What’s The Cost Of No Advice?

What’s The Cost Of No Advice?

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The occasion and unadmitted costs to companies who do not take the advice from their financial advisors runs into millions of £ per annum. Here are three recent examples I have come across:

 

  • A property development company urgently needed finance for their new multimillion development project. I obtained the necessary finance within two weeks of speaking to a bridging finance specialist. The interest rate was high and so my advice to the director of the property development company was to get on with the selecting a building contractor in parallel with tying up the details of the loan finance. The client refused my advice and chose to sort out all the arrangement of the loan finance which took three months before turning his attention to  obtaining a building contractor. This took another three months and resulted in him missing the summer building season and thereby delaying the project by the best part of a year. This resulted in significant additional finance costs of over £500,000 which reduced the profit on the project and delayed selling the new residential properties by 18 months.

 

  • A motor dealership which was experiencing financial hardship but had a labour margin of £55 per hour worked by the workshop crew. If there were enough chargeable labour hours sold by the workshop crew then the overheads of the business would be covered and the sales of new and second hand cars would provide a suitable profit for the business. Having understood this relationship I was excited since I could see a way for the owner of the business to obtain a ready reckoner for the performance of his business. I explained the situation to the business owner but then hit a brick wall since there wasn’t any commitment to obtaining the information from the companies workshop performance system. I was just told that the information was not available, could not be accessed and would not try to do so. This has meant that no attempt was made to collate the information and the business owner continued to fly blind without any strategic oversight and the business continued to lose money without any corrective action being made.

 

  • A finance director regularly in his monthly board reports projected the financial position of the company for the next 12 months and included the financial difficulties of the company clearly in his board report. He reported that the finances of the company were deteriorating and the company needed to raise additional capital. The board discussed the situation and agreed to look for additional capital but would not put any money into the business in the short run. This situation went on for over three months. The FD had been very careful with the available cash and had managed to get another month out of the cash resources. Then the company ran out of cash and all the directors, except the FD, were suddenly surprised that the cash had run out not withstanding the repeated warnings raised by the FD.

 

The lesson from these examples is that it is vitally important to listen to the advice from financial professionals. Failure to do so costs the company money or provides embarrassment for CEO’s and Chairman which the chickens come home to roast.

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