smallbusiness.co.uk: Helping your business think big

The football season has yet to kick-off and already one Premier League manager has quit.

Aston Villa’s Martin O’Neill may be keeping his cards close to his chest, but the speculation is that he left because the chairman won’t give him transfer funds to bring in new players. Added to that, he has seen his best players effectively be put up for sale, albeit for lucrative fees, to the likes of Manchester City and Tottenham Hotspur.

If that is the case, you could argue that the chairman is putting the long-term financial security of the club ahead of the fleeting ecstasy that comes with a cup win or qualification into one of the European competitions.

Although professional footie continues to exist in a universe of its own, clubs are experiencing the pain that many ordinary businesses have gone through in the past 18 months. Portsmouth, which won the FA Cup in 2008, is a prime example of a mismanaged business that got its reality check after racking up enormous debts (£119 million) by living beyond its means and showing no respect for creditors. Liverpool, too, has suffered due to a recklessly over-leveraged buy-out.

If football clubs are learning about why a business has to balance its books, there are thousands of companies that now fully appreciate the necessity but are struggling to oblige. The latest insolvency stats show that bankruptcies fell in the second quarter of this year when compared to last year. As cheering as that may be, the fact is that insolvencies have continued to rise on a quarterly basis in 2010. Perhaps most revealing of all, voluntary arrangements, in which a company agrees to a payment schedule with the creditor instead of being declared bankrupt, have increased by 47.8 per cent on the second quarter of 2009.

Speak to any insolvency practitioner and they will tell you that it's nasty out there – a large number of businesses are now on the brink. Banks are, generally speaking, towing the party line but are just waiting for the right moment to pull the plug on companies that aren’t going to make it.

The financial squeeze has reigned in expectations for all kinds of businesses and redefined notions of success. A sensibly run football club won't risk everything in a bid to keep the fans and manager happy, preferring the stability of mid-table mediocrity or the occasional relegation as opposed to a Roy of the Rovers pursuit of glory. Real companies, on the other hand, are focusing on core services and keeping control of cash flow rather than growing turnover at any cost.

Of course, the striking difference between real companies and football clubs is that no company would receive the leniency from the courts that football clubs seem to take for granted when it comes to insolvency and bad debt.

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