This is how you avoid insolvency beyond COVID-19

Before COVID-19, a large percentage (over 60%) of businesses failed and went into insolvency in the first three years. Although the government has introduced several initiatives to keep businesses up and running, I expect that statistic to get worse as we finish this tough year and head into 2021 and beyond. 

If businesses want to stand a good chance of avoiding insolvency, they must arm themselves with the right attitude - and begin work on these critical actions immediately:

Make business decisions now

We’ve all heard the saying 'You’re like a rabbit in the headlights'. Don’t be! Make decisions now, swiftly and hard. Don’t wait until your sales drop and then a little longer before looking at overheads and how to reduce them. Don’t wait to look at diversification. Don’t wait to look for different sales channels. Act now.

Maintain a positive cash flow

Fred Adler, a pioneer of venture capital markets in the USA, had various epigrams that some called Adler’s Laws. What was important to him were the things that made the business successful, such as

●    being able to generate more cash than was spent; and

●    having the cash where and when you need it.

He regarded both as vital to a business’s survival, and I do too. Here are some tips to maintain a positive cash flow:

●    Forecast cash flow regularly and often

●    Follow correct invoicing procedures so if you need to you can utilise legal avenues (e.g. the Security of Payments Act) or utilise debtors’ insurance

●    Invoice more regularly and make payments less frequently

●    Implement tight controls on spending authorities

●    Eliminate discretionary spending

●    Embrace technology

Build relationships with your bank or financiers

What I mean by relationship is a really personal relationship with the decision makers at the bank. They need to know you when you are in the same room. They need to be able to trust you as a person. Get to know them – have a regular coffee catch up. Take an interest in them as a person. Know and ask about their families or their interests. You will get more support from your bank if they know you personally. The same goes with insurance. I encourage my clients to use an insurance broker so if there is a claim you only have one point of contact, and they know you and your business well.

Ask for help

I hate seeing businesses fail because either they seek help too late, or their pride stops them from asking for help, or they think the help is too expensive.

There are only three reasons a business fails:

●    A lack of business skills in the business

●    A lack of attention to applying business skills within the business

●    Mostly working in the business rather than on the business.

“Surely not!” I hear your cries and jeers. Don’t misunderstand what I am saying, though. And don’t just take it from me.

Michael E. Gerber, esteemed author of the bestselling book E-Myth Revisited, nailed it when he said:

‘The assumption is that they understand the business because they understand – and maybe are experts at – the technical work of the business. They think they know the work; they are qualified to run the business.’

What he means is you may be a technical expert or genius practitioner, but you also need to know how to run a business. I haven’t seen many electricians or hairdressers go out of business because they are bad practitioners – but I have seen plenty go out of business because they do not have the skills to run their business well. The good news is skills can be learned. All you need is some devotion and time and help from a trusted advisor.

“Get comfortable with being uncomfortable. When you start your own company, you have to get used to learning how to do things that you don’t know how to do.” – Heidi Zak, Founder of Thirdlove

Get help to learn the skills to run your business well by engaging a hands-on business advisor. Be a sponge and learn from them. The cost is actually an investment and not an expense. You will get a positive return on that investment.