These immortal words contained within Kenny Roger’s 1978 hit song ‘The Gambler’ may not have been written about business, but the words certainly have relevance to the business landscape at this time. Our national attitude of perseverance and determination is a real source of pride for us as kiwis, but when pushed too far, this attitude can be dangerous and sometimes fatal.
As a credit consultant, I am often called in too late to a business where the wheels have fallen off, and the hubs, axles, and chassis are dragging on the ground. Undeterred, the owner tells me that if they could only get a bit of funding, they would be able to get through the struggle and make the business great again. Now there are instances where this is true – for example when an unforeseen event like Covid or an earthquake occurs, and the “business as usual” model is not practical for some time. In many cases, this is not so, and the short-term fix will not correct the long-term problems. Systemic business issues will often be more evident in times of stress or turmoil, highlighting problems already there.
The solution isn’t always working more, rather than analysing and addressing the issues, business owners often think they need to work more and find more clients. If your business issues are ones such as miscalculated margins or poorly managed projects, these will only be made worse by volume. Upscaling profits and upscaling problems often look the same from an input perspective but are vastly different from an output one if the underlying issues are not found and corrected.
Having an impartial business advisor or mentor periodically look over your systems and processes could point out these problem areas before they become business killers. Often, however, I am called in after the issues have grown into monsters and the overworked owner is putting massive effort into putting out fires, and a decision must be made. Do they carry on working themselves half to death until someone else, such as the IRD or an unpaid creditor, decides it is time for them to stop through a liquidation? Or do they pause, see the situation for what it is and make an exit plan that leaves them intact from a financial and reputation perspective. In business, people have long memories and bowing out gracefully without a legion of unpaid creditors and crippling personal debt is much easier to come back from than the alternative.
Loans given to struggling businesses are nearly always very high in interest. Given the probably insolvent position of the applicant business, loans will be secured with, at the very least, a personal guarantee and probably a security over personal assets such as property. I have seen business owners lose houses, go bankrupt, and ruin their lives. I have even seen a few unfortunate cases where the business owners took their own lives for simply not knowing when to call it quits.
If you are ever in the position where the options are to cease business or go all in with everything you have, take some time with an independent advisor that can give you the cold hard facts regarding the business’ real-world chances of survival before you leap. Your life may very well depend on it. Just a thought.