Why do many large companies view themselves as being “too big to fail”?
Huge businesses turning over hundreds of thousands of pounds a year can be seen as being a million miles away from a small, family-run business taking in comparatively tiny amounts. It’s important to remember, however, that debt still needs to be paid off whether you’re running a massive investment bank or a family bakery. Evidence has proved over recent years that no company is too big to fail, a point that all large businesses should never forget.
The term ‘too big to fail’ was coined after the 2008 financial crisis. Being ‘too big to fail’ was seemingly the impression that many huge companies had of themselves; they were so large, that if they went bust they’d have a catastrophic chain effect upon the economy, and would, therefore, have to be bailed out. The name that springs to mind, of course, is that of Lehman Brothers.
The enormous investment bank had a staggering sum of $619 billion dollars worth of debt when it filed for bankruptcy, the largest ever case of bankruptcy in history. This all came as a result of the company being too eager to lend; buoyed by its own size and swelled by its importance in the market, the company allowed itself to get into debt that it couldn’t have any hope of paying back.
Many contest that simple business acumen such as considering when money can be paid back and not allowing the business to fall into too much debt could have avoided the initial reckless lending, and subsequent collapse that followed. Alas, this didn’t happen. You may have noticed that Lehman Brothers are no longer with us today.
What should we learn from this?
The lessons that businesses need to take away from the fall of Lehman Brothers is that no matter how large a company they are, they should always be aware of the warning signs of impending financial trouble. Poor retention of money being lent or bad rates of repayment on payment plans for products could signal an incoming crash.
Likewise, businesses should be careful about how much they initially lend out and ensure they only lend to clients who have a realistic prospect of paying for what they owe. If the worst happens, businesses should immediately turn to debt-management experts for the right solution to financial troubles, insolvency and business turnaround.
To benefit from our team of experienced debt management experts, give us a call today.