Do you remember I discussed the boom bust cycle before, in my newsletter of November 2011? Such a long time ago, so much has happened… yet no finalisation. In case you missed that newsletter, here’s a link.
6 months’ on, it’s probably time to revisit the cycle, because although many people are doing very, very well indeed, just as many are doing very badly indeed. As I’m not seeing or hearing of many in between, I wonder whether the local economy is polarising?
Why is it that some are doing very well indeed thank you, while others in the same sector just down the road are a whisker away from going under?…
A case of being in the right place at the right time? Is it just luck – if so can you make your own luck? Or is there something else going on here?
And what have goats got to do with this? ..
… click here to listen to a short radio play by the BBC, ‘The Great Hargeisa Goat Bubble’. It tells a story about how a small bubble can quickly grow out of control and effect everything around it. The point is humans lie behind booms and busts, systems merely exaggerate them. In fact I’d argue that it’s largely human intervention that makes everything good, or bad, happen.
The problem as I see it right now in the cycle is that many businesses were set up with a model capable of delivering only mediocre results in what we now see as the boom rather than what many thought it was, the norm. Now they are hamstrung by the same inflexible, no longer appropriate, business model. Decisions made in one quartile of the boom / bust cycle have proven to be at best ‘unwise’ now that the economic cycle has swung the other way – the potential for a downturn was not factored in. And it’s difficult to now reverse those decisions.
But it’s worse than that, while they’ve been waiting out a return to how things were, their owners have spent almost all, if not all they have, propping up the business. And their family’s personal finances are inextricably linked to a slowly sinking ship. And the banks aren’t going to return to their earlier profligate days of lending for the foreseeable future.
How many of your clients are in this position?
And what are they doing about it?…
The real problem is the lack of proper financial education. We’re taught at school to be experts in our field, be it engineering, law, science, IT, accountancy, whatever it might be. We’re taught that being good at it is the recipe for bringing us long-term success, wealth and happiness. And then because we’re punished for making mistakes, we don’t try new things, push the limits, we don’t learn the skills needed to roll with life’s punches.
Yet is it entirely the fault of the education system?
I don’t think so. You see there are some things none of us can ever be taught, we have to learn them for ourselves, out there in the real world. It’s why although every generation holds out so much hope for their children, much of it goes on to be unfulfilled. In the real world we lack confidence, we’re reluctant to take risks, we’ll do almost anything to avoid change, we don’t like paying for advice or support, we don’t enjoy challenging ourselves or conventional wisdom. And because life was relatively easy for such a long time, because we papered over the cracks with easy, ‘free’, money, our personal skills became blunted. So we focus on where we think our actions can make the most difference – working ever harder on the technical aspects of our job, cutting costs where we can, buying time… until what we don’t know, just buying time. It’s certainly a position my profession, of insolvency, finds itself in. You’ll see that in coming months as more insolvency firms go under.
The scale and length of this downturn has surprised many. Why is that? What happened to smelling the cheese as we went along? And now we’re in it, right up to our necks, is our attitude and poor personal skills making things worse than they might otherwise be?
What would happen if we changed our attitude? Even learnt new skills? Dared to collaborate with or employ experts in the key areas we need to get right?
And as real profits are made when there are two key things happening at the same time – bargains and change – wouldn’t now be a great time to look at things differently? Is at least part of the difference between those who are doing very well and those doing very badly their attitudes?
At the moment it takes an immense amount of confidence for business owners to get out of their comfort zone and make major decisions, changing the business model entirely, move from a competition to a collaboration model, to move from ‘comfort zone’, through ‘stretch’ to ‘major change’. To make the move people need the right attitude – and while that comes from within it can be moulded by you, the adviser. Education is also key – again that can come in part from you. Far too many advisers tell me they simply cannot get their client to see something they see – they’re stuck as category C clients, wasting your time, not paying enough for your support or on time, you don’t give them the service they really need to be successful today (to find out more about client categories read the Paddi Lund story – click here – an Australian dentist with some interesting ideas about business).
You see despite the uncertainty hanging over us all, the government’s buying of time for us has instilled an air of manana will be ok. We can kick things down the road for a little more time yet. There’s no burning bridge forcing us to leap into the unknown. And that’s why your client fall away rate is a slow burn. But a burn it is.
So how do you get your clients to listen to you, to change their price expectations of your services, to empower them to take major decisions early?
There’s no easy answer: as I’ve already said, it’s a British thing – unlike many of our foreign competitors, we don’t like paying for advice; and it’s particularly a Black Country small business owner thing – we’ll work harder rather than smarter. It’s what we were taught.
But it’s a challenge neither of us can shirk if we are to best protect, and grow, our own and our clients’ businesses.
Here’s something that may just help you…
You’ve probably heard of my Business Resuscitation work which helps businesses which find themselves quite far down the decline curve. Click here for more details if you haven’t.
Well, I’m providing you with another, again free and confidential, service that may just help you to retain a client, and him best protect his business and family wealth, that works even earlier up the decline curve, before they recognise they have a major problem…
… And using it will get you closer to your client, ensuring he sees you as a solution provider, not a mere processor. It’ll make your fees less price sensitive.
Good, because many of your competitors won’t be – those who kid themselves they are co-drivers of their clients’ businesses yet are sitting on the rear spoiler looking backwards will continue as they’ve always done – which should be a good enough reason for you to look at it.
If you’re interested in finding out more, click here to visit my website. (by the way it’s that new there’s no other IP in the UK doing this, so you cannot go anywhere else for this!)
But for now, why not think about asking your clients these questions:
• What’s holding you back?
• Why do you allow it?
• What are you (and your peers) not seeing?
• What’s the flip side to this?
• What could happen if you change your attitude to this?
And finally remember the following equations…
Up to 2008: Benign trading conditions + reasonable tax rates + economic stability = weaker pre-emptive decision making + high cost base + higher owner drawings
(this was from an article I wrote back in 2005 which seemed to upset a few people at the time)
From 2008, for now and the foreseeable future:
Uncertainty + lack of confidence + fear of making a mistake + poor personal skills + unwillingness to get help = failure to take advantage of opportunities. leading to possible insolvency
but for the few who dare to see it
Bargains + change + collaboration with experts = major profits (regardless of the state of the economy)
How many of your clients understand these? Whose job, if not yours, is to help them learn?
Protecting your clients’ wealth
Helping your clients to take best care of their business is only part of what’s expected of you by your A category clients – I’ll cover the Paddi Lund view of life in a future newsletter.
After all, businesses only exist to support clients’ personal life goals.
Local authorities are under immense and growing financial pressure. We’re all living longer. Health care costs are beyond comprehension. The ‘middle’ – spendthrift – generation within our society is hurting, sometimes only a cash inheritance from their older, saving, generation will put things right. Occasionally individuals cannot be trusted with their parents’ money – they’re either bankrupt or near so.
If you’ve got a client who cannot, for whatever reason trust his children’s management of money, or someone who’s getting on in years and is worried their inheritance may be taken in care fees, give me a call – I’ll put you in touch with an expert in trusts.
Finally,if there are any topics you’d like to see covered in future newsletters, please give me a call or e-mail me. And remember, I’m here to help your clients at times of difficulty!