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Paul Williamson is from Deloitte »THE City is screaming blue murder.
Chaos reigns in financial markets. Confidence among the business community is shot to bits. And chiefs at the Bank of England and the European Central Bank have warned us that the worst storm may be yet to come.
It’s enough to make business owners question their sanity and head for the hills. But is the above an accurate assessment of the markets or an overreaction to hyperbolic media coverage?
Certainly, the economic waters are the choppiest since the early 1990s but that doesn’t necessarily mean the ship is going to sink. The key principle of a successful business remains the same in any economic climate: money coming in must exceed money going out.
If Mr X buys a banana for 10p and sells it for 20p, he has made a profit. If those numbers are reversed, he has lost. It really is as simple as that.
I have spoken to several highly intelligent Tees-based business people who have confessed to a previous failed venture. In almost every instance, a lack of cash on the balance sheet has been their downfall.
Companies that have over-extended themselves have fallen foul of golden rule number two: don’t gamble what you can’t afford to lose.
I put a fiver on Portsmouth to beat Cardiff in the FA Cup final. If I had lost the bet, so what? If I had wagered £500 and lost, I would be struggling to pay this month's mortgage.
Although a flutter at the bookies is not in quite the same league as running a successful business, are the underlying principles that dissimilar?
Robin Feith, of the Institute of Chartered Accountants in England and Wales (ICAEW), was spot on with his comments in light of the organisation’s most recent survey, which showed business confidence falling from -7.2 in the first quarter of 2008 to -19.7 in the second period.
He said that in the current climate “loss-making businesses can survive, but businesses that run out of cash will not�.
It might seem like stating the obvious, but how many failed businesses have overlooked the value of cash?
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