Lessons learnt from losing $25k
“Nigel – can you quickly disable David’s account?”
David was the CEO of my biggest client.
I was about 2 years into running my MSP and we had been doing LOTS of work for an amazing charity who employed about 600 disabled workers (no, they weren’t a sweat shop).
They’d been around for about 50 years and had been growing surely but steadily.
We looked after everything IT for them and had a great relationship with them all (including the CEO).
Then, one day that call came in out of the blue.
Instantly, my heart started pounding.
On the other end of the phone was the operations manager of the business and she quickly told me that the business has just been put into administration (the first step towards bankruptcy) and was now under the control of external administrators.
The CFO and CEO had both just been fired and escorted off the premises.
The charity owed about $3 million to creditors and they were completely insolvent.
$25,000 of that $3 million was ours.
It doesn’t seem like much now days – but back then, it hurt.
For a 2 person bootstrapped business in it’s second year of trading, it nearly put us out of business.
Over the next few months, the administrators sold off the business assets for cents on the dollar and we got back $0 – nada, zilch, zero…
The reason I’m telling you this, is that late last week, I was on coaching calls with 2 different MSP business owners and I asked them how much their Accounts Receivable balances were.
Both of them were close to 6 figures. I gasped when I heard.
One was only a 3 person operation, so a 6 figure amount is a game changer for a business that size.
I asked them if they were comfortable with the figure being that high.
“It’s OK, most of it’s from a long term client who I trust 100% – it’ll be in shortly!”.
I got the exact same reply from both of them.
I quickly told my story to them and gave them some tactics they can use to help shift the scales.
If it happened to me - it can happen to you.
Your most trusted client. Your favorite client. Your most stable client who’s been in business 50 years.
They can all go bankrupt or face administration.
From that day onwards, I made a decision to never lose something like that again.
One of the ways we did this was by getting very comfortable having this type of conversation with our clients
Whilst we’d love to be in a position to be able to finance this for you – we’re not in the banking game because, honestly – we’re pretty crap at it.
We’re one of those businesses who lost tens of thousands of dollars when one of our most loved and loyal clients went bankrupt. It nearly sent us under as well.
So instead of trying to be bankers – we focus VERY hard to be great at what WE do – and that’s provide world class IT support to you.
And to make sure that we can be around tomorrow and in the future, we have made a policy to not offer credit.
We do have finance companies we can refer you to or we’d be more than happy to work with your own bank if you want to finance this through them.
It took about a year to re-train all the existing clients (new ones were easy) however after time, we saw a big shift in our Accounts Receivable balance – right down to a figure I was comfortable with if it was lost.
So.. My challenge to you today...
Stop what you’re doing – jump into your accounting system and write down your Accounts Receibable balance.
Would you be OK if it all disappeared tomorrow?
If not – start making some changes TODAY to get the figure down so you can still be around tomorrow to help your clients.
GOOD NEWS: The good news out of the story is that the administrators were able to sell off the parts of the business and all 600 disabled workers were able to keep their jobs!