You’d have struggled to miss the news that construction mega-giant Carillion entered liquidation in January, leaving a wage and pension deficit behind, not to mention many suppliers severely out of pocket. What you might have missed, is the news that Carlton Ceilings and Partitions Ltd (CCP), was the first casualty business of Carillion’s insolvency, entering liquidation as a direct result just two weeks later. What does this have to do with recruitment I hear you ask? Not a lot specifically, but it should serve as a stark warning to any recruitment business which extends credit terms to their clients, just like you probably do…
The news acts as an unambiguous warning to avoid risk planning apathy, and highlights that it doesn’t matter how successful your business is, factors beyond your control can still be its downfall. CCP began trading in 1988 and specialised in the design, supply and project management of high quality ceilings and general construction work. It was considered a stable, growing business and in the accounting year to 30 June 2016, had made an operating profit of £434,000 on a turnover of £8.3m, with a balance sheet value of over £1m. On paper, it was highly successful and if you looked at the Management Information for the company accounts there’d have been little cause for concern.
Where CCP failed, and the lesson which other businesses can take away from this story, is that the stability of your own business is just one factor of risk. Equally important is to consider the stability of your clients and the credit you have extended, and of course to ensure appropriate management of the risks these present. For CCP, a stable balance sheet wasn’t enough; the immediate and severe impact of the liquidation of Carillion, without the means to stem the losses, was enough to push CCP into its own liquidation, brutally and unexpectedly.
We so often hear businesses say they’ve never experienced bad debt, or that bad debt has been limited, and that they don’t consider it a big risk; but what would really happen to your business if a single large client, or a couple of smaller clients entered insolvency at the same time, creating the perfect bad debt storm? Would you be able to sustain the loss; would you be able to continue paying your operating costs; would it force your business to change or fold?
If the answer is yes to any of these questions (and we imagine it probably is), then your business needs a bad debt risk assessment, and a plan to mitigate any identified risks. There are lots of options available and one that will suit your business, but what is paramount is not to leave this evaluation until the worst has already happened. For CCP, despite their obvious success, careful planning and risk mitigation would likely have enabled them to survive the insolvency.
As a member of the Recruitment Growth Network, why not take advantage of our risk audit offer, and find out whether your business is vulnerable and what you can do about it? We’ll help you consider your options and identify the right process, potentially helping save your business from domino insolvency…!