As an Insolvency Practitioner I am often asked about “when” a company is trading whilst insolvent or the “signs” that a company is trading whilst insolvent. Depending on who asks the question the response will generally range from the technical cash flow tests, asset / liability ratios to the soft tests including creditors demands (Australian Tax Office director penalty notice to outstanding rent being the popular ones) and payment arrangements.
In my opinion, this question and answer despite honest intentions (trying to chart a company to a healthy financial future) is often asked far too late. The time to ask questions in respect of the company’s direction is before cash flow and financial ratios go down the toilet, before you are being hounded by the Australian Taxation Office and other creditors. The time to ask is when your company’s profitability and financial position is decreasing despite your views on your company’s performance and the performance of that industry as a whole. At this time, ask yourself or me, why this company is only just breaking even when it should be booking profits to represent your views on the company.
Unfortunately, your views on the company are missing something, probably something that seems insignificant. However, it is often the things that seem insignificant that can halt the people and momentum that create profits and value to your company, expressed poetically in Benjamin Franklin’s Poor Richard Almanac:
“For want of a nail, the shoe was lost;
For want of a shoe, the horse was lost;
For want of a horse, the rider was lost;
For want of a rider, the message was lost;
For want of the message, the battle was lost;
For want of a battle, the kingdom was lost,
And all for the want of a horseshoe nail.”
Which brings me to the Banana ninja, a company called Megatron* ordered a fruit basket that arrived every Monday morning for its employees. However, one employee Steve* unbeknownst to the rest of the staff would stealthily enter the kitchen and take 9 of the 12 bananas hiding the rest in his desk for later eating. For a while nobody took much notice, but over time like weeds the rumours and innuendo grew, distrust and disharmony began to foster amongst employee group not only about just bananas but then to pay packets, employee entitlements, employee relations and relationships, positions and information in relation to company projects to the stage where the distrust was so high that healthy communications had all but ceased in the office. Despite every individual continuing to perform their own individual function at a high level the break down of communication, teamwork, culture and camaraderie moving to a more individualistic approach the company’s value to its customer base declined and with it the company’s profits and revenues.
The Banana ninja not only highlights the dangers of fruit in the office but it underlines the importance of keeping on top of the small things. Often by the time the small things have grown into something astronomical the damage has been done and you are on the phone to your local friendly insolvency practitioner.
In my next piece I will comment on a few handy hints I use to stay on top of the small things.
* Names have been changed to protect the innocent