Dealing with a Financial Crisis

:: 00:00

Hello everyone. Welcome to another episode of I Hate Numbers. I'm your host, Mahmood, business finance fixer, author and owner of the firm I Hate Numbers and Numbers Knowhow. Today I'm going to be diving into a topic that if we're going to be realistic, none of us really want to deal with, and none of us want to happen

:: 00:17

and that's a financial calamity or crisis in our business. Now we've all been there. The unexpected happens. We launch a project, the revenues don't quite come in, we launch an event, we have a pivot, and suddenly that income is not materialised as we would expect, and we're now faced with a mountain of debt.

:: 00:37

But worry not, because today I'm going to talk you through the key steps on how to deal with such a crisis. So grab yourself a cup of tea, sit back, relax. And enjoy this episode.

:: 00:53

You are listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

:: 01:19

Now firstly it's when the crisis impacts. Now picture this, my I Hate Numbers dance company put on a series of performances. Artistically they're fantastic, but unfortunately the box office takings aren't quite what I was hoping for. I was hoping for the project to at least break even, perhaps generate some surplus, but guess what?

:: 01:39

The takings didn't quite materialise. Merchandise sales were quite poor, audience numbers were down, and the promised revenue streams vanished into thin air. Well, you might be wondering initially why they went ahead with it in the first place. Well, as business owners, we take risks. Sometimes those risks don't materialise.

:: 01:58

As business owners, we take risks, and sometimes those risks just don't pay off. The key thing here is to stay calm. Panic is not going to solve anything. And you do not want to be that proverbial rabbit in the financial headlights. So firstly, take a breath, acknowledge the situation. It's perfectly natural to feel anger, frustration, and even denial.

:: 02:19

But we need to take a moment to compose ourselves. Rationality, calm, and logic in ourselves and our team is going to be vital to navigate the next steps. The next thing we need to do is to understand the debts that we have. This is step two. We need to get a good understanding of the depth of our problem.

:: 02:37

Compile a list of our debts, our obligations. Know where we stand financially. The worst thing we can do is to create a vacuum by avoiding communication. We will need to communicate with our stakeholders, our suppliers. We mustn't let those problems fester and we need to address them head on. As a sideways comment here folks, this is why it's really vital that we have good financial systems,

:: 02:59

good digital systems, for example, like Xero, which help us maintain and track our expenditure. And we also need good understanding of what our cash flows are now, and what they will be like in the future. Now, as I said earlier on in the podcast, communication is a vital tool that we need to deploy. You do not want to create that vacuum where suppliers do not know what's going on.

:: 03:22

And communication is absolutely key. If you do not communicate with the suppliers and let them know what the situation is, then what will happen is suppliers will come to their own conclusions. Transparency is our friend here. Be open about the circumstances, our intentions to resolve the issues. We will have unpaid bills no doubt from, for example, our performers, from the venue hire.

:: 03:44

Hiding under the duvet is not going to help us in this situation. A lack of communication can harm our reputation and certainly in the creative industries, reputation is crucial, but it holds true for all businesses. If we can navigate ourselves outside of this financial crisis, we're going to be working with these people again.

:: 04:02

What's the third thing we need to do? Well, the third thing is to look at the future. in terms of cash flows. When the communication lines are open and the debts are understood, it's time to look ahead. And step three involves drilling down, looking into our future cash flows. What are our current levels of reserves?

:: 04:19

What does the financial landscape look like in the next three to six months and beyond? Identify your cash inflows and outflows, and this will set the stage for the next steps. Using tools like BudgetWhizz, link in the show notes, which is an online financial planning platform here, which links with your Xero account, is a great way to monitor those future cash flows.

:: 04:38

Now prioritise your debts. Which ones are critical? Which ones impact dramatically on our ability to go forward? What's the reaction been like from our suppliers? Explore our payment terms. The goal is to create a clear picture of the cash flow pressures you're facing. In our next episode, I'm going to dive deeper into the toolkit of options available once you've understood the problem and establish your priorities.

:: 05:01

So in summary folks, panic is not your best friend. Acknowledge the situation. Confront it by all means, do a post mortem, understand why it went wrong, but this is not the time to effectively just look backwards and hiding under the duvet. Make sure you've got a good team around you, your internal finance team, your external advisors, and above all else, anyone who contribute to coming up with a good solution.

:: 05:24

Communication is critical. Speak to your stakeholders, be open and transparent about your circumstances. If you've got debts building up, avoiding them and not confronting them is not the right thing to do. The idea of not opening up the brown envelope, it should not be one that you bring forward in your business.

:: 05:41

If it's not the news they want to hear, it's better than radio silence. And remember, your reputation is on the line, as well as preventing any punitive action from the suppliers. Now for now, remember, keep it healthy, keep it wise, and if you found this episode useful, I'd love it if you could share it with those who might benefit.

:: 05:58

Until next time, take care. We hope you enjoyed this episode and appreciate you taking the time to listen to the show. We hope you got some value. If you did, then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.