This week has seen the very sad news of Thomas Cook going into administration.
And let me tell you if a long-standing firm of 178 years in business can collapse, then we should all sit up and take notice.
Because if it can happen to a household name paying directors huge sums of money, it can happen to ‘amateurs’ like you and me.
In my humble opinion, there are two key reasons for the collapse of Thomas Cook. And they can both easily happen to you.
They didn’t manage the money
The first and most easily identifiable reason is they simply didn’t manage the money. End of! A business is only successful if it is profitable, and Thomas Cook wasn’t.
Yes, that is a hugely simplistic statement to make but I see all too many small businesses go under for the same reason.
They forget to review their outgoings and make changes or cuts where needed such as Thomas Cook keeping over 500 high street outlets when other travel companies moved solely online. They make investments that haven’t been researched thoroughly enough and which don’t give a return on investment. Thomas Cook merged with a company that had only ever once made a profit itself.
This causes the business to sink deeper and deeper into debt and take riskier gambles to try and recoup their losses. It’s a road to disaster.
Cashflow isn’t planned such as with Thomas Cook taking booking payments in the first part of the year but then having huge costs going out in the latter part of the year when income was low.
And owners keep paying themselves even when the business is in financial trouble. Thomas Cook continued to pay dividends right up to last November even though they had been in serious trouble for some time. If the profits aren’t there, stop paying yourself until they are!
They didn’t keep up with the changing needs of customers
The holiday choices of Thomas Cook customers have changed, but they didn’t identify this and react quickly enough.
As already mentioned, Thomas Cook kept 500 outlets on the high street with high rental and staffing costs where most people started to book online.
The holiday choices of their customers changed. Rather than the traditional beach holiday, customers started to book more city breaks. Thomas Cook failed to react to this and other travel agents picked up the city break business.
And of course, the B-word had an impact. Brexit! With the uncertainty of the British population not knowing what was going to happen economically, many decided to stay put in the UK to take their holiday. Thomas Cook didn’t take advantage of that.
Harsh lessons here and it is terribly sad that such a long-standing company is no more.
But whatever the size of your company, the basics are the same for all.
- Constantly track the finances. The essentials are to track money coming in and money going out. You need to look at ways to make more money and save more money if things are tight. Don’t stick your head in the sand.
- Keep up to date with the changing needs of your customers. Trends come and go. Changes happen to your industry. Economic pressures change consumer spending. You need to keep on top of this.
P.S. If you want help to track your finances and to keep up with the changing needs of customers, come join the members club. Don’t get left behind.