Small business that get into trouble by over-borrowing, end up making no money, or even worse, making a loss because the cost of borrowing gets to be greater than their profit.
Where do they go from there?
Growth: you need money and resources for that and if there is none, you have to find it.
Deficit reduction: cost reduction is an absolute must for businesses in this position to free up some cash.
Restructuring: this is the White Knight option – someone, often a predatory acquirer, comes along who will take on the debt at a lower rate of interest – not many of those around today.
Default: for some companies going into Administration is the only option, with a pre-pack to take out the best bits and leave most of the debt behind. Shame for the the creditors, especially the tax man and the small shareholder.
So what about the National Debt?
Default – think of Greece.
Restructuring – think of the ECB and the IMF.
Deficit reduction – think of the UK and other realistic national plans to reduce government spending.
Growth: we need some or all of these to work if Government funding is to be available for growth.
So where does that leave us small business owners?
Sure, the government is doing its best to find some money, but we can’t rely on that really. It is being highly targeted, and there just ain’t much available, realistically.
So for most of us we are on our own. We have to find the resources from somewhere to grow our own businesses, and if there isn’t much cash the only thing we have is time, and making the best use of that.
Chicken or egg?
I’d argue that the egg is growth – its the future produced by the old chicken! Look after the chicken!
Posted by Peter Johnson, business growth advisor with SGBA. Contact Peter on email@example.com if you would like to discuss your business with an experienced advisor and fellow business owner.