it’s quite a technical thing.

Ron Mitchel: I think insolvency laws obviously we have to take into account. Because directors cannot carry on running a company if they’re against their official adjudicatories. So that’s one of the things we do say to them. This is all going to be done in a correct way.
Ed Surman: And so how many say, you know you have X number of clients a year, is it normally quite rare you get to a certain stage where you liquidate a company with your business?

Ron Mitchel: I wouldn’t say it’s common. I suppose 30 or 40 percent you finish up in some kind of insolvency process. It could be a CVA which is an easy process. You could be sort of burying part of the company and building up the other side of the company. So we shouldn’t be poo pooing the insolvency regulations.

Ed Surman: We were talking earlier before the interview about it how you were one of the first sort of companies that really looked at the problem differently right? So you say a company thinks they’ve gone to hit the buffers and oh my god we got to go and do something. And you actually you do something quite new very early on, that enables to troubleshoot and take a proper, like you saying, an executive view on the problem.

Ron Mitchel: Yeah. I mean I suppose we go back to the start of Business Rescue which was nearly 30 years ago. The guy who started it up in Preston he just used pure business acumen and he was an engineer background and whatever and went into companies to help. But then in the 80s when the government brought in the CVA’s and the IVA’s, it was the first time really they’d done anything other than liquidating companies to put in anything to support. And the fact that he was already in the business turnaround arena then he latched onto those very quickly. And made a lot of money doing it and that sort of led on to us doing a proper business medical which is a structured way of taking the company apart in terms of what the problems are and building up a lot of other people we work with to supply, whether that be finance or legal requirements or debt management or whatever it would be. We built up a number of service providers to help support businesses.

Ed Surman: Interesting. So let’s just go through some of these sudden insolvency regimes. So let’s go through a company voluntary arrangement and then go for a scheme arrangement because they sound very similar but obviously there could be some distinct differences.

Ron Mitchel: If you’re going to an insolvency practitioner or such a company then in terms of looking to keep a company going, the two tools, and IVA for an individual and the CVA for a company, so a company voluntary arrangement. The idea behind that is that you make an arrangement with your creditors to either pay all or some of the debt off over a period of time. And we’ve seen with Debenhams that may or may not include selling off some of the properties or getting out of the leases or whatever it may be. On a smaller scale generally speaking you’re talking about looking at the historical debt at a particular point in time, putting that to one side and agreeing with your creditors to pay either all of it or a percentage off, generally speaking over five years. In lots of cases that works very well, in some cases it doesn’t. Some don’t have a particularly good reputation of being successful. One of the issues with that is that it’s advertised so everybody knows that you’re into a CVA so where you might’ve had a credit account with a company before and you’re on reasonably good terms with them. The chances are that credit account is going to disappear and you’re now going to pay proforma. So your war chest of not having to pay the historical debt gets watered down because you’ve got to pay people upfront for that work. But it’s right to be used in certain circumstances, because you’re effectively saying on a monthly basis how much you’re going to pay into the CVA. So you’d need to do an income and expenditure of the business going forward and be sensible about it. And remember at the point in time that you’re doing the CVA the company is at its worst possible situation. Hopefully if the business is moving forward and they’ve got the right support etc it’s going to improve and be able to pay that back.

Ed Surman: What kind of impact would you say having a CVA have on a company. You decide to go through the CVA but you you want to get out the buffers but you’ve got an opportunity to really kick out of it. What kind of drags do the CVA have on opportunities to actually go from hitting the buffers to actually finding a new market or re-iterating a product?

