Over the last few months I have been asked to provide comment, as an accounting professional, on a number of high-profile business collapses. From Thomas Cook to Forever 21, the question is always: What went wrong?
It can be hard to understand how huge companies get themselves into such financial distress but it happens all the time and the same principles apply to businesses of any size. Big does not necessarily mean better and any company with an outdated business model will struggle. Failing to react to changing customer demands quickly enough will also put a hole in the boat – adapt or die is the message here.
The straw that breaks the camel’s back is inevitably carrying way too much debt. Lack of vigilance in this area will sink the boat regardless of your reputation or your brand.
The key to avoiding liquidation is facing up to the problems early and taking practical steps to address the issues, even if this involves some very difficult decisions. Here are some measures to avoid meltdown.
First step – confide in your advisors
Hopefully you have an accountant whose professional competence you have faith in. If not your first step is to find one. A good accountant and business advisor will be able to provide a neutral perspective, have a good understanding of your business and be able to analyse the figures to get to the root of the problem. If they’re worth their fee, they will be able give you sound advice on addressing the issues, even if it’s not what you want to hear. They are likely to recommend some of the following.
Be honest with yourself
Burying your head in the sand is not an option. You must honestly assess the problems the company faces, even if one of them is you, and address them swiftly. There will be some very difficult decisions to make but look to your management team for support and advice, and then act positively.
Have a robust business plan
It seems obvious doesn’t it but some businesses don’t have a financial plan at all, let alone a full blow business plan, or they have one that they don’t stick too. A strong financial plan should set out funding strategies but most importantly it will have a no nonsense approach to debt management including strict credit terms and debt chasing procedures. As with any business plan, it must be reviewed regularly in light of changing economic conditions and adapted if necessary, but should be followed once it has been put in place.
Deliver on product and service
Quality matters when it comes to weathering a financial storm. Don’t be tempted to cut corners to save money. Stick to your values and your customers will stick with you. You will have to make savings somewhere, and those will be difficult decisions, but your products and services must be protected.
Be adaptable & vigilant
A fluid and flexible business model will enable you to make any necessary changes in a timely manner. Keep looking ahead and keep an eye on the competition. Its trite but true – by failing to prepare you’re are preparing to fail.
If you have concerns about the financial health of your business, come and talk to us and we’ll help you get back on track.
Want to know more? Call us on 01432 273189 or email firstname.lastname@example.org