The Business Plan - don't trade without one.
In the latest UK200Group blog post, Dominic Dumville; Insolvency Partner at UK200Group member firm, Haslers Chartered Accountants, looks at the importance of having a business plan.
As an Insolvency Practitioner the first meeting on a potential engagement is often the most difficult to navigate. Understandably, directors appear conflicted between telling you the harsh truth for fear of being portrayed in a poor light, and saying far too much.
In a recent case when having that very meeting, it quickly became apparent that the company in question was insolvent and that a rescue or restructure was unlikely due to the financing arrangements in place and the punishing seasonality of the trade.
The meeting progressed and our ‘first-time-company-failure’ directors were beginning to relax, I was beginning to understand the business and get a handle on the different forces contributing to its failure (invariably there are more than one). At this point I asked for a copy of their business plan with projections, stating ‘no doubt I will see this play out in the figures’.
The reply was a blank stare. Trying to articulate myself better, I explained that I would expect to be able to compare their actual trading figures to those forecast at the start of the period and identify ‘in the numbers’ the causes of failure which we had discussed moments earlier.
They had understood me the first time it’s just that there was no business plan. The directors didn’t think measures like a projection were necessary for a simple small business like theirs.
If is often observed that business failures are rarely caused by one fatal event, but rather a combination of less severe events which culminate in disaster; the perfect storm. One event, such as a downturn in sales, can be easily identified and responded to. However where a number of subtle forces are in play, each gently depressing the bottom line, less seasoned directors may find themselves facing an uphill struggle and unable to put their finger on the problem until it’s too late. Good, robust, proportional projections might just be enough in that scenario to help directors see the storm coming.
In the case referred to above, the external forces were such that I don’t think the business could have been rescued but the experience did impress on me again to remind my client facing partners at Haslers to ensure that our clients have at their disposal all the necessary tools.
To summarise, those less business-minded, less experienced clients at the helm of their young companies, often born out of a passion for a subject rather than a calculated decision to exploit an opportunity, need all the help they can get to avoid that awkward first meeting with the likes of me.
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