Page 18 - How To Avoid Going Bust In Business

to do it for you. Yes, it’s an expense – but if you can’t afford it, that in itself is a bad
sign.

This is important: This is a moment of truth. It’s time to stop the bullswool and get
real. Typical balance sheet rorts are:

Including debtors that are not really collectible

Overstating the quantity or value of stock or supplies on hand

Failure to declare a contingent liability. It was once said that every airline in
the world was technically insolvent because of the contingent liability posed
by their airpoints programme.

Unrealistic values placed on assets. Your 1998 Honda truck is not really
worth $10,000, you know.

Inclusion of obsolete, damaged, dated or missing plant or stock.

Imagine the worst – that you have to liquidate the business. Do a balance sheet
based on the real world, not the dream world you have been living in.

It may not be pretty, but at least now you know the worst.

And here’s the thing: Sometimes it’s nowhere near as bad as you thought.

Things are bad - so what do you do about it?
OK – so you have done the exercises above and you are sitting there appalled at the
numbers in front of you.

This is a decisive moment. You can now elect to fight for your economic survival, or
chuck in the towel – quit.

I know that feeling. It happened to me one year during the Christmas holiday break.
My real estate firm was going well. We were selling apartments that were in hot
demand. I took my family away for a holiday at a posh beach resort.

I went back to my office on the 15 of January to tidy up the accounts for payment
th
for that month. I looked at the total of the outstanding accounts and I compared it to
what I had in the bank and I couldn’t believe it. I wondered where in Hell’s name the
money had gone.

I realised that, sure, we had been earning big, but we had been spending up bigger.

I did not sleep well that night.