And other flying related business metaphors
A Downward Spiral is described as ‘a series of negative events that reinforce each other, leading to a situation that worsens and becomes difficult to control.’
Let me paint you a picture. You’re at the controls of your very own aeroplane. The sky is blue, the winds are calm, and you’re flying along enjoying the scenery. A flight instructor might refer to this as ‘fat, dumb, and happy’, a state in which we’re blissfully unaware of what we’re about to encounter. In our untroubled frame of mind we’ve taken our eyes off all those complicated gauges, and we’ve failed to notice that the engine has developed a problem, it has been producing less and less power and we’ve been losing airspeed. We’re now flying dangerously close to a stall, but as yet no alarms have gone off. Almost without thinking you begin a routine turn, something you’ve done countless times before, but as you do so the wing closest to the inside of the turn slows below its stall speed and, with little warning, stops creating lift. Your turn suddenly becomes fast and steep as the stalled wing quickly drops, the nose of your aircraft dips towards the ground, and forces you weren’t ready for are now making things fly around the cabin. Your plane is rapidly losing altitude, you’ve gone from pilot to passenger in an instant, the ground is rushing to meet you, and there’s a fleeting moment of panic…
I’m sure some of you have already drawn the business parallels (and maybe broken out in a bit of a cold sweat). It can be all too easy to forget to keep an eye on all those important gauges, like weekly or monthly financial reports, and to fail to see that our income is no longer keeping up with our expenses. We try to keep our plane stable with a little borrowing, or delaying our tax payments, but we’re slowing down, and getting close to the stall, that point at which we’re no longer flying but instead, often unexpectedly, falling. Small changes to our business course, perhaps just avoiding bad weather, are no longer routine, and try as we might to avoid it, we’ve got ourselves into a spin. So, buckle up captain, there’s work to be done. Those passengers aren’t going to save themselves!
The four steps of spin recovery.
Step 1 – Slow down. Assuming we’ve recognised that we’re in a spin, the first thing we must do is regain control. In an aircraft we’d reduce power to help us stabilise things. In business of course I’m not going to say, ‘stop selling’, but what I will say is don’t just push blindly ahead without a plan. If every sale is coming at a loss, then the answer to our problems may not be as simple as making more sales. Now is the time to work on your business, rather than just in it. Take the time to talk to your accountant, or business advisor. Reach out to your franchisor for support, and delegate some of the day-to-day if you can whilst you get a handle on your situation.
Step 2 – Level those wings. We need to take steps to bring our expenses in-line with our income. Review any short-term borrowings and see if they’re still your best option. Short-term cashflow loans have their place, and that place is generally when you can pay them back in 12-months or less. If your budget isn’t going to allow for that then consider whether you can consolidate debts and obtain longer term secured finance. Talk to your financier or a reputable finance broker but watch out for those that just recommend a quick-fix with more expensive debt. Another cash loan might push that approaching ground a little further away, but it will also hasten your descent!
Step 3 – Turn against the spin, the right way. In our aircraft we’d apply rudder firmly against the spin until the world stops going round-and-round beneath us. For our business we’re going to look hard at all our fundamentals. Go through each cost and revenue line in detail. Seek better deals with suppliers if possible. Talk to your franchisor about every control point and compare your business with other similar franchisees to see if there are any areas that stand out as different. If we have a tax problem we’re going to tackle it head-on, holding hands with our accountant and seeking an arrangement with the ATO or IRD. If none of these things stop the spin you might need to get drastic and talk to a restructuring practitioner, and whilst this may almost be a last resort, it is still a much better option than closing our eyes and letting whatever happens happen.
Step 4 – Get flying again. To round out our analogy, in our aircraft we’d push the yoke forward to gain airspeed, bring our controls back to neutral and start adding some power, and just like that we’re flying again! OK, so maybe it’s not so easy in business, but we’ll get there. Start by preparing an updated forecast for the next twelve months (both P&L and cashflow) to make sure your trajectory is a stable and sustainable one. You can prepare a budget too, but remember the difference; a budget is what we want to happen, a forecast is what we think will happen.
Phew! You saved it captain. Well done! You’re wide awake now, the adrenaline is starting to subside and you’re assessing just how close you came to being a short story on the evening news. Remember however, as you settle back down and climb away from trouble, now is the time for vigilance. We might still have some way to go before we’re out of the woods. In all that excitement we’ve come a lot closer to the ground than we might have liked, and obstacles (such as unexpected expenses) that we may have sailed over previously with mild interest may now pose much greater risks. If capital is our altitude then we need to work hard to regain what we had, to put a buffer between ourselves and all those hazards that come from flying at low level.
So, we’ll check everything once more to make sure we’re still on course and that no more problems are rising to meet us, and we’ll keep monitoring things closely, we don’t need any more nasty surprises. I don’t need to tell you that of course, you’ll be checking those gauges religiously from now on, pouring over your sales reports of an evening, checking those KPI’s daily, and making sure those expenses are always under control. You’ve stopped being a passenger and you’re back to being a pilot. Wishing you blue-skies and tailwinds captain.
About the Author
Phil Chaplin the Chief Executive Officer of the CFI Finance Group, a specialist finance company servicing the franchise, accommodation, and fitness sectors as well as small businesses more broadly cross Australia and New Zealand.
Phil has over 20 years’ experience in providing finance to businesses across Australia and New Zealand and has managed finance companies in the private and banking sectors, he is a former chair of the Equipment Finance division of AFIA.