Making Money in a Downturn
Business trading is probably not running as smoothly this year as it was this time last year. What do you know that can help you to decide what action you should be taking?
The sooner you make changes, the better chance you have of continuing to make money.
“Cash is King” …….. focus on your working capital. There are many routes you can follow to make sure you survive and are ready to grow again.
If your borrowing is getting too high for the bank you need to know ways to reduce it. Big ticket product or service sales may be at higher risk in a downturn than small ticket sales.
Some simple tips:
Internally :
1) invoice promptly and chase debtors
2) sharpen up delivery to your best customers, you need to retain them
3) review all costs
4) reduce stock
5) defer capital expenditure
Externally
1) talk to your customers, know what is happening in your market place
2) talk to your suppliers, agree extended payment terms if possible
Is cash flow dictating strategy? Short term cash problems can be solved by capital injection, giving the business room to develop and making the bank more comfortable.
If you do not have sufficient funds to inject yourself to make a difference, investors are still looking for businesses that are historically profitable, with a good management team, operating in growing markets with good margins and good spread of customers.
Spot the warning signs early:
• Debtor days increasing
• Reducing profitability
• Increasing working capital requirements / bank borrowing
• Are you holding back payments to creditors? … are they key suppliers?
Do not let financial management information get behind, if anything you need more information sooner, and keep your bank advised. You are more likely to get support from a bank or an investor if your management information is detailed and up to date.
Most of all keep talking to your funders, they do not like surprises!
Some people are already expecting next year to be tougher than this year.
Call for Help sooner rather than later !
Article provided by Steve Blount.