Albert Einstein once suggested, ‘We cannot solve our problems with the same thinking we used when we created them’. Yet, this is exactly what we see from some clients during a financial crisis. They share their stories and wait for our advice. Often, instead of following the advice, they repeat the same mistakes.
Ignoring the root of a problem is a recipe for disaster. When clients choose to go about their day-to-day lives without addressing the origin of the problem, they create a vicious cycle that they are doomed to repeat. It may take weeks or months, but rest assured, without learning from past mistakes and taking corrective actions, the result will be the same. We will be sitting across from them in our office again, hearing their latest story of financial struggle. Many times they have been drip-feeding creditors. In reality, they are sending good money after bad. They are just delaying the inevitable.
It does not have to be this way. The cost of waiting until you are actively fighting a financial fire is high. Preparing for and preventing damage to your financial affairs is a better alternative to engaging in damage control. Moving to a ‘Plan B’ scenario has been almost always less effective and more expensive.
A perfect example of the cost of switching to a Plan B is bankruptcy. Entering bankruptcy before creditors place defaults against you is advisable. Down the track, you can make an offer to your creditors. If they accept, your bankruptcy is annulled. Your bankruptcy status is removed, and all debts are considered settled. This preserves a clean credit file and all the advantages that come with it when borrowing in the future.
Conversely, if you wait until creditors place defaults against you, the option of annulling your bankruptcy is still there, but all defaults remain on your file even after debts are settled. It will damage your ability to qualify for credit.
With company insolvency, the consequences are dire. Not only can waiting create a bad credit rating, but it also ensures more damage is done to your professional and commercial relationships. You run the risk of creditors reporting your company for insolvent trading if you delay settling your debts. Creditors are more likely to be understanding if you are upfront about financial difficulties and work toward settling them quickly.
If you think your financial circumstances are spiralling out of control, call us sooner rather than later to arrange an informal chat. With 32 years of experience, we can help work through the issue and get those financial fires out for good. It could be one of the most cost-effective things you do.