The 3 entrepreneurs & a bad situation
This is the traditional fable of the 3 pigs and the wolf revisited and updated for today.
Three entrepreneurs Alex, Bhadra and Charlie set out to build their own houses in which they could entertain their friends.
Alex wanted the get the house done first, so they could shelter quickly and get people round before the others were ready. So Alex built the house from readily available straw. This was good enough he could always improve it later.
Bhadra was more cautious and wanted to spend more time planning. Bhadra managed to get some investment for better materials. However, Bhadra needed to show the investors progress so built the house quickly using sticks so Bhadra could impress the investors with the speed of development. Bhadra could always revamp the build for more investment later.
Charlie, like Bhadra, had a plan - Charlie invested their own money, drew up plans and built the initial phase from bricks. Charlie used the initial build to demonstrate what could be done and secured additional financial support to build the final house. It took longer but it held more people and was a better quality structure.
Times were good. Alex entertained well and decided that this was the life - no need to do any more work. Bhadra likewise was reasonably happy, Bhadra had drawn up additional plans but Bhadra was so busy with the entertainment that there was never time to do anything with the plans. Charlie spent time entertaining but limited the hours people could come to the house. This meant Charlie could keep an eye on the structure and ensure the building remained weatherproof.
Then one day the worst thing imaginable happened, a major storm - storm Wolf - battered the houses with ferocious winds and pounding rain.
Alex’s house failed and blew down. Bhadra faired better, the structure was battered and Bhadra spent all the hours possible patching and repairing the house - it still stood but only just - they were not sure if it could withstand another storm. Charlie also suffered, despite the solid structure, the windows blew in and part of the roof was damaged.
However, Charlie was able to repair the damage and keep an eye on the weather forecast to work out what the repair priorities should be. Several weeks after the storm Charlie hired Alex to help with some renovations and to put in new windows, as the forecast was for strong winds.
Bhadra struggled on. Bhadra couldn't fund the new plans so had to continue to patch what they could. People continued to turn up to Charlie’s house despite the weather - they felt safe and welcome - Bhadra’s visitors dwindled as conditions in the house were not ideal and they often had to do work to keep themselves safe. Bad times came again and a further storm battered the houses - despite Charlie’s best guesses the storm had high winds which
Charlie has expected but there was also torrential rain, which was not forecasted. Bhadra’s house was badly hit - not quite destroyed but not habitable. Charlie and Alex had protected Charlie’s house from the wind and therefore could focus their joint efforts on protecting the house from the relentless rain. Charlie’s house again survived. Whilst Alex was working on the latest rain protection, Charlie took time to look over Bhadra's plot and his house plans.
not bad he thought, if I could get Bhadra to work on the house with Alex I could get this new build off the ground...
The moral of the story, whilst there’s never enough time and you cannot cover all the risks a solid foundation will help you weather the storm and take advantage of opportunities as they present themselves.
Apologies to all those who fondly remember this tale from their childhood. I wanted to find a way to illustrate the need for businesses to embed and protect financial resilience in their business model as we move through this COVID-19 pandemic to whatever awaits us on the other side. Businesses must build financial resilience. However, the intent is often there but the action and follow through less so. Like Bhadra, we know what to do but we never get around to doing it.
The British Chambers of Commerce says 18% of firms in the UK have less than one month's cash in their reserves, while 44% have enough cash to cover their outgoings and overheads for three months. Just 6% have enough to cover a full year. Whilst government support through furlough, CBILS and rates grants etc., may help some businesses pull through this crisis many may not survive another shock whatever form that takes.
Businesses will need to get back to business basics and begin to build back cash reserves. Easy to say harder to do, however, relying on any form of a bailout is only a temporary reprieve. Business owners need to take a look at their business models and revisit their financial models. Get back to the basics of generating profits and optimising the conversion of those profits into cash to build reserves into the business for the proverbial rainy day.
