Businesses are soon coming off life support. What happens now?
The Early Warning Program:
The recent pandemic shock has highlighted the need for an effective program to support businesses in distress rebuild or exit, in a manner that minimises financial, social and personal damage. As part of its Innovation Policy, The Sustainable New Zealand Party’s Early Warning Program is designed to do just that.
Early Warning Program is modelled on a successful initiative in Denmark counseling SMEs facing the risk of bankruptcy. There the program has helped over 4,000 Danish businesses deal with the severe economic challenges and helped keep alive about 2/3 of these companies. The purpose of the Early Warning Scheme is:
1. To help viable companies survive a severe slump and renew with growth;
2. To reduce economic losses for society, creditors and entrepreneurs by helping non-viable companies to close down quickly;
3. To promote an entrepreneurial culture and help recognise failure as a natural part of entrepreneurial endeavours;
4. To give bankrupt entrepreneurs a second chance by helping them to avoid unmanageable debt and loss of self-esteem so that they may start a new company within a foreseeable future.
The proposed staffing of the Early Warning Program will comprise of 10 specially trained consultants collaborating with insolvency lawyers and a group of approximately 100 voluntary advisers. It is envisaged that the advisors will consist of current and former directors of large corporations, owners of smaller companies, board members and chairpersons as well as a few professionals (accountants, lawyers, financial advisors, psychologists, coaches etc.).
The overall approach of the early warning process is as follows:
1. The early warning organization receives the request for help from a company owner facing a severe economic crisis.
2. A consultant undertakes an initial screening of the company and provides an assessment of the economic situation and the future prospects of the company.
3. If the company can be saved, one of the voluntary advisors will be assigned to the company to support a turn-around of the company.
4. In case the future prospects are unclear or negative, early warning will organise a meeting with an insolvency lawyer to determine if the company can be fully or partially reconstructed, or if the company shall be closed/declared bankrupt.
5. A voluntary advisor can be assigned to assist a bankrupt entrepreneur with economic and personal advice following a declaration of bankruptcy.
The experience with the early warning program in Denmark is extremely positive. Two impact evaluation studies comparing participants in the early warning program with a control group show that early warning companies that survive are capable of maintaining or increasing their turnover, employment an export. Moreover, the early warning companies that are declared bankrupt do so with less debt to the public sector such as unpaid income tax than the corresponding control group. Both evaluations find that the economic benefits of the early warning program outweigh its economic costs much less social considerations which were not part of the evaluation studies. The key success factor for the early warning program is the group of voluntary advisors that bring with them the experience and skills needed to turn around companies going through difficulty.
Furthermore, there is a strong focus in the early warning organisation on facilitating the exchange of experience and the joint development and testing of methodologies to assist viable and non-viable companies in the program in the best possible way.