A Life In Numbers

We’ve recently closed a funding round of just under £2m for a client and it struck me that with all the negative press around it’s easy to assume that all the positive growth stories have dried up. This tends to lead people to think that the time is not right to take action and consequently they put their head down and hope all the nasty stuff goes away. In their minds they tell themselves that they’ll start taking more action when the time is right.

It’s true that many more businesses are becoming insolvent and going into Administration. And many more may be trading insolvently (a criminal offence with personal liabilities) without even knowing it. It’s also true that there are many more people going into personal bankruptcy or IVA (Individual Voluntary Arrangements) in the false belief that after 2 years this will be wiped from the records (check any mortgage application for the question that says (have you ever been made bankrupt or entered into an IVA) to see that your credit record may never fully recover.

However, amongst all this there are still some companies that are raising money, expanding and growing as fast as ever. Admittedly it’s not easy and has the potential to get harder in the coming year but with the right guidance and the right business plan there’s still a huge amount of opportunity in the market.

The investment community is still sitting on considerable cash reserves and there’s more demand than ever for the right deals. This is balanced by an even higher level of paranoia and focus on cashflow that requires the investors to have a huge amount of faith in the abilities and plans of the management team but a strong team and a coherent plan can win through and the extra focus is on the right things.

Even the banks are willing to help those businesses who can clearly show they know what they are doing, keep the bank fully informed and manage their finances tightly.

Any business owner in this market has to make some tough decisions right now. You must know where they stand financially right now and for the foreseable future. If you don’t know that then you’re treading a very dangerous path that could lead to losing everything you have, including your personal assets.

Next, you need to decide where you want the business to go. Are you going to just knuckle down and tough out the the current market conditions or are you going to look at whether there are changes to be made to the business and strategy that could take you into new markets and consolidate and strengthen your current customer base?

Whichever direction you choose you will have to take some action. The most essential factor you’ll have to manage right now is your cash and that may mean some hard decisions such as reducing costs. You’ll also have to look at your business critically and understand what is working and what’s not. The absolute worst thing to do right now is to freeze like a rabbit in the headlights and wait to get run into the road.

This has turned into more of a motivational rant than I was planning but it would be really sad to see even more companies fail because they were waiting for when the time is right. Because, frankly, the time is right now.

There’s something special about working with entrepreneurs. It can be challenging at times and it can also be extremely rewarding.

The biggest challenge for accountants working with entrepreneurs is that they don’t always follow the rules. In fact, it’s quite rare. This means that a large part of the job can be running around after them clearing up the apparent chaos they leave in their wake. Unfortunately, this can be equally true of both the good ones and the bad ones, and it’s not always apparent which is which (although you can often spot the really bad ones quite quickly).

If you look at successful entrepreneurs they have rarely followed a path of checking all necessary legislation and statutory requirements before setting off. And those that start up businesses trying to do everything by the book and do it all properly often find they fail before they even begin. They get so wound up in red tape and bureaucracy that they don’t have time to actually find clients and start the business. The ones that make it are more often than not those following the Richard Branson cry of “Screw it, let’s do it”. They’re the true entrepreneurs.

So what’s Entrepreneurial Finance? It’s really a way of making sure that the financial operations behind the entrepreneurs business really support what the company is trying to do. It means close management of cash and fast, effective reporting. It means understanding the value of expenditure and making sure that money is used as effectively as possible. It means being willing to speak out when things aren’t going to work (which can be a challenge when faced with a strong personality) and being willing to support the entrepreneur when they’re doing something a bit more risky or different.

You have to flexible and creative and ready to handle all manner of questions, challenges, ideas and curveballs. And you have to combine a “how can we make this happen?” mentality, whilst always keeping an eye on what could go wrong. You have to prepare for both the best and the worst scenarios. And one day you may be hiring and the next you could be firing. And you have to be willing to make decisions and stand by them.

Many people moving from the large corporate world into this environment find it all too much and quickly move back. And when entrepreneurs are looking for people to support them in the finance role they need to be aware of the challenges that will be faced, not just technically but on a personal front too.

If you’re looking for someone to fill your finance role in an entrepreneurial business (and if you don;t have anyone, you really should be) then you need to consider the personality and experience as well as the technical ability. Make sure that you can see the entrepreneurial element in the finance if you want to get the best finance support for your business.

I was at the BusinessLive08 exhibition yesterday and during a very interesting discussion on “Are we talking ourselves into a recession” (the answer was “yes we’re in danger of it, but we don’t really think we’re in one”), someone made an interesting observation.

He was selling IT consultancy and he said the response he was recently getting from prospects was “can we just wait a few months?”. In essence, they were saying “can we defer the decision?”.

It seems to be the default position of many people in business to go to “no decision” mode in the event of uncertainty, crisis, fear or worry. In fact, many people operate in “no decision” mode for much of their career. They tend to base this philosophy on the erroneous view that making the wrong decision could get you sacked, so making no decision at all could save your career.

The reason I moved away from big corporates and into the SME world is because I found far more willingness in SME directors to make decisions quickly and confidently. No protracted meetings, no bulky reviews or reports, no consensus debate. Just a straight “yes we will” or “no we won’t”. It saves so much time and it’s invariably much better for the business.

Unfortunately, I’ve recently seen more indecision creeping into the SME market. There’s more “can we wait and see” and “I’d like to think about it for a bit longer”. It may be a factor of the times, with fears of a recession abounding even if there’s no actual recession. As Dennis Turner (Chief Economist, HSBC Bank, who was very entertaining) pointed out, we have had 63 quarters of positive growth, we have historically low unemployment and interest rates and we still haven’t had one quarter of negative growth, let alone the 2 needed to define a recession.

If you make a decision then you can move forward. It frees you up and clears your mind. And maybe it will be the wrong decisions sometimes but then you have 2 choices, you can decide to do something else or you can focus on taking the actions that will make the decision right.

I really hope that the SME world doesn’t catch the indecision disease that seems so prevalent in the world of endless meetings, reports and discussions that so often defines large corporates.

If in doubt, make a decision. You’ll feel much better for it.