Failures Make Crisis Management A Growth Industry
Titus, Nancy Raiden, THE JOURNAL RECORD
By Nancy Raiden Titus Journal Record Staff Reporter Business failures will continue in the '90s like they did in the '80s, making a growth industry out of the crisis management field, an expert told Oklahoma City entrepreneurs and venture capitalists.
The crises faced by these businesses also offer good investment opportunities for those who are willing to inject capital on short notice, according to Lance P. Wimmer, senior vice president and managing director of the southwestern region of Buccino & Associates.
He told the Oklahoma Venture Forum that a survey by his firm of more than 1,300 professionals including attorneys, lenders, crisis managers, chief executive officers and financial executives, indicated that internal problems were the culprits.
The Venture Forum is a non-profit civic group that promotes education in the venture capital process and allows entrepreneurs to present their business ideas to potential investors.
"Businesses don't fail by themselves," Wimmer said. "Warning signs appear very early on."
Debt-service burden and poor management were the major reasons the '80s had more business failures than the '70s when there were two oil embargoes and high inflation rates, he said.
The specific internal problems identified in the Buccino survey were debt and inexperienced management teams: 30 percent listed excessive debt as the leading cause of failures and another 54 percent cited management problems _ inadequate leadership, inexperienced leadership, an inability to change and improper planning.
Wimmer cited statistics from Dun & Bradstreet showing that about 90,000 business failed in 1990, and 258,000 failed during the period from 1987 to 1991. For the entire decade of the '80s, more than 420,000 business failed, more than in the previous four decades combined. The rate per 10,000 businesses also was higher during the '80s than for any other decade including the 1930s.
"We will continue to see these kinds of failure rates. There is an industry emerging here," he said. "We have problems coming down the pike."
Wimmer based that statement on another statistic that indicates one-third of all businesses fail within the first three years.
Warning signs that the economy is mortgaging the future include the nation's high consumer installment credit, the high federal deficit as a percent of gross national product and the fact that corporate debt now equals almost half the GNP. During the '80s, the corporate debt rate also grew from one-third to one-half of capital of all companies.
"This is going to mean more failures."
Some of the business problems were the result of such lavish expenses as company cars or jets and other "corporate toys." The lack of proper cash management then often led the failed companies into problems with their constituents.
Banks showed reluctance to extend terms on payments, and the company's employees exhibited low morale.
The management focus of these companies often is in putting out fires rather than trying to solve problems at their roots, he said.
"Management was never trained to deal with a crisis," Wimmer said.
"The company may be on the edge of bankruptcy. There are not very many management teams that know how to prepare for that."
Since 1981, Wimmer's firm has built a specialty in helping businesses out of financial crises. …