Chase all the money you are owed. Start quarantining old debt by putting people on new payment arrangements or insisting on cash on delivery.
Amanda Tallent’s business is growing strongly, but she’s just decided to place some orders a little later than usual and make sure she has plenty of cash on hand.
The reason? Global economic strife that has Tallent, founder of Bennetts Boots, feeling cautious.
Bennetts Boots is an online store that sells wide calf boots for women with legs that are too large to fit boots sold in mainstream shoe shops. Tallent pays a contract manufacturer to produce the boots and usually places her largest order in October for delivery in February. This year, she held back that order by two months to run down her inventory and keep cash in the bank to fund marketing activities, just in case global economic gloom slows sales.
“We would usually get the warehouse full, but this year we are going to wait and gauge demand a little more accurately,” Tallent says.
Tallent’s tactics to keep her business liquid ahead of possible financial are, experts say, just the kind of thing other businesses should be considering as the world moves into looming economic danger that Christine Lagarde, Managing Director of the International Monetary Fund (IMF), has described as potentially a “… a ‘1930s moment’. A moment where trust and cooperation break down and countries turn inward. A moment, ultimately, leading to a downward spiral that could engulf the entire world.”
“Having a plan brings peace of mind,” says Andrew Graham, National Head of Business Solutions for accountancy and business advisory firm RSM Bird Cameron. “If you have a strategy or plan B you know what to do if a crisis happens.”
Graham says paying close attention to cash flow is the first step towards creating a plan that will help you make a soft landing.
“Chase all the money you are owed,” he advises. “Start quarantining old debt by putting people on new payment arrangements or insisting on cash on delivery.” If you put a customer on a payment schedule, have it set up as a regular, automatic, payment from their bank account to yours instead of relying on the customer to “remember” when it is time to write you a cheque.
Protecting cash flow also means looking at your outgoings and Graham recommends being smart about when you make payments. “Consider things like commissions and only pay them once you’ve received payment,” he advises. Finding opportunities to slow payments to suppliers is another tactic. “If possible, extend and re-negotiate terms,” he advises.
Banking and finance expert Neil Slonim says the calm before a financial storm is a good time to ask suppliers for discounts, or sell at a discount yourself. “If things are slow, Chinese factories are overstocked too,” and you can ask for discounts. Doing the same yourself will turn slow-moving stock into cash.
Slonim also feels that the time to make tough decisions – like shedding staff or renegotiating loans – is now, to put your business in the best position.
Peter Quinn, Director of Quinn Financial Planning, also recommends writing down a survival plan and suggests it take the form of a an assessment of a business; strengths, weaknesses, opportunities and threats.
“When we review the SWOT we suggest the business owner tie it into business objectives. If we have a client who says a second GFC would affect us because we are in retail, we’d suggest they revisit their product mix. If in the past you were quality oriented and sold at a high price point you may need to review it as consumer behaviour changes.”
Andrew Graham also recommends finding new products or services to offset any decline in revenue brought on by financial crises.
“One of the things we are suggesting is to look at current revenue streams and go through those in detail almost line by line and see what is in growth what is in decline and what is stable,” he suggests. “If there is leakage, ask how you will replace lost revenue.”
“Thinking outside the square to become a problem solver helps. We are trying to get our clients to become problem solvers for their customers. Try to anticipate issues customers are facing for which you might supply a new product or service, rather than changing your product mix.”
Review your relationships
Neil Slonim says that now is also the time to make sure your business relationships are in good order.
“Make sure your staff, suppliers and customers will stick with you even though others may cut their prices,” he says.
Peter Quinn says you should also review any relationships in which you act as guarantor on a loan.
“Review your guarantees before the review is forced on you. Look at leases, overdrafts and loans. I’ve seen businesses decline by only five or ten per cent and then the guarantor has to step in. If that’s your father, he’ll have to make good. You can avoid that – or being locked out of a shop – with early intervention.”
“Sometimes you can run away from the problem, but when you have loans you cannot put your head in the sand,” he concludes.
“Develop a plan B, whatever that is,” says Neil Slonim. “Sell earlier rather than later. Don’t leave it to the Bank to sell you up. There are no new ways to go broke, so get a plan and do the basics now.”
That’s just what Bennetts Boots’ Amanda Tallent has done, and while she is still a little nervous about the coming year’s trading, she also feels optimistic that her business can weather the storm.
“I think we have got the product right,” she says. “Our customers love it and most own two or three pairs, which is a big investment in a $200 to $300 product. There’s also so much growth in the product. Athletic women are only just starting to hear about us and when we find new markets we can have big booms.”