Have you been following this huge financial scandal?
A few months ago, 30-year-old Sam Bankman-Fried was on top of the world.
He headed a huge crypto exchange called FTX, which allowed customers to trade regular money for cryptocurrencies like Bitcoin. He also owned Alameda Research, which traded cryptocurrencies.
At his peak, FTX was valued at $32 billion and Bankman-Fried was personally worth a cool $26 billion, known for his huge charitable contributions to US President Joe Biden’s election campaign.
By mid-November, both his companies had declared bankruptcy and the Bloomberg Billionaires Index said Bankman-Fried had no material wealth left. Bankman-Fried now faces several federal investigations into the way his companies handled funds, and he was arrested on 13th December 2022.
So what went wrong?
At the basic level, it seems that Alameda lost over $8 billion making risky financial bets. One of the key allegations is that this money actually belonged to FTX customers.
The real question is, how did this happen.
Some allege fraud. Bankman-Fried denies this, instead blaming “messy accounting.”
He has offered several explanations for how FTX’s money ended up at Alameda, including that FTX somehow forgot (!) that its customers had been wiring money to Alameda, and his internal accountants then credited $8 billion to both companies.
His replacement as FTX CEO, John Ray III told the US Bankruptcy Court that “in his 40 years of legal and restructuring experience,” he had never seen “such a complete failure of corporate controls and such a complete absence of trustworthy financial information.”
As the man who led Enron through its bankruptcy proceedings, that’s saying quite something!
Whatever the truth of the matter, it’s clear that poor financial management was at the roots of the problems. And that’s true for the vast majority of large corporate failures.
If your accounts aren’t timely and accurate, if you don’t have an in-depth understanding of your own financial situation, and if you can’t see what’s coming over the horizon financially, you’re going to come a cropper.
That’s true for companies of every size. It doesn’t matter how much money you’re turning over – whether it’s $1million or $32 billion – and how successful and secure you feel.
You are never too big to fail financially and in some ways, the higher you go the harder you fall.
Thankfully, most corporates are very good at financial management. You have to be, in order to run a huge, complex corporation smoothly and to make the kind of sensible financial decisions which enable you to grow into a market-leader.
That’s why I always say that we provide smaller companies with the kind of world-class financial management which corporates take for granted. Those that are run by responsible people rather than chancers like Sam Bankman-Fried know that messy accounting is a quick route to failure.
Here are some easy giveaways that you have serious, company-threatening holes in your financial management:
>> You are not receiving regular numbers from your accountant – on at least a monthly basis
>> You get numbers but don’t understand them, or you’re not sure you can trust them
>> There are no checks and balances. For example, just one person approves bank transactions in your company without any further oversight
>> You’ve had financial shocks, like a tax bill you didn’t expect
>> You have no idea what your financial situation is projected to be in 3 months’ time. There is no forward-looking information
>> If your accountant suddenly disappeared, you would be in the financial dark. You might not even be able to access key financial documents because your financial management is heavily dependent on one or two people.
If any of those apply, we can help. Our Outsourced Finance Department service professionalises your financial management so it runs like clockwork and helps your business thrive instead of holding it back – or putting it in danger.
Then email me or call us on 01279 647 447 to talk to us about how we can help you.
Warmly,
Garry
