New Year, New Busi­ness; Are you ready?

Business First - - FINANCE -

WHAT’S GO­ING WRONG? PLAN YOUR CASH FLOW SET AND EN­FORCE PAY­MENT TERMS GET CON­NECTED LOOK FOR WARN­ING SIGNS LOOK OUT FOR GRAVE­YARD MONTHS

Roger Men­del­son is CEO of Prushka Fast Debt Re­cov­ery and prin­ci­pal of Men­del­sons Na­tional Debt Col­lec­tion Lawyers. Roger is also au­thor of The TenMis­takesBusi­ness­esMake­and How­toAvoidThem and Busi­ness Sur­vivalGuide, both pub­lished by New Holland Pub­lish­ers. de­ter your en­thu­si­asm. How­ever, for your busi­ness to suc­ceed, there are a few steps you can im­ple­ment which may save your busi­ness from be­com­ing a statis­tic. The top rea­son for busi­ness in­sol­vency is poor man­age­ment of cash – so plan­ning your cash flow is cru­cial. Mon­i­tor­ing cash in­flow against out­flows en­sures you know where your short­falls are, and can work to pre­dict them, pro­tect­ing your­self from slow pe­ri­ods. Then, when a slow pe­riod comes around, you will be pre­pared al­low­ing for loans or keep­ing a sur­plus on hand. For ex­am­ple, for many SMEs, the post Xmas pe­riod is a pe­riod of poor cash flow. L imited li­a­bil­ity has been an im­por­tant build­ing block of the western world’s com­mer­cial sys­tem since its in­tro­duc­tion in the UK in 1855.

Start­ing a new busi­ness is an ex­cit­ing time for any new busi­ness owner. It is usu­ally the cul­mi­na­tion of years of hard work, stress, in­vest­ment and for many – a sig­nif­i­cant life achieve­ment.

But de­spite the highs, new small busi­ness own­ers quickly re­alise the com­plex­i­ties of own­ing a busi­ness with ABS fig­ures re­veal­ing that ap­prox­i­mately 60 per cent of new busi­nesses won’t sur­vive past the three-year mark.

The lat­est Aus­tralian Se­cu­ri­ties and In­vest­ment Com­mis­sion (ASIC) in­sol­vency fig­ures re­vealed that 79 per cent of busi­nesses suf­fer­ing in­sol­vency last fi­nan­cial year were small busi­nesses with fewer than 20 em­ploy­ees, with 86 per cent of failed com­pa­nies hav­ing as­sets of $100,000 or less. Im­ple­ment­ing a solid billing and debt col­lec­tion sys­tem will help new small busi­nesses form a pos­i­tive habit, keep­ing in con­trol of in­com­ing pay­ments, en­sur­ing you stay on top of your fi­nances. Set your pay­ment terms for no more than seven days and en­sure that you get in­voices out promptly and fol­low them up reg­u­larly. If you are grant­ing credit to busi­ness client, I can’t stress enough that you must have trad­ing terms in place and en­force a 60-day pay­ment cy­cle. Poor fi­nan­cial con­trol and strate­gic man­age­ment is a ma­jor down­fall for all busi­nesses. Con­nect­ing and form­ing good re­la­tion­ships with pro­fes­sion­als that sup­port the di­rec­tion of your busi­ness is key, work­ing closely with your ac­coun­tant, lawyer and book­keeper means you can an­tic­i­pate any ma­jor is­sues, al­low­ing you to be bet­ter or­gan­ised should some­thing go wrong.

The ASIC fig­ures re­veal some cru­cial take­aways that can be ap­plied to both new and ex­pe­ri­enced SMEs. The top three nom­i­nated causes of failed com­pa­nies were in­ad­e­quate cash flow or high cash use, poor strate­gic man­age­ment of busi­ness con­tribut­ing to down­fall, along with poor fi­nan­cial con­trol, and the lack of ad­e­quate records.

While the rate of fail­ure is some­what star­tling, it shouldn’t Don’t for­get to look at the over­all Many new busi­nesses strug­gle to make it past the first few years. Fol­low­ing a few sim­ple steps could save your busi­ness from be­com­ing an­other statis­tic writes Roger Men­del­son, CEO, Prushka Fast Debt Re­cov­ery. fi­nan­cial per­for­mance of your busi­ness. As a new busi­ness owner, it’s easy to get caught up in the day to day go­ings on. While that’s im­por­tant, it’s also nec­es­sary to take a step back and look at the big­ger pic­ture. Take no­tice of sup­pli­ers push­ing you for pay­ment, cheques bounc­ing, strug­gling to get credit – take this as a cau­tion­ary sign that some­thing isn’t right and start mak­ing changes. A good idea is to mon­i­tor the bank fig­ures daily, even if you have a book-keeper. Fe­bru­ary to March is what I call grave­yard months. It is the time of year when SMEs re­ally start to feel the ef­fects of the Christ­mas slow down and it’s the most com­mon time for busi­nesses to en­ter a death spi­ral, which is very dif­fi­cult to pull up from. B2B sales de­cline and com­bined with the Christ­mas shut down and in­creased hol­i­day bill, it can leave busi­nesses strug­gling to re­cover as debts fi­nally catch up. Plan­ning is key to sur­viv­ing the grave­yard months; have a clear idea of where money is spent and care­fully con­sider where you can save money, whether it’s through dis­count­ing stock, fol­low­ing up in­voices, or ne­go­ti­at­ing pay­ment terms. All can help you avoid a dan­ger­ous time.

Grave­yard months are around the cor­ner – new busi­nesses are at a higher risk of fail­ing to re­cover from the slow down than wellestab­lished busi­nesses with wellestab­lished pro­cesses. Iden­ti­fy­ing that this is a crit­i­cal time for your busi­nesses is the first step.

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