During an economic downturn, all small firm owners need to be vigilant, ie keep a close watch on your business.
So, what should they scrutinize?
What is most important?
You might be forgiven for thinking of 'sales' or 'turnover' or 'profit' but that would be a mistake - what matters most is 'cash'.
It could be unwise or illegal to trade with no profit but it is not possible to trade without cash.
As economic downturn begins to bite there will be victims; weak or unstable firms will be ruined.
Surprisingly, gainful trading with strong business models will also go bust; even with their sound business, it will be the shortage of cash that pushes them over the brink.
So how do you boost your revenue during a crisis? Most small business owners will say "The best method to boost up revenue is to sell more, increase marketing activities, make more sales"... "by decreasing prices we can increase our business".
Invariably incorrect. This is the way to become a busy fool. Do yourself and your family a big favour! Sit down and spend ten minutes playing with the numbers. (or get your accountant to do this with you). See how much extra profit 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 profits will be higher.....and you will be doing less work.
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.
Therefore, getting back to what matters you need a system to tell you what your position is - to predict if you are going to run out of it, we are talking of course about the 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. Do a cash-flow forecast - think carefully about how often you need this, every quarter/month/week. Failure to do often enough to keep you in control is inexcusable. Your accountant can help you or you can find a book on Amazon, also find or build a simple excel spreadsheet that you can use to track your cashflow.
3. Clarify all terms in your initial contract and on all invoices.
4. Check new customers for credit worthiness - the internet makes this straight forward - and watch them until they have proved to be reliable.
5. Have a system for invoicing, following-up and collection. Be reasonable but be firm. Speak to your debtors. Listen. Be clear and be determined. It is your money that they owe you. Here's a basic version of the procedure we use:
Day 1: Issue invoice as soon as work has been completed
Day 7: Phone up to confirm receipt of invoice with the right person; confirm that you can expect the invoice 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 tricky. You need to weigh up how much you value the customer, and how they may react. You can say you will refer the matter to a solicitor, and a simple solicitors letter should cost very little. After that it may be time to threaten Court action, or to issue a statutory demand (the form can be found on the internet and costs nothing). You might decide that the client is valuable to you, and you would prefer to give a little longer. Remember though - that is your money!
The whole procedure teaches your customer that you mean business and that you are not the supplier to string along. Most of the time, it is the case that if they are allowed to take advantage - they will!
If you are polite and firm, and explain that you are simply following the process they signed up for, then there's usually no problem.
If it is a problem, consider carefully if you want to do business with an organisation that doesn't keep its word and tries to keep hold of money that belongs to you!
6. Keep hold to your cash as long as you can. Here is the other side of the coin! You could hold on to payments due to your suppliers. Discuss more favourable payment terms. Deliberately not paying suppliers when cash is tight could be a very short-term solution, leading ultimately to bankruptcy. If something goes wrong in the business eg: lack of revenue, you must have the information to hand to inform you of the problem.
7. Get yourself a capable & responsible accountant! Having information to hand on profit and loss, balance sheet and cash flow is something many small business owners 'get by' without. Ignore at your own risk! - 16928
So, what should they scrutinize?
What is most important?
You might be forgiven for thinking of 'sales' or 'turnover' or 'profit' but that would be a mistake - what matters most is 'cash'.
It could be unwise or illegal to trade with no profit but it is not possible to trade without cash.
As economic downturn begins to bite there will be victims; weak or unstable firms will be ruined.
Surprisingly, gainful trading with strong business models will also go bust; even with their sound business, it will be the shortage of cash that pushes them over the brink.
So how do you boost your revenue during a crisis? Most small business owners will say "The best method to boost up revenue is to sell more, increase marketing activities, make more sales"... "by decreasing prices we can increase our business".
Invariably incorrect. This is the way to become a busy fool. Do yourself and your family a big favour! Sit down and spend ten minutes playing with the numbers. (or get your accountant to do this with you). See how much extra profit 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 profits will be higher.....and you will be doing less work.
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.
Therefore, getting back to what matters you need a system to tell you what your position is - to predict if you are going to run out of it, we are talking of course about the 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. Do a cash-flow forecast - think carefully about how often you need this, every quarter/month/week. Failure to do often enough to keep you in control is inexcusable. Your accountant can help you or you can find a book on Amazon, also find or build a simple excel spreadsheet that you can use to track your cashflow.
3. Clarify all terms in your initial contract and on all invoices.
4. Check new customers for credit worthiness - the internet makes this straight forward - and watch them until they have proved to be reliable.
5. Have a system for invoicing, following-up and collection. Be reasonable but be firm. Speak to your debtors. Listen. Be clear and be determined. It is your money that they owe you. Here's a basic version of the procedure we use:
Day 1: Issue invoice as soon as work has been completed
Day 7: Phone up to confirm receipt of invoice with the right person; confirm that you can expect the invoice 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 tricky. You need to weigh up how much you value the customer, and how they may react. You can say you will refer the matter to a solicitor, and a simple solicitors letter should cost very little. After that it may be time to threaten Court action, or to issue a statutory demand (the form can be found on the internet and costs nothing). You might decide that the client is valuable to you, and you would prefer to give a little longer. Remember though - that is your money!
The whole procedure teaches your customer that you mean business and that you are not the supplier to string along. Most of the time, it is the case that if they are allowed to take advantage - they will!
If you are polite and firm, and explain that you are simply following the process they signed up for, then there's usually no problem.
If it is a problem, consider carefully if you want to do business with an organisation that doesn't keep its word and tries to keep hold of money that belongs to you!
6. Keep hold to your cash as long as you can. Here is the other side of the coin! You could hold on to payments due to your suppliers. Discuss more favourable payment terms. Deliberately not paying suppliers when cash is tight could be a very short-term solution, leading ultimately to bankruptcy. If something goes wrong in the business eg: lack of revenue, you must have the information to hand to inform you of the problem.
7. Get yourself a capable & responsible accountant! Having information to hand on profit and loss, balance sheet and cash flow is something many small business owners 'get by' without. Ignore at your own risk! - 16928
About the Author:
This article has been published by Caesarea Howard. If you are looking for a Stockport Accountant, come and discuss to us. We provide a specialist service to businesses to provide a cost-effective, high value solution for all your financial needs.
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