Why have so many big brands been declared bankrupt lately? Many people consider big brands to be indestructible in a way. Even if they fall, it’s not unusual for the government to bail them out. There are many ways to fail as a business, but greed is prevalent in America these days. Let’s discuss a recent case of catastrophic failure.
Crypto exchange company FTX became a largely successful venture. Founder Sam Bankman-Fried could even become one one of the Democratic Party’s largest fundraisers and was seen advising the US government about how blockchain and crypto work and how useful they can be for people around the world.
But lately it’s all falling apart.
What went wrong?
ftx filed for bankruptcy (subscription required) on November 11, 2022, leaving millions of people out of billions of dollars. It has also recently come to light that Bankman-Fried had set up multiple companies and used client money to pay for his donations to the Democratic Party and apartments in the Bahamas. The news came on the back of Voyager’s bankruptcy- just as FTX won the bid to buy them out and return 70% of the lost money to investors.
Voyager and users of the FTX platform weren’t the only people caught off guard: Bankman-Fried even fooled venture capital firms. In most cases, venture capital firms do thorough due diligence, and even they were surprised. Similar situations, such as the bankruptcy of crypto hedge fund Three Arrows Capital (3AC) earlier in 2022 or the Theranos scandal further show that this is a problematic trend.
What can we learn from these situations?
Often these fiascos are the result of gross oversight and lack of responsibility. As business owners, we can learn from their mistakes and recognize why it is important that we maintain our integrity and focus our attention on establishing accountability in our lives. Small businesses are sometimes more likely to get into trouble because they don’t have the financial resources and accountability of large companies.
No one wants to fail and it may seem easier to just keep going instead of slowing down and dealing with financial issues. But with the current market conditions, I strongly encourage you to find solutions to help you with your business finances. With that in mind, here are several ways you as a leader can take control of your company’s finances and be accountable:
• Hire a fractional or full-time Chief Financial Officer (CFO). With a fractional CFO, you have the resources of someone with experience, but you pay a fraction of the price because you only use a small amount of their time.
• Hire a controller to coordinate the finance team and report the numbers to you.
• Create a board of advisors and ensure that all important decisions go through this board.
• Most entrepreneurs do not have full insight into their figures. Investing in finance or accounting classes can help you spot warning signs before something bad happens.
• Don’t ignore reviewing numbers out of fear. I see this a lot in small businesses, but you can’t handle something if you don’t know it’s happening. Get to know your numbers and review them regularly.
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When it comes to situations like FTX and others, I believe it’s important to practice grace and understand that this can happen to anyone. A lapse in judgment or a delay in facing financial hardship can set off a downward spiral so difficult that your business struggles to recover. Always be honest with yourself and your accountability team about what your company’s financials look like and how you can use your money more wisely.