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Nothing to learn from Carillion!

Whilst no one wants to see commercial failure of any magnitude, they are the unintended, if not unexpected, consequences of doing business. We know there are no guarantees in life and business is no different. Without risk, there can be no reward. Risk is the size of your non-refundable investment!

Warren Buffet says that, “Risk comes from not knowing what you are doing.” What he’s actually saying is that by going into the unknown we need to know what we’re doing, why we’re doing it and what it should look like along the way. That’s what I call being “Risk Aware”, an evolutionary state in which you make the unknown more knowable; ergo reducing risk through increasing knowledge.

For those many suppliers caught out by Carillion’s collapse I can only imagine they’re tormenting themselves with hindsight’s wisdom…”If only I’d checked, noticed, looked, reviewed etc. Of course, if only they had taken the steps they now lament, their financial and trading futures wouldn’t be so precariously balanced.

One might chastise them for allowing excessive credit terms in the first instance, of continuing to supply whilst excessive terms were breached and for not demanding more guarantees as debt escalated. These sizeable risks were all taken on the back of sizeable rewards. However, for some the non-refundable investment is their business, their own livelihoods and that of their employees.

But let’s be honest here, for the average person like me or you, how easy is it to truly grasp the financial security of any large corporate with whom we trade? Sure we can look at their last set of published accounts, but given the myriad of ‘notes to accounts’ that attend such historical documents are we likely to be any the wiser?

What we must learn from Carillion is that similar failures will be repeated. As suppliers to ‘big corporate’ we have to decide what level of non-refundable investment we are prepared to sacrifice for the size of bounty they offer. We also have to recognise that the level of unknowns when dealing with ‘big corporate’ make them a bigger risk and therefore warranting even greater scrutiny.

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