Page 25 - How To Avoid Going Bust In Business

The Start Of The Long Hard Climb

The first six propositions are just first aid. They are emergency band-aids on the
problems. Now the hard yards start. Now you have to put in place strategies and
tactics that will start the long climb back to solvency.

7: Take Action Early

Many business failures happen because the owner(s) battle on against the odds,
hoping it will eventually come right. Most failures do not happen overnight. The
issues grow gradually, like barnacles on the hull of a ship. Unless the problems are
addressed early on, the earlier the better, you are headed for the knacker’s yard.

That’s true even for giant corporations. Look at Lehman Brothers. Bear Stearns. The
Bank of Scotland. The GFC list of infamy is as long as your arm. Longer in fact. Much
longer.

The banks and finance companies that rolled over and went dead were run by
greedy clowns. They were only interested in their own salaries and the fat bonuses
they earned from cobbling together dirty deals.

They lent to people who couldn’t afford the repayments. It’s as simple as that. They
stitched people into loans that were doomed from the beginning.

Surely, as the months rolled by and some of those loans started to default, a prudent
finance manager would have said to the assembled idiots “Fellas, this isn’t working.
If we keep doing deals like this we will crash and burn. “

Nope. Didn’t happen. The Masters of the Universe just looked at their multi-million
dollar bonuses and kept on boring holes in the hull of their doomed business ship.

Second and third tier lenders, the hot money finance companies, made loans to real
estate developments that were dead ducks from the get-go. Nobody seemed to
care. They kept pouring more and more real estate developments on to a saturated
market that could no longer absorb them.

Worst of all, the directors of these rotten finance houses began to lend to
themselves. They set up front companies that invested in real estate
developments. Any semblance of due diligence and arm’s length commercial probity
went west.

The eventual outcomes were easily foreseeable to anyone with an open mind and an
ounce of commercial nous.

So what is the moral of these sordid stories? Don’t believe your own PR releases.
Don’t ignore warning signs that are 10 feet high in neon lights. When you are in a
hole, stop digging.