Ron Mitchel: Well I’d say that the issue is the fact that it’s advertised. So anybody who checks your credit rating is going to see that you’re into a CVA and that’s quite a negative going forward and potentially is one of the reasons why we brought our own debt management company into play here. So we work in essence doing a similar thing to a CVA but it’s Business Rescue that’s actually doing the negotiating with the creditors. And from that point of view the only people who know are the creditors, the company and us. We’re looking to probably pay 100 percent of the debt off. We would work generally within the five years so sort of similar to CVA but there’s no restriction, we can go to six or seven years but yeh we’re looking to pay 100 percent off. But it does mean to say that those people who had a credit account, with who you’re up to date, you keep.
Ed Surman: Yeah, go back to say, manufacturing, you’ve got very very varied trade cycles. Yeah then actually that’s kind of invaluable, that could be critical stuff to you succeeding. I mean particularly in manufacturing it sometimes takes a while for your products particularly, you need to really get traction with, particularly people further up the supply chain and once it’s widely adopted you’re on a winner. But it’s so easy to have those problems early on.

Ron Mitchel: I found in manufacturing, and it didn’t matter which industry you’re in, a decision made to change the company’s direction used to take at least three months before anything would happen. So you’ve got that drag all the time and that’s something fairly straightforward, but some things could take months like new product launches or whatever would take so long.

Ed Surman: And then the Scheme of Arrangement. What’s the difference?

Ron Mitchel: This is basically the same thing. It’s still an arrangement to be made with the creditors.

Ed Surman: So this is what you do?

Ron Mitchel: Yeah. Well the CVA is a Scheme of Arrangement, a Debt Management plan is a Scheme of Arrangement.

Ed Surman: So it’s a category that covers the whole business, that’s fantastic. So just for our listeners to come back to, as we’ve covered some technical detail here, so I suggest that maybe if you are really interested in understanding this, go back to some Apple podcasts, you can sort of slow it down a little bit.
Ron Mitchel: If you went into a typical situation and there are some typical situations,a company’s got into distress, it wants some help. So you turn up and it may well be that you’ve got to take some actions fairly quickly. Generally speaking it’s buying some time. So talking to the creditors saying that we’re involved, looking into the situation, just back off for a month while we sort out and come back to you with what the plan is going to be. To give time to actually go through the company, find out what the difficulties are and look to see what the potential solutions would be either short term or long term. We do get the telephone calls when somebody says we have had a winding up petition. When is it going to be heard? Tomorrow in court. Well you have to move fairly quickly but yes we can get a barrister into court the next day in order to get at least an adjournment on that while we look at what’s going on. So typically it would be moving in fairly quickly getting hold of the situation talking to the creditors if that’s what needs to be done. While we then investigate better methods of going forward which might be a debt management scheme it might well be put some new finance in there. It might well be looking to employ new management if that’s been a difficulty. So many different difficulties, so many different possibilities.

Ed Surman: So for our listeners. As I say we’ve gone through some technical detail on the CVA’s. Let’s just go back and say to our listeners who may be thinking you know, we’ve got a bit of stress or I’ve got a friend who’s got another business and he’s in a bit of stress. Let’s help them identify the common causes of stress. We’ve gone through a few at the start but let’s just reel off a quick list. So I guess a big one is tax debts?

Ron Mitchel: HMRC debts yes is a fairly major one and obviously cash flow. I mean one of the obvious situations in terms of watching is your creditor payment days going out. Are you saving up through the month because you’re worried about being able to pay the wages at the end of the month? So you stop paying other trade creditors during the course because you’re saving up to meet the end of the month PAYE run. It may well be that your relationship with your suppliers is going sour. If this has been going on for some time the other sign is that your good people start leaving because employees are quite, like I was a Dunlop, they’re quite clever in terms of seeing what’s going on and they realize the fact that this company is in difficulty and they’ll vote with the feet. And if you start losing some of your good staff then you’ve got a problem.

Ed Surman: What’s the strangest cause or reason someone’s called you up for a need of rescuing?

Ron Mitchel: It’s a difficult one. Well the example I gave you was the one who rung up and said yes I’m actually going to the petition tomorrow.

Ed Surman: Yes. Really back against the wall there.
Ron Mitchel: That was certainly there, but there are a whole range of, but there is no specific situation. We don’t apportion blame. We are where we are. And yes there are times when you walk out of a business and think OK why did you do that.

