The impact on SMEs of Thomas Cook’s collapse

by George Clayson, Associate Director, Business Advisory

When multinational companies fail, inevitably the headlines are numerous as the devastating consequences for its employees are recognised. However, there is another group of stakeholders who will also suffer - their trade creditors.

Whilst it is probably assumed that the largest companies don't trade with smaller owner-managed businesses directly, the supply chain further down the line may well include small and medium-sized enterprises. These businesses will inevitably feel the knock-on effect in the coming months, just as they did when large retailers failed or when motor manufacturers announced they would be closing their UK plants.

Lessons to be learnt

Businesses who are selling to the wider airline and travel industry will already be looking at the stability of their customer base and their order book, but there are lessons here to be learnt for all organisations which should be considering their business strategy and crisis planning.

Review the impact on your business

Here are five key steps all businesses should be taking to review the impact large insolvencies could potentially have on their own trade in the future:

1. Understand which sectors and which particular companies your business is ultimately reliant on and keep up-to-date with industry reports, company financials and predictions for their future trading expectations.
2. Diversify your customer base into different sectors so you are less reliant on any particular risk.
3. For those companies (either your direct customers or their customers) where you identify that cash flow or profitability may become an issue, take action to review your own trading terms with them and ensure your credit control is organised and thorough.
4. Review your own cash flow requirements, plan ahead with projections, and ensure you have the correct facilities for your business's financing needs, both working capital and growth finance.
5. Look at your own sector's 'growth curve' and consider when the ideal time would be to achieve an exit, so that you obtain the highest multiple and the most interest from any purchasers.

The consequences of not evolving

As economic conditions, lifestyle or generational preferences and technological advances seemingly change without us noticing on an almost daily basis, sectors and the businesses within them have to look up to recognise what is happening - and evolve. If they don't manage to do that in a timely way, there can be disastrous consequences. Just like Thomas Cook or Jamie's Italian or Carillion, who all struggled for years but kept hanging on, eventually many businesses simply lose their fight. 

There will most likely be a domino effect for the wider travel industry now, but all business owners should use this as an opportunity to look at their own company and those other sectors which they are reliant on, and take steps to avert future 'big-name' collapses affecting their own stability.

For more information or advice on any of these issues, contact George Clayson on 01273 480480.