Unwise business advice causes concern

By TOM CLARKE

Insolvency specialist John Whittfield is surprised at some of the poor advice given to business people by professional advisers when their businesses run into trouble.

"Insolvency is a very specialised field so you need to get specialised advice," he says.

Some advisers may get a bit out of their depth - they may be good at doing certain parts of the job, but not others.

"I never cease to be surprised by some of the poor advice that companies and directors get from their professional advisers when they are obviously in a bit of difficulty," he says.

Mr Whittfield, who has just become an associate of insolvency specialist firm McDonald Vague and Partners, says there are some key pointers to when a business is facing serious difficulties.

The ratios between debtors, creditors and stock, and the amount of debt a business is carrying, are fundamental to how well the business is trading, and whether it is trading profitably.

"If you find your creditors are starting to exceed your debtors you've got to ask yourself why," he says.

A company may be carrying a tremendous amount of stock, although it may be growing rapidly. "That doesn't mean it's in trouble at all, it's just a reflection of what the business is doing.

"But certainly if you've got a lot of stock sitting on the shelves that has been there for six months and your creditors exceed your debtors, then it's quite obvious there's a problem. These trends have got to be recognised as indicators of what's happening in the business and need to be looked at on a regular basis."

Some business people, he says, do not realise the margins they need to succeed. They still discount too much and free market competition often squeezes them to the point they are not profitable.

Mr Whittfield says some business people can not see the wood for the trees and do not recognise a developing problem until it is too late. To keep on top of things he recommends firms regularly seek management advice from business advisers such as accountants and lawyers.

He says New Zealand has some good business people and that many are well-skilled entrepreneurs.

Mr Whittfield is a former dairy farmer who spent 15 years on the board of the East Tamaki Cooperative Dairy Company Ltd. He was deputy chairman from 1992 to 1996 when the company merged with the New Zealand Dairy Group Ltd.

That merger resulted in the technical wind up of East Tamaki and its associated companies, and Mr Whittfield was retained to undertake the liquidation. This included securing and realising its many assets for the 147 farmer-shareholders.

That experience brought him into contact with McDonald Vague and Partners and he later undertook contract work for the firm.

Since 1998 he has worked solely for the partnership undertaking liquidations and receiverships for a range of companies in transport, electronics and plastics. Many have been sold as going concerns. He has also specialised in the agricultural, dairying and forestry areas.