Ed Surman: I’m thinking back to the interview I did with Simon and he was my colleague and he was saying yeah you know a company isn’t simple, there are so many facets to it, so actually sometimes it’s almost useless pinning it down to one thing. Because if you can find one thing as you’re saying earlier it’s likely to be an effect rather than a cause of the problems.

Ron Mitchel: I mean a client that I’m going to next week who actually is running a commercial laundry. He was subcontracting some of the work and they’re doing hotel laundry so sheets pillowcases and whatever for very major hotels and his subcontractor had a fire and destroys quite a lot of the sheets and blankets. The trouble was he wasn’t insured. So all of a sudden he found he’s got to replace £75,000 worth of linen or whatever for this hotel tomorrow.

Ed Surman: And the problem isn’t the fire it’s the fact that there was no insurance there, they didn’t think about their risk assessment. I mean everyone finds that kind of stuff boring bureaucracy. But actually it’s so so critical. People really really really under underestimate all that stuff.

Ron Mitchel: It catches you out an awful lot of things are things that the directors would not have thought would have happened. It was something obscure and you still need to sort it out. There are some common traits with businesses and I know we have this sort of boring situation where people say you ought to do a business plan. Well we’re not into the 25, 50 page business plan. But even on one sheet of paper, have you actually got a plan do you know where your business is going? And generally speaking most of the companies we get involved in, the answer to that one is no. And the other one is do they actually monitor what’s going on in their business? Yes we have a set of accounts. No the accounts is historic. So yeah you can see going backwards that business started going wrong a year ago. What I’m talking about is actually measuring the key factors in your business as you go along and graphing them or whatever and you can see trends and you can start seeing things are going wrong early. We go into companies and say well what’s your sales forecast? And they don’t know. How are you going to be in June? Well we should be okay. Yeah well £5000 for a small company one way or another is either okay or not okay. So just basic stuff in terms of measuring what is happening in your business, where is it going?

Saul Eber-Rose: Can I ask a quick question?

Ron Mitchel: Yeah.

Saul Eber-Rose: Does it ever … I’m Saul by the way.
Ed Surman: Here’s there to record and monitor recordings and he’s like I’ve got a question. (laughing)

Ron Mitchel: I’ve got a problem with my business (jokingly).

Saul Eber-Rose: Does it almost piss you off, the mistakes that people make in regards to running their business? Does it ever get on your nerves, how simple or common sense they could be to you?

Ron Mitchel: You do but yes is the truth is when you go down and find out that it was a simple mistake as such but you’ve got to accept the fact that people generally some small traders have started business because they may be a technician, they may be a plumber, bricklayer or whatever, but that’s what they’re good at, that’s what their skill is. And all of a sudden the company’s got bigger. They haven’t got any of the management skills, nobody’s taught them those bits and pieces. So what would appear obvious to you and I isn’t there. I mean we all do it to our own businesses. We’re very good at telling people how to run their businesses but don’t necessarily follow the same instructions ourselves which we slap our wrists for. But you should spend time every month which is the idea of a board meeting and actually looking at your business and say is it going where I wanted to go, or are there some problems. But small companies you tend to get your head down, your backside in the air, and work away and the rest of the problems go round and all of a sudden the problem gets too big. And something has to happen, something breaks at that point in time. You’ve got to nurture it but you’ve got to understand your business or understand what’s going on in your business and it’s amazing but people don’t. And that can be at all levels. You know you can have a, well, take the example of international sports division. You know I was working away I was the production manager and was told that we had to work overtime. We were producing some 18000 tennis rackets a week. And I had a problem over the warehouse which was a totally different factory run by different people, went over there and the warehouse manager turned around and said why the hell are you producing all these tennis rackets? You can see the place is full we just don’t need anymore. So I went back talked to the works director and said well why? Then he said well while we haven’t got instructions from the board to do it you carry on doing it. So I started looking for another job because it was very obvious what was going to happen. And sure enough the month after I left they started making people redundant, so this shows at any level people can get blinkered.

