Monday, 01 June 2009 00:00 Last Updated on Friday, 28 August 2009 17:07
In the final article of his four-part series, Peter Savage shows how to improve the health of your business, to improve its survival rate during this recession
Classed as lucky a few weeks ago, I took the long trip to NAB in Vegas. Numbers from Good Old Blighty were definitely down – and all the manufacturers had cancelled their parties. When you have 20 hours travelling coach class, with a four-hour stopover, and with fewer people to meet and fewer chances to meet them when you’ve arrived, you’re left with plenty of time to work – and to think.
So I spent my time when not working thinking about how to survive this economic downturn – and taking in how Uncle Sam was coping with the recession. Seeing how differing economies re-act to the same situation was both interesting and entertaining.
In the States, they are much more upfront. The leading protagonists in this economic mess are on breakfast TV, stating their case and answering the critics. We are all more stage-managed with press releases and spin.
I liked how William Clay Ford Jnr was being grilled about Ford’s performance, thinking he seemed a guy who genuinely cares about his company’s results, rather than being a spin-doctored suit. Unless I had been taken in by a different type of spin.
Anyway, I concluded that the current view from the States was stress testing. They are looking at the top 20 US banks and giving them the equivalent of a gym stress test to see how corporately fit they are. So, in good anachronistic style, I thought I should offer a way of stress testing your business.
Any or all debts?
In today’s market you must look at your debts. Let’s start with doubtful debts and then look at debtor days.
It is great selling stuff in this market but you need also to look at whether you will get paid for your hard work. My view is that, if there is doubt about getting paid, it is better not to do the work than to spend time on work that could pay nothing. So, first ensure you are going to get paid.
Secondly, once you have billed for the work make sure you chase your debts. Because, as sure as eggs are eggs, your customer will operate an “I won’t pay until I have been paid” policy. Why should you sub them at the expense of your business?
Cash flow
How strong – truthfully – is your cash flow? Can it survive a rainy day? How much leeway do you have if one of your debtors doesn’t pay on time?
Remember that, in any business, cash is king so keep chasing the cash and bring it in. Be aware that, when people promise to pay at the end of the month, this is normally when their cash flow is most under pressure – because of their payroll obligations. Map your peaks and troughs so you can manage your cash flow to fit your situation.
It is amazing how many businesses don’t know how and when their money comes in or goes out. They say “oh so and so pays on 15 days” but do they? Do they pay at the end of the month after those 15 days?
And what about you? Do you invoice at the end of the month so that, in reality, you miss out on earlier payments for work finished earlier in the month? Are you, therefore, imposing 15-20 day delay on bringing in cash to your business?
HMCE
What about tax? If you are struggling to keep on top of your tax bills, you must talk to the revenue who, in theory, should be accommodating at the moment.
This is, however, an interesting point that I often discuss at length as I feel victimised. We at Azule have never missed a PAYE, VAT or corporation tax payment. We may have been a couple of days late for technical reasons – very few of us haven’t. That aside, we are squeaky clean. Yet we are harassed if our payment arrives a day late. Meanwhile, companies that go into liquidation owe the revenue thousands, if not hundreds of thousands. My view is that the revenue’s policy is to work harder where it has a good rate of recovery – which acts against the good guy.
Anyway, that personal opinion apart, keep on top of your taxes.
Expenses
Assuming your expenses are not of parliamentary proportions, you need to look seriously at what small amounts go through the company.
A client of mine recently put £1,000 behind reception saying it was the total pot for expenses for the month. This being post-production, with customers expecting to be treated royally, it was no small order. However, and remarkably, at the end of the month there was some change in the pot. This effectively reduced their expenses from £5,000 a month to £1,000 a month – in a month.
I am not saying it will be that easy for everyone, but cutting back on small things – saving the pennies – can generate pounds.
Suppliers
Last, but not least, make suppliers wait. This is a bit of a two-way battle because if suppliers are healthy they will be chasing harder but you can get healthy by not paying them till they chase and/or by asking for a discount for paying up front.
A good friend of mine pays all invoices on 15 days – but takes a 2.5 per cent settlement discount for doing so. He turns over millions, and saves himself thousands, by controlling his suppliers. Also don’t forget to negotiate that little bit harder when suppliers negotiate with you.
So, you’ve been through our stress test: are you healthy in these five crucial arrears? if you are, then your company body will feel no ACHES. If you are not, the recession could be a long and painful slog for you in these lean and hard times.
If you would like to know more about how you could survive the recession, contact
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. If you missed previous articles in this series.