Could Your Business Survive a Recession?
By Julian Campbell
There is much debate about the current economic climate. The future looks as bright as we wish it to be despite what statistics are telling us. There is no doubt that the current challenges; put an additional strain on businesses and that is particular felt in your cash flow.
Without money flowing into your business, survival is impossible. Cash flow is the lifeblood of any business, whether we are in a recession or not. To control your business better, help that cash to flow and make your life generally easier, there are two systems that all businesses must have in place.
The first is a living budget. Your cash flow forecast is your indication on how your business will perform over the next 12 months. Basically, you are estimating how much income you will generate, what your likely expenses will be and when they will occur and in this you must include your tax activity. You are now in a good position to arrange major expenses to occur when the business can afford them. You can evaluate your cash flow to maximise your efficiency by how you control your debtors or pay your creditors and thus minimise your overdraft.
needs. When you have produced this very valuable document, you have an essential aid which will keep your business on track and successful. It is not a document to be filed away, it is a working tool. During the year, you must be in the habit of keeping your cashbook up to date so that when your tax statement becomes due you are ready. Then periodically, at the end of each month, you can compare your actual results with your budget forecast. Challenge any variations and, if necessary, make changes to the remaining part of the budget so that you can continue to use it as a success tool.
The second important area to focus on is your debt collection. Evidence shows that the introduction of tax changes exacerbate the strain on already burdened cash flows resulting in the need for a more serious systematic approach to credit control.
It is vital that you have an appropriate application for credit form which allows you to obtain accurate information about the legal entity you are dealing with and a personal guarantee. Then you need at least three trade references and these should be diligently checked before you grant credit. At least you will be able to gain some idea of this new customer's credit history. This must be followed with a systematic follow up for late payments immediately they become due.
Unfortunately, although the process is very simple, it is also a little time consuming in your already busy day and it becomes one of those chores that you are always going to get around to but never do. But isn't worth the effort to get paid?
Then there are the businesses that don't want to offend their customers by asking for a credit reference or even delay in following up those outstanding debts. Remember a customer is not a real customer until they have paid you for your goods or services. I am sure we can always find plenty of people to take our products or services for free but that's not business.
When a new financial year approaches, that is the time to get serious about your cashflow. You need to set aside a couple of hours from your busy schedule and hide yourself away somewhere and actually produce your budget then systemise your credit control procedures, clarify your terms and make it clear to your customers that this is how you do business. You will discover any lean periods before they happen and you will be surprised and excited by how successful you are going to be! Believe me, the little effort now is really worth it.
Copyright © Julian Campbell 2007
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