The Financial Magic of Tidying Up

Stephanie Wickouski is a New York bankruptcy lawyer. A partner with the NY office of Bryan Cave LLP, she has practiced bankruptcy law for more than 30 years.

A 30 year old Japanese woman named Marie Kondo has skyrocketed to the top of the New York Times best seller list with a short, sweet book entitled  “The Life Changing Magic of Tidying Up.”  Kondo, a declutter consultant in Tokyo, has a simple prescription for getting your house in order. She says her “Konmari Method” is guaranteed to lead not just to tidiness, but to improved health, fitness, prosperity, and happiness.

Her method is deceptively simple. First, take out everything you own by category (clothing, papers, books, technology, mementos – in that order) and examine it. Ask: does this give me joy? If the answer is yes, keep it. If the answer is no, then discard, sell or give it away.  After you have identified everything you want to keep, put each item where it belongs, like-kind items all in the same place, with each category in its logical place. She says tidying only needs to be done once and the effects are permanent.

My reputation as a minimalist is well known – most people would say that I need no help in the tidying department. Nevertheless, I decided to give Kondo’s method a go. After all, can’t we all stand improvement?

In the course of my Konmari tidying exercise, it hit me: Kondo’s formula for getting a house in order is applicable to insolvent companies.

I’m not suggesting that to restructure a company, you need to take out each item of inventory and equipment and ask if it gives you joy. In this context, perhaps the question should be: does it give the shareholders and creditors joy?

Here are my 5 tips for putting a troubled company’s house in order:

  1. Do it all at once and do it now. The longer the decision-making is postponed — to divest bad divisions, close unprofitable stores, or downsize unproductive employees — the worse it is for everybody.
  2. Discard first — sort and tidy later. In the reorganization world, this translates to: downsize first, reorganize later. Consolidation is most effective when done after downsizing is complete. Balance sheet restructuring (including Chapter 11 plan negotiations) will occur more easily and rapidly after both downsizing and consolidation are complete.
  3. Ditch unnecessary paper. Most companies can reduce costs tremendously by paperwork reduction and by moderate investment in the right technology. Paper and paper storage are tremendously expensive. Most companies can archive almost all their necessary files electronically or in the Cloud. On average, approximately 80% of paper files can be eliminated, with all of the savings going directly to the bottom line.
  4. If you wouldn’t buy it, then sell or get rid of it. Look at every area of the business and ask: if we didn’t already have this business line, would we launch or acquire it now? If the answer is no, you need to divest it.
  5. Let go with love. Kondo says that clear decision making is impeded by an attachment to the past or a fear of the future — both of which interfere with doing what is needed in the present. A frequent cause of failed or repeated Chapter 11’s is the blind adherence to tradition and history — and very practices that brought the company down to start with. Companies hold on to obsolete or unnecessary equipment or real estate because of their initial cost, or the fear of incurring replacement costs if such property becomes needed in the future. This is the business equivalent of “I may wear this outfit again someday if I ever lose 10 pounds and it comes back in style.”   Decisions should be firmly rooted in the reality of the present.

The most successful business plans are simple to articulate but hard to execute. The same is true of restructuring plans.  The Konmari method is simple to explain, but in actual practice it takes considerable energy and focus. It only has to be done once.

In the restructuring context, a Konmari style restructuring means: do your tidying once and do it right.

No more Chapter 22’s.

Here’s Marie Kondo’s YouTube video:

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