I’ve been watching with interest the ongoing debate over the failure over Christmastime of Citylink. What I have found fascinating is watching the various bit part actors, and what I think the debate says about some of the things that are happening generally at the moment.
Firstly let’s remind ourselves of some uncomfortable truths…
Businesses have always failed, it’s not a new phenomenon.
Being in business often means having to make some pretty tough decisions. The business world is no Utopia.
Business failure means someone somewhere loses out. Insolvency isn’t a Jesus, loaves and fishes situation where somehow everyone gets satisfied. There is never enough cash. It’s a question of who gets hurt, how much and when, not ‘if’.
Sometimes in life bad things happen. Circumstances conspire together. There’s not always someone to blame. Sh-t happens.
I’ve often been in a very similar place to that of Citylink. It’s not a very nice place to be in, but decisions have to be made.
At a party over Christmas someone criticised the management and administrators of Citylink based on what they’d seen in the media. I made the following suggestion:
‘Let’s assume you’re the insolvency practitioner advising, you’re the intended administrator. Cash flow statements show the company can’t get through to the New Year unless management – who have already put a lot of money in to the business – put more in – money they probably won’t get back.
The company is sitting on people’s Christmas presents – the company could stop trading now, but all those presents would remain undelivered, how would you deal with the massive customer, supplier and PR problem? Counterclaims would result in the bank not recovering their money and they and the management, who had given personal guarantees, being hit hard.
The alternative is to trade on, empty the warehouses, deliver the presents, but that will leave you with a big wages problem.
You could go in as administrator now, but you’d have to pay the wages, and on time, which would mean you having to give a personal guarantee for an overdraft of upwards of half a million pounds, which you may or may not get back. Would your wife allow you to put your family home, all you have ever worked for, on the line to pay the wages of people you do not know?
The final alternative is to put the accrued wages through the government – sure there will be a delay in employees getting paid, but that’s something they’ll have to live with. And if we shut things down now, employees still wouldn’t be paid their entitlements until well in to the New Year.
Would your decision change if you were management? Or the bank?’
The reaction? ‘Oh, I didn’t know that’s how things worked’.
You see insolvency means decisions often have to be made over the payment (and non-payment) of staff, suppliers, government departments and others; the acceptance (or non-acceptance) of up-front payments from customers; the handling of others’ goods and completion of contracts; the making of redundancies (who and when); and everyone’s reputation. Conflicts arise. Complicated decisions have to be made which determine who gets hurt, how much and when. And those decisions have a greater effect the nearer to formal insolvency you get.
The problem is there’s almost always inadequate explanations given for the decisions made – sure this can happen for perfectly good reasons such as confidentiality, but it’s a fact, it happens – and this enables all sorts of people to jump on the bandwagon.
So who jumps on the bandwagon?
1. People who don’t live in the real world
2. People who are looking to make political gain.
3. People whose mindset is that somehow there’s always someone somewhere to blame for everything.
4. People who are too idle to think for themselves, but quick to react.
I’m sure we will find from now right up to the general election, we’ll see more ‘headline stealers’…especially from politicians and unions whose input really isn’t worth a candle – you just know that they’re commenting on or promising things they know nothing about and cannot deliver on, or they’re just spouting political dogma which if implemented could have an adverse impact on the already stretched public purse.
Enough of the politicians, what am I seeing in business?
Increasingly I’m seeing it’s far better for business owners to simply make a decision than not, and make it quickly. If that decision should turn out to be the wrong one, then make another decision based on the new place you’re in at that time.T hen make another…and another…. but don’t not make that decision.
You see often almost any decision is better than none. Things are happening so quickly now that ‘hand-sitters’ – those who wait for decisions to be made for them or fear taking action – soon get so far behind the 8 ball that staying where they are, let alone catching up, means taking on far more risk than making decision after decision, even if 50% of those decisions turn out to have been the wrong one. Bold pool players tend to win more.
So what principles do your clients need to follow when in an uncomfortable insolvency or near insolvency space?
1. Make decisions quickly. Better a series of small decisions than one massive one.
2. Take action quickly. Better a series of small actions than one big one.
3. Communicate. Be more open. Demonstrate the reasonableness of your actions under the circumstances.
4. Those that travel on the same journey as you, embrace and support them. Take no prisoners with those who choose to travel a different journey.
5. Focus mostly on the impact your decisions and actions will have on individuals; worry far less about the impact on big corporations and the government; and even less on people’s feelings – they will either come around to your way of thinking or not, either way you can deal with them.
In summary – keep it small; move quickly; then repeat again and again; deal brutally with conflicting interests, support those who are with you. Don’t get distracted by headline stealers. This is all easier said than done, and that’s why people often need the support of someone independent of the business, looking in from the outside. After all ‘two heads are better than one, except when the second head is inside your own’.
Have a great 2015.
Midlands Business Recovery
T 01902 672323
PS Did you know that I now accept Bitcoins for the payment of my fees?