WARNING: BAD PRESS KILLS By Neil Debenham
We all know that positive media coverage is good business. But how bad is negative publicity?
No one is immune to the negative press. Elon Musk – arguably one of the most powerful and innovative businessmen saw Tesla’s $ 1 billion wiped out after being filmed smoking a joint, and he lost $ 20 million further when the Securities and Exchange Commission (SEC) fined him for breaking the rules by announcing his intention to deprive Tesla of Tesla on Twitter.
He’s not the only one paying the price for bad press. Billionaire Mark Zuckerberg had to shell out a record $ 5 billion for Facebook’s shady deals with Cambridge Analytica.
And to update my point, it was recently announced that the owner of fitness company CrossFit had sold his business following outcry over his remarks on George Floyd. After his comments (which I won’t repeat here), gyms around the world abandoned the CrossFit brand and his partnership with Reebok quickly ended.
But it’s not just the big companies that fall for bad public relations.
I discovered this the hard way a few years ago when I, Neil Debenham, bought the fitness company Fitlearn. Not on a CrossFit scale, but in the same area nonetheless.
This business reflected everything an acquirer would want to see. She had an excellent track record, excellent financial background, a well-run professional business, and a good pool of potential new students. But what I had failed to do – and I don’t care about that – is performing a reputation audit.
Two company employees were being investigated for fraud at a former company they had run. With the media reporting the activities of previous employees, the bad publicity that followed linked Fitlearn to previous employee activities and ultimately stabbed a sword at the heart of the business.
The deceptive and negative public relations had a direct impact on the business, leading to existing clients demanding their refunds and new clients looking for alternative routes to study, the business very quickly became insolvent.
As a director of a company, it remains your fiduciary duty not to allow a company to negotiate insolvent – Insolvency means that the income or assets of the company do not meet the requirements of the liabilities of the company. In this case, Fitlearn relied on new students joining the study program to cover its overhead costs and with the press leading the general public to believe that Fitlearn was somehow involved in the former company of the ex-employees. creating nervousness for potential new students, I found myself with no choice but to put the company into voluntary liquidation.
As with any business, however, you need to stay focused on making the right decisions; knowing that students may not complete their studies made the decision even more difficult.
In collaboration with the awarding body of the Office of Qualifications and Examinations Regulation (Ofqual) and insolvency practitioners to find a solution for existing students and to fill in existing contacts, many attempts have been made to creating a continuous study path for students, but no one wanted to pick up what they saw as a poisoned chalice.
The downfall of what was once a large corporation was simply the effect of negative and misleading media coverage and if it hadn’t been, I’m confident FitLearn would continue to strive today and Neil Debenham would be recognized as a great entrepreneur. .
Putting a business in receivership or liquidation is not an experience that I can recommend. It is an extremely difficult decision to make, knowing that you will have a direct impact on the creditors.
One of the main lessons to be learned is to look beyond finance and harness a 360 ° view of all that the business entails.
Make sure a reputation audit is high on the due diligence list. This includes a thorough Google search and trawling for comments on social media. Also take a look at a Trust Pilot to see how the business is rated. Evaluate the public’s perspective on the company and if there are any concerns, investigate.
Talk to staff and customers – they will all have a view.
Don’t just do your due diligence on the company, but also on the people who run or work within the company. They are the representation of the brand. If it is, has or could be misrepresented in any way, could this be contained and what measures should be put in place?
The other lesson is whether the company is really solvent at the time of purchase. Sure, you can buy an insolvent business at a knockdown price, but you need to know what you’re getting into. A specialist will buy an insolvent business and implement strategies, processes and finance to exit the insolvency. If you plan to do this, carefully combine your skills with what may be needed. Some companies will technically go in and out of insolvency, but it may indicate a serious underlying problem.
There are three simple tests to determine if a business is insolvent:
- Do the company’s liabilities exceed its assets? In other words, is the money in the bank and the value of goods and equipment sufficient to pay off all debts? Otherwise, you could be insolvent.
- Can the business pay its debts as they fall due? This includes tax and NI payments to HMRC
- Has the company taken legal action against it for debts over £ 750?
If your business – or the one you’re looking to buy – fails these tests, you need help. It is not a viable business and you may well be trading illegally.