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What Happens When Business is Hot and Management is Not?

I’ve been following the recent news stories in recent months
about Glasgow Rangers FC’s financial difficulties with some interest.
It reminds me of an earlier time in my career when I worked
in the corporate recovery (aka insolvency) department within Scotland’s largest accountancy firm.
While none of our clients were large or high profile as Rangers, they did come from a wide variety of industries – my portfolio included pubs and hotels, car dealerships, house
builders, caravan parks and even a mail order venison company.
While the industries were diverse, the reasons for the companies going bust were not. The most common cause we encountered was not:
    market or economic conditions

  • competition or loss of a major client
  • theft or fraud
  • the withdrawal of credit.
Sure, we sometimes saw these aspects, but only as a symptom, or a factor which, in itself, shouldn’t have been sufficient to bring the business down.
The single most common cause we discovered, time and time again, was much more mundane – an absence of financial controls: basic things such as management accounts, cash flow forecasts and debtor/creditor management.
Accounting controls which keep lenders onside and detect any irregularities such as theft.
We regularly achieved 100% recovery for secured creditors by selling businesses as going concerns, but almost never were able to secure any return for the lower ranked owner-shareholders.
In some ways that seemed just –there was nothing fundamentally wrong with the businesses, only with the people mismanaging them.
I don’t profess to know any more about the goings on at Rangers other than what appears in the media (and a few titbits from various taxi drivers when I visit family in Glasgow), but the very public utterances of unawareness emanating from various directors and managers suggests a similar absence of accounting balances and checks.
Preston North End might be testing fans patience in recent seasons, but at least it’s only with their performance on the pitch!
So if you are starting out in a new business venture, or are an existing owner/manager, don’t overlook the importance of maintaining adequate financial processes and controls.
That way, you should be able to avoid having to encounter any of my old colleagues in corporate recovery.

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