European Business Improvements

Entry Date: 020408

There is an old saying about never underestimating the stupidity of people in (large) groups. I present this cautionary tale, to serve as a warning about getting swept along with the mood.

I have just spent six months trying to salvage a club from going bankrupt. I will admit here and now that I have probably failed. The reason for the clubs' present difficulties lies in the near past. Unfortunately, I uncovered this past when going through the books.

Five years ago, the club owed an amount of money to a large brewing chain. The brewery sensed that the club was having trading difficulties, and pressed for settlement of the debt. How the debt came into being is irrelevant for this tale, but sufficient to say it was not growing.

The committee of this club (the group) had just appointed a new manager. This manager had no record of running a business, and had no business qualifications. From day one of his appointment the brewery harassed him for repayment of the debt. The manager didn't know how to handle the situation, other than to advise the committee that there were problems with the brewery. The committee in turn, had no business acumen.

The brewery then threatened to force the club into closure, by way of the courts. The manager called an emergency meeting of the committee. The manager advised them that in his opinion, the brewery would close the club within the next seven days if moves were not made to settle the monies owed. The committee told the manager that it was his job to sort it all out.

The manager then sought a loan from the bank. The bank wasn't keen, but as the club owned the land it stood on, agreed to consider a mortgage. The manager didn't like the idea, (no explanation) and looked elsewhere. He came across two parties interested in buying the club, and then leasing it back to the present committee. One of the parties being a local businessman: the other a regional partnership.

The committee arranged to meet separately with both parties. The local businessman asked how much money was owed to the brewery, and then offered to settle the debt, in return for the land that the club stands on. The other party offered twice as much, but wanted a say in how the club was run.

The committee decided to hold a members meeting, and recommended the former offer. On the appointed day the membership, (a large group) egged on by the committee agreed to the sale. The committee, because of the brewery threats, had incorrectly created a false state of urgency. It turns out that this large group of people:
• Failed to verify the true state with the brewery. The brewery would have accepted a repayment plan, but nobody had offered, nor even asked.
• Failed to take adequate professional advice because they thought they knew what they were doing.
• Sold the land for a quarter of its' true worth. Interestingly enough, none of the membership thought about clubbing together to buy the land, or about getting an independent valuation.
• Failed to talk to the club accountant because they felt they couldn't trust him as he'd previously advised club closure. Probably good advice looking at the books.
• Even failed to take independent legal advice on the sale, as they thought they didn't need it. Now they're stuck with a lease that causes them real problems and restrictions. But hey, it was a "standard" lease!

As if all of this wasn't bad enough, the committee then failed to change any of their archaic working practices, cut any jobs, or reduce wages. Sure enough the club is now in debt again. This time, there is nothing to sell, and nothing to use as security for a loan. All that the committee succeeded in doing was putting off the inevitable, and adding to the local businessman's wealth.

Some learning points from this sad tale:
• Don't allow yourself to become swept along with the tide – you are not sheep, refuse to go with the flow. Ask questions about where you are going, where does this lead?
• Stand back and review the situation in the cold light of day. Don't act in haste. Question what is happening and why. Question alternatives.
• Seek professional advice no matter whether you think you need it or not. – Recognise you don't know it all. Seek answers to your questions about values, legalities or anything you don't understand.
• Trust your advisors, they have your interests at heart even though it might not seem that way. They are reliant on you surviving to pay their future wages. Question them as to what their views are.
• Adapt to new situations as they arise – Change or die. Question your practices and processes.

Basically, question everything and everyone. And keep on questioning. Finally, remember, there is only one stupid question, and that is the one that doesn't get asked!