Is this the new norm?
The influx of people walking through our doors in recent months, who have called upon family money to support their failing businesses, is quite frankly, unsettling.
What we are observing in today’s business environment, particularly for small business; is that more people are risking family assets on the premise that “things will get better”. However, they often do not, a harsh reality that many business people are oblivious to. In fact, what seems to be the recent norm is poor old mum and dad acting as guarantors on business loans, only to result in their homes being sold to satisfy debts that were far beyond their initial comprehension.
One recent example that comes to mind is the liquidation of a fairly well-known retail store. At the request of the accountant I met with the company’s director nearly 12 months ago to review the financial position of the business. The director believed the business was going through a “small rough patch” and just needed a cash injection for it turn a corner. At that meeting, it was my view that the business was beyond salvageable and was hemorrhaging money—advice which I promptly passed on. Not surprisingly, the director was unimpressed that I could not see value in the business he worked so hard to build. He subsequently proceeded to obtain a bank loan secured over his mother’s property. Twelve months on, the company was placed into liquidation and sadly, the mother’s property was sold.
So, what is the lesson in all of this? Well, it’s an age old adage really—“Never ask your parents (or children) to guarantee your debts or allow you to borrow against their assets. You have no right to ask them to take such a risk”.
If only those who sought our help had taken that simple advice, they may still have their homes.
As for when you should advise your clients to “draw the line” and say, “enough is enough”? This is topic for another day I suspect, with enough time for a lively discussion.