Don’t Give Up…..?

Whisper it but it has been a relatively benign economic slump to date. Obviously not for those who have lost their businesses and jobs or have seen inflation and low savings rates ravage their income and living standards. But anybody who can recall the previous slumps of the 70s, 80s and 90s will probably agree that we have been let off relatively lightly so far.

Insolvencies have still to really take off as the poor results from Insolvency practitioners show. Unemployment, whilst at its highest level since 1995, has not reached the emotionally fraught level of 3 million. Repossessions are minimal. Low interest rates are playing their part in all this. Equally, even if the banks aren’t actually lending enough, they are at least not pulling the plug on businesses in the way that they did 20 years ago. Owners continue to dip into their pockets to keep their businesses afloat.

Entrepreneurs are by their nature eternally optimistic. They will solve their problems. A new opportunity will emerge to for them to exploit. Yes the business may be “technically” insolvent, but this order or that cash injection is just around the corner. The wages will be paid. Key suppliers will be paid. Even HMRC will be paid…eventually. There is no need to seek insolvency advice just yet. And indeed they are often right, the business does get through its sticky patch and is still around many years after it was “technically” insolvent.

This is an approach to business that would cause those of us of a more pessimistic (or realistic) nature sleepless nights. It was certainly a real culture shock to me when I entered SME land from the cosy cocoon of corporate life where there was a treasury department that made sure cash was flowing into the right places (like into my bank account at the end of the month). This though is the attitude that ultimately builds winning businesses.

Having said that, it is also an attitude that can sometimes lead to broken lives and seriously out of pocket creditors fighting for their own business survival. I have observed many businesses that have been, how shall we put it, in fragile financial health. Some have survived against the odds due to the energy and never say die attitude of their owners. Oh, and the fact that the financial difficulties were genuinely of a temporary nature. However I have also seen businesses that were too far gone, only continuing because their owners were in complete denial about their situation to the detriment of both their wealth and their health.

Of course this could all be the calm before the storm. Interest rates will eventually have to rise. There sadly will be casualties. There will be business owners who will have to give up. Make sure that you don’t fall prey to false optimism. Better still make sure that you have the necessary financial systems and controls in place to ensure that you know about your problems in good time to do something about it.

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