Tuesday 25 April 2017

Fear pushing us to brink of ruin

Sometimes when a company goes bust due to insolvency, it transpires that it had been insolvent for some considerable time.

That is not to say that in all cases, the directors of these companies had been trading recklessly, knowing that they could not possibly recover but nevertheless incurring debts they knew they could never repay. In many instances, the owners of these companies have been keeping the best side out, convinced that if they can just get enough working capital to see them through a rough patch, they will somehow manage to trade their way out the other side.

Whether the behaviour is criminal or unduly optimistic, or simply a burying of the head in the sand, there is a similarity in the condition. Costs are too high but adequate measures are not taken to reduce them. Borrowings are excessive but they are added to, rather than reduced, sometimes at usurious rates. None of this is done in the context of a coherent plan, rather it tends to be a series of panic measures, one triggered off by another. There is a lot of ad hoc reaction to events, and predictions and targets are constantly adjusted. Payments are delayed and then missed altogether. Then suppliers and financial backers become uneasy. They are placated for a time, but eventually and inevitably they become apprehensive.

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