Crisis Management

Financial Crises occur in business, but they seldom arise overnight.

Consider the following scenario:

Mr Bumble, the Managing Director and majority shareholder of Bumble’s Precision Widgets Limited, arrives at the office following a restless night after the previous stressful day. On his desk are letters from the taxman and the vatman, threatening to wind up his company unless it pays the money it hasn’t got, which is owed to them. He learns that his biggest customer has just gone bust, owing his company six month’s worth of invoices; the bank manager is screaming for up to date figures, without which he will call in the overdraft, and Mr Bumble knows that when he sees them, he definitely will; his right hand man, Mr Smooth, who is the prime contact with the company’s customers has just been headhunted by Smart Precision Widgets Limited, Mr Bumble’s biggest competitor; the state of the art CNC production line has broken down again and the maintenance company won’t come out until Bumble’s pay the bill for the last breakdown that occurred six months ago; the company has run out of supplies of materials because all of its suppliers have put it on stop and he can’t pay the wages tomorrow.

The above is probably an extreme case but such circumstances do occur. The business is paralysed. It has no cash, no raw materials, no manufacturing capability and no reliable line of communication with its customers. That’s a pretty grim situation, but could it have been foreseen and avoided?

Come to think of it, Mr Bumble did notice his biggest customer’s payments had been slowing down for some months, but he’s always come good in the past and he didn’t want to lose his business by pushing too hard for payment. Well, that business has gone now and Bumble’s Precision Widgets Limited has funded the customer for the last six months.

The taxman and the vatman have been pestering for quite a while, but that’s what they do, isn’t it? Actually, they only pester businesses that do not file their returns and pay their taxes on time. One definition of insolvency is the inability to pay debts as they fall due. In this case it appears that the company has been unable to pay its debts on time for many months.

The last accounts have been on Mr Bumble’s desk for three months. He hasn’t dared to send them to the bank manager, because he knew he would be unhappy with the results. The bank manager is probably equally unhappy that he has not seen any figures for months and suspects, the worst, in any event. Even worse, he has probably lost confidence in Mr Bumble and is on the point of requesting him to make alternative banking arrangements. Why are there no more recent management accounts available?

He had been thinking about offering Mr Smooth a directorship and a shareholding in the company about a year ago, but that was about the time that he started to become a little more distant and was spending more time with the customers than usual. Mr Bumble was damned if he would give him that now. In fact, they have barely spoken to each other for four months.

Mr Bumble knew the CNC production line was creaking under pressure but he had hoped it would last until he could pay the maintenance company for the last repair. In fact he has been “robbing Peter to pay Paul” with his suppliers for over a year now and he had managed to keep everything in balance, albeit stretched, so far. If only that promised large payment had come in from his biggest customer, he would have been able to pay the wages tomorrow.

He picked up his car keys from his desk and told his secretary he was off to the golf club. He needed time to think and eighteen holes would be sure to do the trick. The landlord’s bailiff arrived just after Mr Bumble left.

You could be forgiven for believing that Mr Bumble is a bit of a fool, but nothing could be further from the truth. He is a highly intelligent and exceptionally talented engineer. He built his company from nothing and still manufactures the finest quality widgets; much better than those of his competitors. He knows all about taking advice from experts. When he has a tax problem, he calls his accountant. When he has a legal problem he calls his solicitor. A water leak – call a plumber; car break-down – call the AA. Fall ill – call the doctor. But when his business hit a rough patch that could threaten the livelihoods of himself and his employees, what did he do? He sat tight, kept the problem to himself and hoped for the best. Why would a normal, intelligent person do that?

Mr Bumble has been in business for years. He has ridden through stormy trading periods before and coped with most things that have been thrown his way. To Mr Bumble, seeking advice on how to solve his business difficulties would be a display of weakness and he would never wish to appear weak. Instead, his business has stalled, and whilst he is playing golf the landlord’s bailiff is making an inventory of the assets on the company premises. By the time he has finished his game he and his staff will have no employment.

There is no shame in taking advice on the management of financial difficulties. Nobody knows everything about everything. If Mr Bumble had consulted someone earlier, the situation could well have been saved. The earlier appropriate advice is sought, the quicker the problem can be solved and, most likely, the cost will be far less.

There are often a number of different solutions for all problems. However the choices diminish and the cost of implementation increases as the problem grows.

Don’t be a Mr Bumble. Swallow your pride and take advice as soon as you are aware that a financial problem is upon you. It could just save your business.