What are the three questions that determine your business's future? In this strategic episode, Darren Vardy reveals his framework for assessing struggling businesses: Why are you here? What would you like the outcome to be? And how are we going to get there? Learn why understanding root causes is more complex than it seems, how to balance optimism with reality when setting goals, and why commitment and working capital are non-negotiable for turnarounds. Darren shares insights on the 50-50 split between restructure and closure decisions, and why sometimes a clean exit delivers the best outcome for families.

KEY TOPICS COVERED:

• Question 1: Why are you here? - Understanding root causes vs symptoms • Question 2: What would you like the outcome to be? - Balancing optimism and reality • Question 3: How are we going to get there? - Creating realistic action plans • Why commitment and working capital are essential for any turnaround • The 50-50 split between restructure and closure decisions • Case study: Cafe owner finding a better outcome through business sale • Why sometimes closure and PAYG employment is the best outcome • How to assess if you have the energy and resources for a turnaround • The importance of break-even analysis and cost reconstruction • Why positive outcomes include both successful restructures and clean exits

KEY TAKEAWAYS:

✓ Three critical questions: Why are you here? What do you want? How do we get there? ✓ Understanding root causes requires reviewing financials before the first meeting ✓ Directors often don't fully understand why they're in financial trouble ✓ Optimism is okay but must be balanced with realistic, measurable goals ✓ You can't be 'half pregnant' - turnarounds require full commitment ✓ Working capital is essential - no turnaround succeeds without it ✓ About 50% of business owners want to restructure, 50% want to exit ✓ Sometimes selling a business for $1 eliminates personal guarantees ✓ A clean exit with PAYG employment often provides more family income than a failing business ✓ Positive outcomes include both successful restructures and dignified closures

Who Should Listen: Business owners, company directors, lawyers, accountants, and anyone wanting to understand financial distress warning signs.

About the Host:

Darren Vardy - Managing Director of Insolvency Options and Registered Liquidator with over 30 years of experience in business recovery and debt solutions. Darren has helped thousands of businesses and individuals navigate financial distress and find practical solutions to complex problems.

Connect With Us:

• Website: insolvencyoptions.com.au  • Phone: 1800 463 328 • LinkedIn: https://www.linkedin.com/in/darrenvardy/

Subscribe & Follow:

Don't miss future episodes! Subscribe to i.O. - Insolvency Options

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Co-host: Anthony Perl

Produced by: Podcasts Done For You

Three critical questions.

2

Strategic thinking for

struggling businesses.

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Welcome to IO Insolvency Options with

Darren Vadi, the Managing Director of

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Insolvency Options, and a registered

liquidator With over 30 years of

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experience helping businesses and

individuals navigate financial challenges.

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In today's episode, Darren reveals

the three critical questions he asks.

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Every business owner, why are you here?

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What would you like the outcome to be

and how are you going to get there?

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He explains why understanding the root

cause is more complex than it seems.

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How to balance optimism with

reality when setting goals and

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why commitment and working capital

are essential for any turnaround.

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You'll learn about the 50 50 split

between restructure and closure and why

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sometimes the best outcome is aleen exit.

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I'm your cohost, Anthony Pearl.

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Let's dive into unlocking

more about insolvency options.

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Darren, I want to pinpoint some three

particular questions that I think

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people should be asking themselves,

why they're ending up in a situation

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where they're talking to you.

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What are those three kind

of questions or stages?

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Darren Vardy: Whenever I engage

with directors or their advisors,

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there's probably three key

questions that I sort of ask.

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First question is, why are we here?

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What is the reason?

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Has there been any event which has

put you in this financial position as

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opposed to just simply trading at a

loss for a couple of years at once?

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The second question is, in an

ideal world, what would you like

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to see the outcome to be and.

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Then we can explore what needs to

be done to achieve that outcome.

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So for instance, if.

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A director said, look, I want

to give it a real good shot at

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turning this business around.

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There's been an event that's

happened, but it's an isolated event.

