Page 33 - How To Avoid Going Bust In Business

Thoughts For The Future

If you are just starting out in business or have recovered from a crash here’s a
couple of thoughts that will help you avoid all the trauma discussed above.

Head off trouble before it happens

When I was in the advertising industry we were working for a bakery client who was
looking to introduce a new brand of meat pies. We had them taste-tested by small
groups of people. 70% of the respondents didn’t like the taste. The client’s
response? “The number of people in the samples was too small to get an accurate
reading.“

One of the wise old heads in the creative group mumbled “If 70% of any sample says
your product is shit you don’t need to waste money on a larger sample”.

The client revised the recipe. It still sells today 40 years later.

In other words, don’t plunge on regardless with a fundamentally flawed idea.

If you have recovered from a disaster, you need to understand where things went
wrong. If the business was wound up, you may want to start again in the future. Find
out what caused the crash in order to avoid it next time. They say experience is a
great teacher – perhaps, but the tuition costs can be high.

Keep Money Matters Separate

Keep your personal and business finances separate. Resist the temptation to use
the business account to buy personal items, often shown in the accounts as
“Drawings”. If your business goes belly up a forensic accountant will track down all
those payments and you may be required to repay them.

For the same reason the director’s/shareholder’s/owner’s account can be a financial
death trap. It is often used by accountants to avoid incurring an immediate personal
tax liability. Thus, instead of the business paying you a salary, it “lends” you money.
When the business goes pear-shaped a liquidator will demand repayment of those
“loans”.

The one big customer trap.

Be very careful about becoming overly dependent on a narrow range of customers.
Worst case is to have one customer. If for any reason that arrangement goes sour
you are in deep doo-doo. Even working with just a few customers can be
dangerous.

A businesswoman was recently reported as complaining that she had lost a couple
of customers and as a result her income had been slashed from $6000 a month to