DENIAL! That is the one word that sums up the mindsets of all too many chief executives and finance directors who refuse to acknowledge problems at an early stage when the amber light is flashing for their business.
Unrealistic expectations, lack of detailed information, hopes of "jam tomorrow", misplaced optimism of a significant chunk of income coming through today, or the next day, even the next week, inevitably lead to the door with "insolvency" in big, bo
ld letters on it.
Challenging economic times such as those we are now experiencing see a broad range of sectors affected by the downturn, from retail and manufacturing to leisure and technology, and the demand for advice is growing daily.
However, there are still all too many businesses out there that refuse to face up to difficulties that are becoming more acute and potentially more disastrous by the day.
Fear of change, all the uncertainty about what the future might hold when any solution could lead to control of the business passing to someone else is again another major factor in the paranoia of denial.
The problem is that denial eventually leads to a catastrophe, which has just been waiting to happen.
Early recognition of any problems and facing up to the often stark reality that they pose is crucial if insolvency is to be avoided.
We are not corporate undertakers, rubbing our hands together in eager anticipation of a business calling upon our services and then administering the last rites; wherever possible we help businesses find the best solution that allows for positive steps towards financial recovery.
The old adage of a "stitch in time saves nine" could not be more appropriate in the current economic climate, with doom-and-gloom predictions from the pundits on a daily basis and we are trying to get that message across to as many businesses as possible.
We are optimistic that many sectors of the economy will remain strong and we try and help businesses stay operational where possible, but the key to this is often early involvement.
It may be that the managing director of a company is more focused on the day-to-day running of that business and the people in it and does not have the time or, as a symptom of denial, does not want to find the time to stand back, see the bigger picture and what needs to be done to withstand the challenges of the "credit crunch" and recessionary conditions.
But a recession, which is technically two successive quarters of negative growth, is looming if the pundits' predictions are correct
That same managing director of a small or medium-sized business may be attempting to fend off calls from suppliers or others wanting payment. In desperation, payments are made but then cheques are bounced and a decree is awarded against the company.
The managing director, and sometimes the financial director, who ignores all this and buries a now muddled head in the proverbial sand does so at his or her peril. It may be, of course, that the managing director is not being given a true rundown by the financial director on the company's looming financial plight.
Other amber lights that should not be ignored include creditors taking longer to pay, or suddenly it is announced that a major customer has gone bust or maybe the sector the business is in has declined as a whole.
By this stage, denial is all too often coupled with acute stress, which can have a disastrous impact on health. This might even lead to marital breakdown and, at the very worst, suicide when it all becomes too much to bear. All because of "denial".
There is also perhaps the fear of change. After all, this is a business you the managing director have founded, seen grow and now, because of circumstances outside your control, you are losing your grip on it.
Seeking advice you see as weakness, that advice could mean others having sway over the future direction of the business.
By hanging on in there for a few more months, all will be resolved so you think, it's just a bad patch the business is going through. This is not only denial, but also self-delusion.
Facing up to those problems, in that beleaguered individual's eyes, and seeking professional advice all too often represents an admission of failure.
What is often overlooked as a result of blinkered vision is that one weak division is bringing the company down; by disposing of it, the rest of the business may well survive as a viable operation, jobs are saved and goodwill preserved.
Another factor which adds to denial is the fear of being perceived as a failure by your peers and the shame that goes with it. The dreaded "I" word – insolvency – is taboo in any discussions.
Insolvency happens to other businesses, not to yours, the mere thought of it is total anathema. Think again, because all of that is unadulterated balderdash.
There is neither shame nor failure to insolvency; it happens all the time but can be avoided if advice is taken at an early stage by banishing denial and looking at the broader picture, perhaps with the help of professional advisers.
When advice is sought early enough, then there is a real possibility of avoiding insolvency. But once the likes of a winding up petition has been served, then the chances are decidedly remote.
A deterrent to seeking advice is often concerns as to what it might cost, but a first meeting to assess the situation and possible ways forward will cost nothing.
We come back to denial because this is the real problem. Snap out of it, recognise the problems and seek advice from the professionals who can and will look at the bigger picture.
Should you delude yourself that things can only get better, then the inevitable day of reckoning will come when the plug is pulled and you are referred to the likes of us by your bank or accountant as a suitable case for insolvency treatment.
• Ken Pattullo is the partner who heads the 40-strong Begbies Traynor team with offices in Edinburgh, Glasgow and Dundee
The full article contains 1046 words and appears in The Scotsman newspaper.
