Cash
is still King
In
these days of uncertainty about the direction of the economy,
who will win the election etc, one thing is certain – cash
is still king.
There are some things you can do to
ensure cash retains its royal status in your business :
1.Keep on top of your
debtor collections
According to Dun & Bradsheet's
latest survey the average trade payment period
grew to 44 days in February 2005. While this doesn’t sound
too bad, it is an increase from 39 days in July 2004 and
means trade payments are now exceeding the standard payment
period of 30 days by an average 14 days. And if that’s
the average, that means that some businesses are
much higher than that.
And the adverse impact on businesses is obvious- so you need
to
- Ensure your clients are aware of your terms of trade
and that you intend enforcing them
- Contact your clients as soon as they are overdue and
ask for your money –ask for a date by which it will be paid.
This is usually better done by phone and sometimes it is
necessary to follow up with a letter
- Keep notes of the conversation
- Follow up the dates given - if you keep asking you will
get on their list and finally to the top of it. The squeaky
wheel works!
2.
Do some elementary planning
Plan your growth
at least for the next 6/12 months, and build on to that your
likely increase in costs and the capital expenditure that
is likely to be required to achieve it. From that its not
too difficult to prepare a cash flow forecast incorporating
all of your activities so that you can see where the "holes" in
your cash flow are and if necessary, you can start talking
to prospective lenders NOW - rather than a day or so before
it happens.
If you need help
with that give me a call.
3.
Talk to your Financiers NOW
Its no use talking
to lenders when your choices have been limited by time. If
your business idea has merit then its best to start talking
to lenders well before the event. Asking a lender to make
a decision in too short a period invites the inevitable -
a negative response. Whereas if they have had time to buy
in to the idea they may well have been able to make the deal
work for you - and them. That means you need to:
- Do some budgeting
and cash flow forecasts as above. These should ideally
cover the next 1 (at least) to 3 years so that a lender
can see where repayment of the debt is coming from
- This should be accompanied by detailed
assumptions behind the projections so that a lender can see
that your business is going forward on a sound basis
and that it therefore warrants its support.
- It is true that a lender will want
security and that many of them won't lend unless they can
get your home as security. But not all of them. It is possible
to obtain funding from some lenders without having to put
your home on the line - but your case has to be good and
well reasoned.
4. If you haven't
got the money, don't spend it
Pretty obvious? You'd be surprised
at the number of business people who keep on spending or committing
themselves to spending which they have no hope of being able
to pay. The result is their cheques get bounced and/or suppliers
start taking legal action against them. And they have started
down the slippery slope.
It's much better to put your "hand
up" at an early stage and seek some help. If this is done early
enough and the business idea is good, there is usually a way
through.
I know the difficulty in translating
your business idea to numbers and writing, and that it is not
likely to be 100% right in any case. But the more you do it,
the closer you will get, and the reality is that unless this
investment of your time is made, it is unlikely that you will
be successful in raising the finance you need.
If you need help with this - or with
restructuring your business finances -I can help you - call
me on 09 271 1120 or email me at peter@peterryan.co.nz
It goes without saying (but
I will anyway!) that without cash flowing in to and
through your business it will die a slow death and the
trick is to make this flow as even as possible. Too much
importance cannot be placed on cash - it is still King.
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