We regularly hear accountants and solicitors observe that clients with a financially troubled business come to them for advice… and then ignore the advice proffered.
I suppose there are almost as many reasons for clients taking such an approach as there are clients. But that being said, most clients would fall into one of the following three broad categories:
- “It’s only a problem if I acknowledge it”: incredibly these clients can often be shown that a real problem exists, but simply reject the notion that anything needs to be done. Not unusually they will lease a new BMW and take an overseas holiday (business class) about now, simply adding the cost to the credit card debt or bank overdraft.
- “Wishful Thinkers”: these clients recognise that problems exist but persist in the often irrational belief that the next contract, the next season or the new product will solve their problems.
- “Stressed, sleepless and stunned”: These are the clients that we feel most empathy with. The know they have a serious problem, they know that the problem will not go away… but they can’t overcome what we call the “inertia of debt” to confront (and almost certainly) alleviate the problem
So how are these differing categories of clients best handled?
Client with the “It’s only a problem if I acknowledge it” approach.
Clients in this category can rarely be helped. They are on a self destruct trajectory that will end only when every last bit of working capital and all credit has been used up. A written advice will be ignored by the client, but might help the practioner feel that they have at least tried. The only hope for clients in this category is that one morning they will wake up changed to a “Wishful Thinker”.
Clients with the “Wishful Thinker” approach.
“Hope springs eternal” and a never say die attitude is often to be applauded, but a degree of rationality must intrude. Because they have convinced themselves that their problems will shortly be solved by the next big deal or what they see as an emerging change in the market, the client will put off looking at any alternative other than trading on.
For such here is what we suggest:
a. Get the clients current financial position detailed on paper, and get them to acknowledge that it’s correct. Go as far as getting the client to initial and date the financial position paper, so that they can’t back track.
b. Ask the client to nominate a not too distant date when they expect to be out of financially difficulty
c. In the same format as was used when the current financial position was defined (see “a” above) work with the client to prepare their future expected financial position.
d. Get an acknowledgement from the client that unless the expected improvement occurs they will consider other options.
e. At the end of the period compare the expected financial position with the updated actual financial position. Obviously if the anticipated improvement has occurred all is well. If not it’s time to get other input… see below.
Clients with the “Stressed, sleepless and stunned”, approach.
Most clients fall into this category, and some need to pass through the first two categories before reaching this stage.
These clients are financially under water, but it’s important to recognise that physically and emotionally they are also severely drained. Also, they may well have heard inaccurate or exaggerated stories about what happens in a liquidation or bankruptcy. Yet 99% of those that we deal with are immensely relieved after hearing us explain the process and consequences of insolvency, whatever form it might take.
The problem to a great degree is the client’s fear of the unknown. What their advisor needs to do is get them to sit down with someone who knows what he or she is talking about, and who will explain things in simple terms. We recommend that:
- The client and the insolvency practioner both acknowledge that the purpose of the meeting is only to look at all alternatives. That is, no decisions will be made by the client at that meeting, which is a meeting held without obligation.
- The meeting is held a place where the client is comfortable; that can be at the professional advisors office, the client’s home or the client’s office. The meeting should only be held at the insolvency practioners office if the client is comfortable there.
- If the meeting is held with a Worrells partner, the client is provided with a copy of our latest Insolvency Guide. This helps them understand the processes and consequences of insolvency.
- The client is encouraged to ask questions and made to feel free to return for a back up meeting.