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Yes, we've taken a hit on the assets,

but the business can trade profitably.

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If we were to restructure a few things,

well then we then look at the options

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on what that restructure looks like.

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And you know that the stakeholder

has the energy to invest into it.

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Because one of the things with

any turnaround or restructure,

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it takes time and energy.

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And so whenever we go into this,

I always like to make sure that

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the directors are fully committed.

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You know, the old saying is that,

you know, I want to do this,

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but I'm not gonna commit to it.

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You know, you can't be half pregnant.

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So it's all about.

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If I'm in, I'm in, and we're gonna give it

a red hot shot to turn this thing around,

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because if we don't have the commitment

of the director and the shareholder

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and we don't have the, where we've all

say the working capital required any

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turnaround just won't be successful.

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The corollary to that is we've had

people come through my door where

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they've said, look, we've struggled for

years and years, and we are just done.

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We are drained.

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The business has taken an emotional

and a physical toll on me.

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I'm just going to get

out and go and get a job.

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Now that option's easy.

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That option is, well look, hey,

let's just wind up the company.

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Can we sell the business

as a going concern?

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Yes, no.

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If yes, great.

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If no default position

is, we realize the assets.

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Creditors get paid what they get

paid out of the sale of the assets

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after costs, and everybody moves on.

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So really that question of what do

you wanna achieve in an ideal world

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out of this is really important.

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And off the back of that is, you know, how

it's the how, how are we gonna get there?

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And as I indicated earlier, based on.

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What their desire is or what they would

like to see as an outcome is that's

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when we strategize plan to determine if

that outcome can in fact be achieved.

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Anthony Perl: Yeah, because essentially

I guess it's a big hit to people

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when you get involved in a business

mentally as much as anything else.

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So do they feel like

they have the answers?

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Darren Vardy: The individuals and

the directors don't have the answers,

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and which is one of the reasons why

they come and seek advice from me.

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What I can provide is clarity of situation

and options, and that's what we do.

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And then that allows them to

go away and think with a clear

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mind, Hey, here are my options.

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This is what I need to do to achieve

those options, and do we have the

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wherewithal to be able to achieve that

so they can make an educated decision

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on what does the future look like?

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Based upon the various scenarios

available to them with their

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individual circumstances.

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Anthony Perl: Let's go back to the first

question because I think this is where,

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you know, obviously it's where it starts,

but it's a difficult question to answer

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and for people I imagine, why you here?

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Because many of them may not know really.

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I mean, they know that they've be given

a reality check and they've probably

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been told to, to speak to you, but

the why is a deeper question, right?

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It's how did they get to that point?

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Darren Vardy: Yeah, and you know,

that's where I asked for before

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we had that initial meeting.

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I have 'em send over their financials

and some financial information so I

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can have a look at, just to try and

pinpoint what I see as some of those

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warning signs, to educate them as

part of the process to say, well,

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hey, you tell me why you're here and

I'll tell you why I think you're here.

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Between that we can work out,

educate them on the things they

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don't know, but also educate them on.

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Okay.

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Moving into that next two questions,

which is what's your ideal outcome

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and how are we gonna get there?

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Because quite often you may have, or I may

have the conversation about what I see.

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As a result of that, they turn around

and say, Hey, this is gonna be too hard.

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We're facing a mountain that we're

never gonna be able to climb over.

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Alternatively, you know, and I have

had this where people have come in and

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our accountant said, we need options.

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People say, just liquidate.

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And I say, well hold on, let's

just see what we've got here.

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And it's like, well, hold on.

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You actually got a good little business.

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It may well be better with some

restructure or pivoting in certain areas.

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You can get it back to a profitable

state, and here is a pathway to do that.

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And they were comfortable with executing

that plan and following that pathway.

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So it actually gave them, I guess, a

solution or an option that they didn't

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think they had in the past to then achieve

a very different outcome that didn't exist

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before they walked through the doors.

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Anthony Perl: I think it's an important

point for people to understand, isn't it?

