Managing the Predictable Problems of Growth - Vistage Speaker Ian MacDougall

At Priority Credit Recovery, we see business owners go through these problems all the time. Here is a very timely article that talks about what you can do as a new business owner to increase your chances of survival.

Managing growth would be a lot easier if you could peer into the future and see exactly what would happen to your company if you doubled or tripled in size. Unfortunately, magic crystal balls only exist in science fiction and fairly tales, right? Not so, says Vistage speaker and organizational  
development expert Ian MacDougall.

He asserts that you can know about many organizational problems in advance, and therefore plan ahead to minimize their impact on your company. All it takes is an understanding of organizational life cycle principles and the ability to identify in your company the characteristic traits  of each growth phase.

"As organizations grow, they move through a series of distinct phases that make up the organizational life cycle," explains MacDougall. "Some phases involve growth, others involve decline, but each has a unique set of identifying characteristics and problems that befall all companies who enter it. More important, these problems are unchanging and highly predictable. Every growing company -- regardless of size, industry, or age -- sooner or later runs head-on into these inevitable challenges.

"The good news is that by knowing where your business stands in the life cycle, you can identify these major barriers to growth before they occur. You can't eliminate them because they are direct results of the previous stage's growth. But you can do a much better job of managing them and thereby facilitate your company's evolution to the next growth phase."

The five growth stages in the organizational life cycle are courtship, infancy, go-go, adolescence and prime. Since the business exists only in the entrepreneur's mind during courtship, this article will focus on the predictable organizational pitfalls found in the other four phases.

Infant organizations eat money like it's going out of style. Consequently, they have two primary tasks -- get the product out the door and keep the cash coming in. To keep the cash flow positive, the company has to sell, sell and sell some more. Often, it takes business at a loss just to get the cash coming in. Infancy represents an exciting but very risky time in the life of the business. According to MacDougall, the primary challenge in infant organizations is survival. This manifests itself in the following organizational problems:

• Running out of cash. Often, the infant organization grows so quickly that it outstrips its ability to pay its bills.
• Making a fatal mistake. The company gets hit with a product liability lawsuit, misjudges the price point of its product, or suffers some major trauma from which it can't recover. Unlike larger companies with more resources, it only takes one major mistake to deliver a death blow to an infant business.
• Loss of commitment. Often the founder gives up too much equity in order to finance the business. Once he loses control, the founder often loses interest and the company  dies  of neglect.
• Personal problems. Many times, the founder's spouse doesn't share his or her vision and dream for  the business. When the spouse resents how much time the entrepreneur spends with the business, the personal turmoil can easily tear the fledgling business apart.

To work through these inevitable problems in the infant phase:

• Keep the cash flow positive at all costs, even if you have to tone down your sales growth for a while. Do not grow yourself out of business.
• Don't give up control. You may have to give up some equity, but never give away controlling interest in your business.
• Track cash flow before profits. Rather than using traditional monthly P&L statements to monitor your company's financial performance, use a 13-week rolling cash flow report. Forget about profits and watch cash flow like a hawk.
• Don't seek the advice of consultants. Most are trained to work with larger, more mature organizations. Consequently, their counsel tends to be inappropriate for infant organizations.
• Avoid premature delegation. In infant companies, the roles are often blurry. Do not delegate any roles or responsibilities until you know exactly what you're delegating.

If your company is experiencing cash flow problems, give us a call right away at 1-866-266-0117. 

At Priority Credit, "We Protect Your Corporate Heartbeat."

History of Debt

History of Debt

The idea of being sent to prison for owing someone quite a small amount of money seems hard to believe today, but it was still happening well into Victorian times. Life in Victorian prisons was very difficult from the moment of capture to the moment of death or release, making them a sympathetic lot in many aspects of Victorian Society.

The position of debtors in prison was slightly different to that of the regular prison population. The idea of the debtors being in prison was to confine them, not to punish them. Consequently, they were housed separately from the rest of the prison inmates; and the way that they lived in prison was dependant on their affluence and the generosity of friends and family.

They paid an admission fee to a certain room and the more expensive the room, the better the conditions.

There were no strict rules as there were in the rest of the prison, and the debtors were free to buy food from a miniature market. Life could actually be very relaxed. The theory being that men in there would be able to work in order to pay off their debts. However, in reality, this was often impossible.

In the 17th century, bankruptcy was a complex legal issue, and few people actually ended up in the debtor’s prisons, as illustrated by Charles Dickens. Until 1841, the legal status of being a bankrupt was confined to traders owing more than £100. Debtors who were not traders did not qualify to become bankrupt, but remained “insolvent debtors”; responsible for their debts, but unable to pay them. They remained subject to common law proceedings and indefinite imprisonment, if their creditors so wished. The legal definition of a trader came to mean all those who made a living by buying and selling, which in due course also embraced skilled craftsmen who worked on various materials. However, farmers were specifically excluded. It was better to be a bankrupt, than an “insolvent debtor” and as a result, debtors would give misleading general descriptions of their occupations.

Until the 1700’s, imprisonment was the common punishment in England for debt; but it became recognized that this was self defeating and, in 1705, a statute was passed allowing debtors to be released from liability, provided that they cooperated with the authorities in trying to pay their creditors.

In 1844, an Act was introduced which defined the position of those who were allowed into the debtors’ rooms, in order to make sure that those in there were actually debtors in the true sense of the word; and in 1868, a further Act meant that a person could only be admitted as a debtor if they had the means to pay off a creditor, but refused to do so. They were often treated as being in contempt of court, and treated like a felon.

In Roman times, and in medieval Europe, debtors were liable to have their property seized and handed over to creditors. Merchants and traders were often treated differently to other debtors.

In 1847, new instructions that were sent to all prisons in Britain meant that people owing small sums of money would get better treatment, and in the future they would not have to share cells with serious debtors or criminals.

The official entry stated “they shall as far as the construction of the prison allow thereof, be separated from other debtors, but shall not be placed in separate confinement, or with any class of criminal prisoners”.

In fact, it was the beginning of a more considerate attitude to debtors, which would eventually result in the ending of prison for owing money.

Strangely today, there is a possibility that a debtor can be committed to prison from the result of litigation, but only for contempt of court, by ignoring a particular court order.

Many clients that we act for would love to see us return to the days of debtors’ prisons, and having witnessed the various predicaments they find themselves in as a result of being owed substantial sums; it is easy to understand their wishes. But the laws that protect debtors by allowing them to ignore their financial obligations are often the laws that allow them to take advantage of their creditors and will continue to do so for some time in the future; and even ease the financial pain of debtors further.

“Good judgment comes from experience, and experience comes from bad judgment”

And hopefully remembering this will help you to avoid giving unnecessary and frivolous credit to someone who could end up owing you a substantial amount of money, with no hope of repaying the debt