Unless you have been hiding in a cave for the last couple of years you know Greece is on the verge of economic collapse on the scale not seen before. The unemployment rate is a staggering 22% and they are expected to default on their loans unless they receive yet another round of financial help from their neighbors and EU partners.
While it may be tempting to think of Greek situation as unique, it is not far-fetched to think of an analogous scenario for small businesses. After all, as we show below the reasons behind Greek crisis are prevalent in many of the businesses – both large and small. That’s why Greek crisis holds important lessons for business owners in how not to get into the financial disaster. Below is our attempt to explore reasons behind Greece’s failure and how they apply to small business owners.
- You will pay big price for failing to plan ahead. The crisis in Greece did not transpire in few days. It had been brewing for years in the past. They just didn’t see it coming and failed to plan for it. Small business owners need to have visibility into their business performance. They also need to be prepared to take proactive actions to address problems that might show up on a moment’s notice. Failing to take proactive actions early will result in having to pay big price. Look at this post to learn how to use Key Performance Indicators (KPIs) to keep a handle on the business pulse.
- Always keep your financial house in order. Greece’s current financial situation is a mess resulting from their failure to plan ahead. Their public debt is huge, income is declining rapidly and their ability to pay back debt is virtually zero. The reason for the current situation is failure by their earlier leadership to keep a tight rein on their finances. Small business owners can end up in similar situations if they fail to control the debt and are not able to generate sufficient cash flow to service it. A savvy business owner always keeps an eye on the Balance Sheet and Cash Flow and ensures that they do not get out of control. This post shows techniques to avoid common cash flow mistakes.
- Cost cutting alone can only take you so far. European leaders are trying to overcome the Greek challenges by implementing austerity plan and cutting their expenses. This has resulted in widespread dissatisfaction and riots. People who have been accustomed to cushy life do not like the sacrifices they have to make. Businesses can take drastic cost-cutting measure for survival in the short-term, however at some point you have to spend money to make money. Nobody has become rich by cutting their expenses. Again, if you plan ahead and keep your financial house in order you may not even need to take these drastic cost cutting measures.
- Partnership is beneficial except when it is not. European Union was established to a great fanfare and was heralded as a huge success that would rival United States of America. It did become successful as long as all partners were aligned. However, tensions began arising when some partners (Germany, France, etc.) were more successful and had different financial agenda versus the ones (Greece, Portugal, etc.) that were not so much. Partnership is a double-edged sword. While there are valid reasons to establish partnership you have to take active steps to make it work and plan ahead for the days when it may not work out.
What do you think? What other lessons can you learn from Greek crisis?