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When they come to deal with you

or one, it deals to be dependent

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at what point they're getting

the advice from you, right?

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It's either, whether it's, you

know, kind of on death doors for the

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business or whether it's, hang on,

we think we're going in a direction

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that's not great at the moment.

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Let's get some advice

early on in the piece.

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So there's the lesson of getting

there early, but there is also the

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secondary lesson of saying, well,

the outcome is not necessarily okay,

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we're coming to deal with Darren.

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That means that the business is going

under and we're gonna have a whole lot of

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troubles as a result of admitting to this.

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Like it is possible to

turn this thing around.

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Darren Vardy: Yeah, I had

one scenario before Christmas

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where a business owner came in.

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It was a micro business.

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They ran a little cafe, weren't making

enough money to cover all the costs.

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One of the major issues is that the

business was employing too many staff, and

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the director probably needed to spend more

time in the business working the business

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themselves, and she was pretty much done.

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Because she'd been doing this for

quite some time leading into coming

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to see me now, this wasn't a business

that I could sell as a going concern.

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From a liquidation, and the concern

was the director's personal exposure

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for the property lease and some

leased equipment that was integral

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to be used within the business.

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So instead of looking at a restructure

plan, and instead of just simply

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appointing me as a liquidator straight

away, I referred her to a business

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broker to have a look at trying to

sell a business as a going concern.

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Now, even if that business was

sold for a dollar, what could go

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with the sale of that business?

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Was the old lease being ripped up in a new

lease being entered with a new purchaser?

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Same with the equipment, which

was integral to the business.

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Now, just that as a scenario didn't

add any value to getting money

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back to the creditors because.

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Even if I had have been appointed,

it would've been the same outcome,

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but what it enabled was some personal

liabilities of the director to be

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extinguished as part of a sale process.

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And if the company goes into liquidation,

what the benefit is that the landlord

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and these rental companies would not be

creditors of the company once liquidated.

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So the creditor pool reduces.

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So that's another type of scenario

where it's a better outcome for the

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stakeholders as a whole being the leasing

creditors, as well as the director for

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their personal exposure, as opposed

to the other creditors generally who

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were or would've been no worse position

when the liquidation actually occurs.

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Anthony Perl: So then the next question

comes, which follows on from, even

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from just what you were saying there is

what would you like the outcome to be?

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Is there a knee jerk reaction versus

considered reaction to that question?

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Darren Vardy: There's probably, I

wouldn't say a knee jerk reaction

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that there's the optimistic reaction

getting back to optimism versus reality.

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So there's probably more

of the optimistic reaction.

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But then when we talk it through and start

to work through what would be required

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to achieve the outcome in the ideal

world, that's when reality does sink in.

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And we really determine whether

reality can be achievable.

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Anthony Perl: Yeah.

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And what do you see more often than not?

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Do people want the business to continue?

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Or is there that resignation of, you know

what, let's just find a way to get out.

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Darren Vardy: Look, every matter is

different given the circumstances.

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I'd say on par it's probably a 50 50.

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A lot of people would like to think that

they could continue on and restructure

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whether they can achieve that given.

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Everything else in the universes

that's going on is comes down to

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what's happening in the moment and

their individual circumstances.

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But I'd say on par from that initial, very

initial question, it's probably a 50 50

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when speaking with small business owners.

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Anthony Perl: So then we come to the

all important part, which is the plan

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to deliver whatever that decision is.

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And particularly it's for

the business to continue.

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They want to restructure,

they want to do those things.

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How hard is it for people to take that,

you know, A, that reality check B,

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that step back a little bit and say.

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You know, I've built a

business to a certain point.

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Do they have the answers as to what they

really know they should be doing when

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they start removing some of the emotion?

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'cause I imagine there's a lot of

emotion, particularly when it comes

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to staff, where people might be

attached to that or even to property.

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Darren Vardy: Yeah.

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The reality.

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When we look at the business for want of

a restructure, a successful restructure,

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we really focus on this is what you need

to do to achieve success with the process.

