The Olympic Games allows top athletes the chance to compete against the best in the world and gives TV audiences the opportunity to watch non-stop sports for three weeks, but it’s usually an economic disaster for the city that hosts the event.
The fact that host cities are left with a few oversized stadiums (so-called ‘legacy projects’) and mountainous debts once the 17-day sporting extravaganza is over shouldn’t come as a surprise.
Only the insanely optimistic continue to ignore decades of research that show hosting the Olympic Games rarely improves a city’s economy. Despite the promises of politicians, the costs are usually far higher than projections and the revenues far lower.
And contrary to what is promised, tourist numbers don’t go through the roof even during the Olympic Games. Take the 2000 Summer Olympic Games in Sydney, for example. They were expected to attract 132,000 tourists. Instead, just 97,000 arrived, reported the Globe and Mail’s International Affairs columnist Doug Saunders. Tourists who weren’t interested in the Olympic Games cancelled or delayed their visits for fear of crowds, he said. And instead of the eight to 10 million tourists a year who were forecast to visit Sydney in the years immediately following the Olympics, a steady 2.5 million visitors a year turned up.
Likewise, international investors don’t beat a path to a city’s boardrooms just because the host city has a new 30,000-seat stadium or a better bike path.
Yes, hosting the Olympic Games might put the city on the ‘world map’ for a few weeks but that comes at a cost of billions. An entertaining YouTube video that goes viral will do much the same these days at a fraction of the cost.
Even bidding for the honour of being chosen to be a host country is an almost guaranteed way of losing millions of taxpayer dollars. Chicago, for instance, reportedly spent $100 million on its campaign to host the 2016 summer games. It obviously lost out to Rio De Janeiro.
Now just because you have no plans whatsoever to host a sporting event or even to take part in one doesn’t mean you’re exempt from the risk of bankruptcy. That’s because bankrupting your own company is far easier than you might think. And unlike the people who lead the bids to host the Olympic Games, you can bankrupt your business in a matter of months rather than years—if you really put your mind to it! All you really need to do is manage your cash flow poorly. That’s enough to rock the foundations of even the most profitable business.
If you don’t find and fix the cause of the cash flow problem in your business and then put systems in place to manage it more efficiently, your company is at a very grave risk of following all those ailing Olympic Games’ host cities into the red.
The stark truth is without cash, your business will be unable to meet its payroll obligations, be more likely to default on payments to suppliers and creditors, and in the worse case, be forced to cease trading.
You might think you’re immune from danger because your business is experiencing a high level of growth, but you’re wrong: expansion can exacerbate the problems caused by poor cash flow management.
Cash really is the oxygen on which every business depends. Without a steady supply of it, your business cannot survive.
That applies even if your company is profitable. Business consultant Bill McGuiness says, “The sad fact is that the majority of failing firms are profitable as they enter bankruptcy.”
Essentially, your cash flow problems are likely to be the result of one or more of the following:
- Poor collection from debtors
- Your fixed costs are too high
- Your prices are too low
- Your sales are too low
- You’re giving customers too generous payment terms
- You’re overtrading
- You’re holding too much old stock
Just as an athlete can’t ignore an injury, you can’t overlook your cash flow problem. Like a dodgy knee, it won’t get better on its own. In fact, it will get far worse. Fortunately, there’s a quick and easy way to resolve the problem: hire a part-time CFO.
The CFO Centre will provide you with a world-class CFO with ‘big business experience’ for a fraction of the cost of a full-time CFO. It’s the business equivalent of having an Olympic coach at your beck and call. You can watch a 3-minute video here which explains the part-time CFO model.
Your part-time CFO will identify and address all the immediate threats to your business and then prevent cash flow problems from recurring.
Your CFO will encourage you to use regular cash flow forecasts so you know how much cash is going to be needed in the coming months. It means you’ll know in advance if you’re likely to face a cash shortfall and can make arrangements for extra borrowing, or take other appropriate action.
Having the right cash flow management processes in place and being able to spot peaks and troughs in trading to improve cash flow is one of the most critical components of any finance function.
Put an end to your cash flow problems now by calling the CFO Centre today. To book your free one-to-one call with one of our part-time CFOs, just click here now.
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