How To Survive The Recession
How To Survive The Recession |
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During an economic downturn, all small firm owners need to be vigilant, ie keep a close watch on your business. So what should they be keeping an eye on? What is most important? Is extra 'sales' or 'turnover' or 'profit', one of your answers? You've made a mistake! - The most significant is 'cash'. It could be unwise or illegal to trade with no profit but it is not possible to trade without cash. As recession starts to bite there will be casualties; weak or vulnerable businesses will go bust. Astonishingly, profitable businesses with powerful business models will also go bankrupt; regardless of their sound business, it will be the shortage of cash that pushes them over the edge. So how do you raise your revenue during an economic downturn? The majority of small business entrepreneurs will say "The best technique to raise revenue is to increase sales, marketing effort and spending, do more trade"... "by lowering prices we can gain more business". Invariably incorrect. This is the method to turn into a busy fool. Do yourself and your family a huge favour! Relax and use 10 minutes playing with the numbers. (or ask an accountant to do this with you). Look at how much additional revenue is generated by a 5% or a 10% price increase. It may be 30 or 40%. Yes, you might lose some business, but overall it's likely your revenue will be higher....., your workload will be reduced. Pay attention to the value you offer to your clients/customers, this can be making things handy for them, providing quality, offering excellent customer service - all these services matter to customers much more than just cost. So getting back to what matters you need a system to tell you what your position is - to forecast if you are going to run out of it, we are talking of course about the Crosby, Stills and Nash', the 'for mash get smash', the 'Arthur Ashe', the 'bangers and mash', the 'jumping Jack Flash': that's right - cash. 1. Updated Accounts are required - every week, or at the very least once a month (not once a year) - it is your business. Therefore, it's your responsibility to identify what you owe, how much you are owed, how much you have got and how much you are going to need. 2. Prepare a cash-flow forecast - think proper about how regular you need this, every quarter/month/week. Failure to do regularly enough to keep you in manage is intolerable. Your accountant can aid you or you are able to get a book on Amazon, also find or prepare a simple excel worksheet that you can use to manage your cashflow. 3. Be clear about your terms in your initial contract and on all invoices. 4. Assess new customers for credit worthiness - you can easily check it on the internet - and assess them until they have proved to be reliable. 5. Have a system for invoicing, following-up and collection. Be reasonable but be firm. Talk to anyone who owes you money. Listen. Be clear and be firm. It is your money that they owe you. Here's a simplified version of the process we have, but you will get what I mean: Day 1: Issue invoice as soon as work/sales has been completed Day 7: Ring up the right person to confirm receipt of invoice; confirm that you are expecting the invoice to be paid on the appropriate date. Day 14: Polite email if no payment received "We are sure that payment is on its way to us but just in case it has been overlooked" Day 20: Phone call "re outstanding payment", asking when it was due to be paid. Day 25: Send a letter outlining the communication to date (including their so-called promises to pay) and explain that you can call within 48 hours to find out how the issue will be resolved Day 27: Phone to confirm payment has/is going to be made and when it can be expected. Day 30: Send letter including the 'Statement of Account' and 'Terms and Conditions' they agreed to and saying what you intend to do next. The 'what to do next' bit can be difficult. You should weigh up how much the client is worth for you , and how they may respond. You can say you will refer the issue to a lawyer, and a straightforward lawyer letter shouldn't cost much. After that it may be time to threaten Court action, or to issue a statutory demand (the form can be found on some websites and costs free). You might come to a decision that the client is valuable to you, and you would choose to give a little longer. Keep in mind though - that is your money! The whole process educates your customer that you mean business and that you are not the supplier to string along.Often it is the case that if they are allowed to take advantage - they will! If you are polite and firm, and make clear that you are just following the procedures they signed up for, then there's usually no difficulty. If it is an issue, reflect on carefully if you desire to do business with a firm that doesn't keep up promises and tries to procrastinate over paying money that belongs to you! 6. Keep cash on your hand as long as you can. Here is the other side of the coin! You could delay payments owed to your suppliers. Bargain more favorable payment terms & conditions. Understand that not paying suppliers when cash is tight could be a very temporary way out, leading eventually to failure. If something in the business has gone wrong in the beginning eg lack of revenue, there should be information to hand to warn you that. 7. Find yourself a reliable accountant! Often, many small business owners manage to survive without profit and loss, balance sheet and cash flow information on hand. But how long can you be lucky for? Choose your own danger! About the Author: This article has been written by Caesarea Howard. If you are searching for a Hemel Accountant, come and talk to us. We offer a specialist service to businesses to provide a cost-effective, high value solution for all your financial needs. |
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