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If that involves a reorganization of

staff, what we find is that business

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owners become more focused on success and.

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Whilst they might not like making

people redundant, and let's be honest,

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no one does, but business owners

generally more focused on the success

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of their business and doing what

needs to be done to achieve that.

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So therefore they're more likely to make

those hard decisions far more likely

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than they were before coming to see us.

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Anthony Perl: And what are some of the key

things that you sit down and have to look

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at with in terms of building that plan?

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Where do you start?

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What are those factors

that they need to look at?

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Darren Vardy: A lot of it's numbers based.

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It comes down to what is your

breakeven, what are your costs?

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What is your breakeven?

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Is there enough revenue to meet breakeven?

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If there isn't enough revenue to meet

breakeven, what costs can we cut out to

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reduce the breakeven level to meet the

revenue that we're currently achieving?

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So a lot of work is done around the break

even level and the restructure of costs

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or the cost reconstruction to determine if

we've got a viable business going forward.

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Anthony Perl: And how much also comes down

to looking at, has the market shifted?

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Is there actually a market there?

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Do I need to shift what the

business is actually doing?

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You know, it was delivering

this before, but actually now

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the market really wants that.

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Does that come into the factor?

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Is that a bridge too far when

people are at this kind of point?

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Darren Vardy: No, look, it does because

we look at the historical sales and

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we say if there has been a decline in

the sales, well then we look at why.

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Is the why a cyclical issue

is the why a product issue?

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Is it a temporary or systemic issue?

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What is going on and can we address

or stabilize or swing those sales

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back to a positive upward trend?

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And generally when you start going

through, you know, the last 12, 18 months

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with the directors and the salespeople

involved, you tend to flesh out the

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reasons as to why there's been a dip.

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So you can then start to correct it.

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Anthony Perl: Darren, just to wrap

things up here, any stories you want

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to share about some positive outcomes?

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'cause I think it's always important to

give people that sense that there are

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some really positives that can come outta

this process because that mapping out that

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plan and being able to go, I can do this,

and then seeing that it is being done.

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And how long are you involved once that

plan is getting to a certain point?

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Like at what point do you go?

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Right, this is okay.

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We are ready to step away now.

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Darren Vardy: Sure, and you

talk about positive outcomes.

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A positive outcome for a director

can in fact be the closure of

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the business, realize the assets.

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The directors simply go out and get

A-P-A-Y-G job because quite often

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they find when that happens, the

money that they bring into the family

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unit that they're earning is nine

times outta 10 more than they were

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earning from their failing business.

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Right?

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So when you talk about positive outcomes.

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That to me is a positive outcome because

the director is providing for the family

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unit, which is what it's all about.

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At the end of the day, when we talk about

a restructure of the business and the

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positive outcomes there, I'm structural.

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I'm not operational.

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We can provide the structure to

enable the business to turn around.

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It's up to the directors to implement

that turnaround and monitor the

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ongoing operations of the business

to ensure that they're profitable.

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Well ensure they're breaking even

at worst, at best, that they're

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profitable and hitting the realistic

targets that have been put in place.

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And if they're hitting optimistic

targets, well then that's a win win.

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Right?

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And.

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The process that we go through provides

the directors with the opportunity,

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for one of a better term, second

chance for the opportunity to learn

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from the past, set up for the future,

and attempt to achieve the success

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that they they've been looking for.

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So, you know, that is the positive

that comes out of what we do.

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Anthony Perl: Fantastic.

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And that's all we have

time for in this episode.

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Next time on IO Insolvency Options,

we'll continue exploring critical

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topics that every business owner

and director needs to understand.

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Darren will share more insights

from his 30 years of experience

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helping businesses navigate financial

challenges and find practical solutions.

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Make sure you're subscribed

so you don't miss it.

273

For details on how to get in touch

with Darren and his team on insolvency

274

Challenges, please consult the show notes.

275

This podcast is produced by my

team at podcast done for you.com

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279

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Until next time, remember, there's always

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