Ed Surman: So just to summarize. What I love to hear from you when I’m talking to you is that you’re probably one of the few people I’ve come across that really sees failure as an opportunity that you could almost get failure to the worst case scenario and before it really falls through the floor you can just get a couple of hands and say just stop it just before it does go off. You know you’re going to go wrong here. And actually I think more and more businesses around the UK need to sort of like look out for companies like yourselves. Obviously you because you’re here (laughs). But regardless, you know actually finding those kind of people like yourselves, getting help from people who have had experience in this. I mean you’re not you’re not preaching from a high altar.

Ron Mitchel: No I’m not. I’ve been there.

Ed Surman: You have been through the trenches. And I think that’s really quite special.

You know what they’re really saying is we need some help. We want to have some impartial advice to talk through what are our options and because we’ve been there before because we’re businessmen and we can use the insolvency law we can use various suppliers if you like that we can look at those options and talk through with the board or the individuals and say well those are your options available to you. What do you want to choose. And whichever they choose we’ll work with them and we build up quite a relationship with them because a lot of times if it’s a small business owner or an SME his house might be on the line he might be scared to lose his business may not have told his wife and he’s putting his future in your hands so it’s going to quite a responsibility in that respect but having shown them a direction with them, quite a lot of the clients keep us on afterwards as sort of business mentors and to help them out. Hopefully they stay on the right track. But on occasions where the money starts coming through and they start doing the same silly trick twice. Hopefully they don’t do that.

Ed Surman: I think we’re going to stop there. I think you know obviously, and it’s an easy thing to come to the conclusion here is call Business Rescue. But also, if you’re too busy. Obviously you guys were pioneers about 30 years ago when these CVA’s and things came in but actually you know they’re a lot out there so you make sure that you really, if you are a business owner and you’re listening, don’t, there’s a great photo on your website of that guy gets his head in the sand. Don’t stick your head in the sand. Get your head out of there. Look for help because the help is there and it doesn’t have to be an accountancy practice or an insolvency professional straightaway.
Ron Mitchel: Just a couple of things. A lot of small medium sized businesses believe their accountants are there to give them business support. And we’ve had on more than one occasion a businessman with a guy turned round to us and say you’ve taught us more about our accounts in 10 minutes than our accountant has in ten years. But the accountants not there necessarily to give business support. In fact lots of accountants, small accountants don’t have the qualifications to do it. So they’re there to produce a set of accounts.

Ed Surman: Let’s not poo poo them too much. They do that and they’re very good at it but you’re right. And I think that they’re thinking about traditional accounting firm is unless they’re advertising they do business advice that is genuinely good, you’re in a bit of a risk actually. There’s more to set of accounts than the FRS 102 standard where you have lines on a piece of paper that goes on Companies Houses.

Ron Mitchel: And if you’re a business owner and you’ve made enough money to pay your bills and whatever then you get a set of accounts at the end of the year sign here and you never look at it again. But there actually could be quite a lot of information in that set of accounts that will give you a clue that perhaps next year is not going to be quite as good as it was. And on top of that you’ve also got to be careful in terms of those words business rescue, because whereas we were the first, we were business rescue, insolvency practitioners were insolvency practitioners. Now nearly every company in that sort of industry is under business review, business rescue, or business turn round. Just be careful who you talk to because they may not actually be as interested in turning a business round as using a CVA or liquidating it.

Ed Surman: Just before this interview, I went back on your web site to do some more swatting up, and put it in the Google search engine and lo and behold the first thing came up was KPMG. You know Ron, it’s always a pleasure to speak to you. We normally do it over a beer. Saul, great intervention with the question there and maybe I think we should probably swap presenters now. Thanks very much.

Ron Mitchel: Pleasure.

Saul Eber-Rose: Thank you. Thank you.

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