The biggest mistake I ever made was not being honest enough about the unforeseen risks that can wreck a business. Just over a decade ago I had a very successful travel business selling Spanish holidays to Brits. But I didn’t take steps to insure the company against the risk of the pound falling against the Euro. I took some steps to mitigate against the risk of a fall in the pound. I “hedged” a little bit – but not enough. Then the financial crash of 2008 happened.
Learning the Hard Way..
The way my business worked was simple. I took money from customers in advance and booked hotels further down the line. If I’d paid the suppliers – in this case, hotel owners in Spain – as soon as I’d received my customer’s money the business would probably have been fine. But as the pound started to slide, I realised my margin was going down fast. My customers had paid me in sterling that was worth 10% less by the time we had to pay for the thousands of hotel rooms we needed. We ended up closing the business and I worked day and night to make sure customers had places to stay. It was the right thing to do but if we’d spent more money offsetting the risk of currency fluctuations it would still be trading today. We’d already survived a difficult few months when a volcano erupted in Iceland in 2010, spewing a cloud of ash over northern Europe, grounding flights and bringing the travel industry to a virtual standstill. No one could have predicted that and our insurance policy didn’t cover it. The point is that understanding what can go wrong in a business is very important. If the worst happens what are you going to do?
How to Mitigate Your Risks
You should always have enough money in the bank to pay all your outgoing for a least three months – and ideally for twelve months. And never, ever sign a personal guarantee if you’re asked to. A personal guarantee is a written promise from a business owner or executive that you will pay a supplier or a bank loan if the company goes under. If the worst happens, the creditor can then go after your personal assets. If you make yourself personally liable for your company’s debts, you could end up losing your home and, if that doesn’t cover the amount owed, you’ll be paying off debts for years to come.
