troubled transportation companies

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Despite the fact that some transportation companies are currently enjoying their most profitable years ever, many have gotten into financial trouble for several reasons. It is not all related to a slow market, high insurance or fuel rates. There is usually a dominant cause progressing from ignorance, complacency, ego and greed to outright fraud. These are often found in combination. There are many visible failures of small and large transportation companies, which are rooted, in human weakness, which is shared in varying degrees between direct management, major shareholders, directors, auditors, and brokers.

Even suppliers and clients get entangled in the failures. Almost always, action comes in reaction to a major crisis and there is not much left to fix – it is left to the trustees in bankruptcy or appointed receivers (i.e. corporate undertakers) to sell salvageable assets at bargain prices. Since regulators have no business in monitoring normal course management decisions, they are almost always left trying to explain what happened and where to attribute blame.

If large public companies fail to flag problems and make reparative changes, what hope is there for smaller privately owned trucking companies? Who is there to blow the whistle early enough so that something can actually be done? Personal pride, stubbornness or risk of embarrassment usually wins the day at smaller troubled companies – many just disappear quietly with few witnesses.

To protect their loans, banks and other lenders sometimes initiate outside reviews of their troubled accounts. A quick impartial appraisal of the company is needed at the outset. Some situations are terminal with the only solution being receivership and eventually bankruptcy. Others may benefit from a one-time financial restructuring to wipe out a past major error. Often, where time is at a premium, the best route may be to merge a company with a competitor having similar problems and then to restructure the combined entity. Another option is to conduct an “operational turnaround.”

The term “turnaround” implies the need for a full court press to remove or reverse entrenched practices that are leading to the eventual failure of a company. This is hard work, typically the “two steps forward one step backward” kind. It will normally require the skills of an outside turnaround specialist. Turnarounds have the following ingredients and principles, which, if applied properly, will greatly increase the odds of success.

General Rules

* Whatever is done or expected should be visible, through weekly tick lists or written instructions recorded as minutes of meetings. Verbal communication is prone to misunderstanding.

* Establish a base of sound information – not hearsay. Get subjective and qualitative information first hand.

* Never conduct meetings without clearly stated purposes or leave without arriving at conclusions and always set out a system of controls to assure that follow up occurs.

* Recognize that everything is interrelated and that success will come in small increments. Don’t rely on home run solutions.

* Concentrate on short-term business objectives.

* Work within the financial reporting systems that are in place i.e. perfecting the systems won’t save the company. Complement existing systems with temporary operating and financial schedules flag exceptions and progress. Establish efficiency reports to serve as a base upon which to make operating decisions.

* Share relevant successes and failures with all employees and, when realistic, set up short-term monetary or non-monetary incentive schemes to help with motivational issues.

You will find rigid systems or autocratic management styles have led to compartmentalization (e.g. “not my job”) and will have taken incentives and ingenuity away from employees. All solutions should bring in a measure of trust and attempt to re-humanize and personalize the company.

For owners and senior management in the transportation business, a first line of defence in preventing small problems from growing into large ones is to stay close to one’s employees who often have much more to contribute when they are respected for more than just doing their jobs. Also, outside input through regular check-ups almost always flags problems in the formative stages.

Mark Borkowski is president of Mercantile Mergers & Acquisitions Corporation. He can be contacted at: (416) 368-8466 ext. 232

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