Chris Bristow, a business debt expert at Real Business Rescue, a leading firm of insolvency practitioners and company rescue specialists, shares advice on juggling the toll on mental health when managing financial risk.
Once company cash flow is restricted, this marks a pivotal moment as financial health can gradually decline and trigger a ripple effect across a business. While managing financial risk is part and parcel of running a business, making uninformed decisions or misjudging risk can threaten mental health and push a business into decline.
If left unresolved, financial problems can rapidly snowball into a boulder that can no longer be avoided. The mental load can be detrimental to your mental health, disrupt your way of life, and threaten the future of your business. The quicker you raise the alarm bells – the greater your chances of recovering.
The mental weight of running a business
Business owners are stationed at the helm of a business and therefore, exposed to the full force of hurdles thrown their way. A study conducted by Simply Business found that almost 47 per cent of small business owners surveyed experienced poor mental health in the last 12 months due to a range of reasons, such as:
· Increasing costs
· Irregular income
· Business debt
· Lack of networks/support
· Insufficient admin time
· Competition
· Not being able to invest in employee wellbeing
The juggling of different hats, continual firefighting, and cautious tiptoeing around creditors can be damaging to mental health. Without professional intervention from an accountant, financial adviser, or insolvency practitioner, financial risk can threaten business viability.
Common stressors when running a business
Stress can be categorised as good and bad, also known as eustress and distress. Eustress is beneficial and motivating, such as when embarking on a new business challenge or taking a risk that pays out. Distress is damaging and threatening, such as defaulting on a loan or facing legal action. We look at common stressors when running a business that can provoke stress and add to your mental load.
Late payments – The SME market is notorious for late payments, often the root cause for failing businesses. A report from the Federation of Small Businesses (FSB) shows that late payments are one of the biggest problems SMEs face. Around 52% of small firms in the UK suffered from late payments over the last three months, equating to 2.8 million small firms.
If late payments would be made on time, this could avoid the closure of 50,000 businesses each year.
Debt collection – Addressing overdue payments takes time, patience, and resources. Uncertainty around whether an invoice will be paid on time, late, or age into bad debt can be unsettling and stressful, especially if the payment is essential to business survival.
Creditor pressure – If you owe money to creditors, the pressure can be relentless and eventually result in legal action, such as a County Court Judgment or a winding up petition. Once a winding up petition is issued, the countdown to compulsory liquidation begins which can be mentally taxing.
Rejected credit applications – Access to additional finance may provide essential breathing space or plug a gap in working capital. If your application is turned down, your business could run into unexpected financial problems and take a toll on mental health.
Seasonal trends – While consumer demand fluctuates seasonally, overheads remain the same. This can put pressure on the business owner to put in extra hours to compensate for the shortfall.
Lack of client diversification – Client diversification is one of the first rules in the small business playbook. If your business hinges on a single or a select few clients, your livelihood could be compromised, should these clients become insolvent or choose not to renew their contract.
As a business owner, the health of your business directly impacts your mental health, so when one falls out of balance, the consequences can be detrimental.
Effects of poor mental health when running a business
Operating a business while carrying a heavy mental load can have a serious ripple effect on your business. We look at what it means for your business when battling strained mental health.
Poor judgement – Poor mental health can cloud your judgement which can drive you to make uninformed decisions and push your business to take unwarranted risks which can result in serious financial loss.
Reduced productivity – Volatile mental health can severely reduce productivity and impair your ability to work effectively.
Work-life imbalance – A work-life imbalance can result in feeling burnt out, forcing serious life changes. According to FSB research, almost one in five business owners have had to adapt or reduce their working hours or hours of business to reduce the burden on their mental health.
Deteriorating physical health – Mental health is inextricably linked with physical health, so if you suffer from mental health problems, the consequences to your physical health can be fatal.
Almost a third (32 per cent) fell back into unhealthy habits like smoking, drinking, or eating unhealthily when suffering from mental health problems.
Hostile working conditions – A business owner in a deteriorating mental state can fuel hostile working conditions. This can affect employee productivity, satisfaction, and retention rates.
Managing unmanageable financial risk
If you’re suffering from mental health problems as your business is in severe financial difficulty, manage the insolvency risk by approaching a
licensed insolvency practitioner. Seek qualified support for a roadmap on rescuing your business and juggling the toll on mental health.
