16 things keeping SME owners awake - 3. I’m worried about financial stability.

Financial stability can be a constant companion, or something that only circles you in very specific economic circumstances. Either way, don’t let some unspecified dread take hold. Take some control and try some of these things

Clearly the first thing you need to do here is look carefully at your financial situation and forecast what that might look like in the next month/quarter/year. You will need to be very attuned to your financial reports. They will be your best friends because they are the barometer to gauge the climate.

Whether you normally do budgeting and forecasting or not, this is going to be one of your greatest comforts. There is plenty to be fearful or concerned about in life, but the most debilitating kind of fear is the insidious, nameless kind that comes with uncertainty. Making a budget doesn’t make it so and forecasting doesn’t magically become accurate, but the more you focus on it and getting better at it, the better you’ll feel about having some handle on the future.

If you run a business, costs are inevitable. In the natural order, over time (especially when things have been going well), cost escalate. Take a good look at all your costs and put them in three categories – essential/nice to have/unnecessary. Do this and start at the outer edge of unnecessary, eliminating them until you get to the nice to haves. See what effect this has had on your profitability and if you’re still not comfortable, keep going. Just be aware that in this space you can become filled with righteous fervour and swing the axe at things that you should probably leave alone.

When things are tight, Cash Flow is paramount, The most obvious place to take action is your Debtors Ledger. This is what runs you out of money. Get your debtor days down as low as you can. That money should be funding your business, not someone else’s. On the other hand, if you are able to get temporarily better trading terms from suppliers, do so. But, whatever you do, make a formal request for extended terms. Don’t just stop paying when your invoices fall due.

If you see tougher times ahead, try and establish some quarantined funds for use in case of emergency. A rainy-day fund can be the saviour of a business with few immediate options. Of course, if you are already in a bit of strife this is not going to be possible, but worth keeping in mind if you are currently in surplus.

Managing debt is not a problem when money is flowing, but it can soon get out of control when the revenue tap gets turned down. Don’t wait and hope. Explore your options for reorganising loans wherever possible. Going interest only for a period, extending the term, even a repayment holiday. If you wait until you are in real trouble, your options dry up fast, so get on the front foot and demonstrate to your creditors that you are serious about managing your situation.

It is extraordinary how much money some businesses leave on the table by failing to invoice for work done. It may seem inconceivable, but I have worked with a business in real distress who had failed to invoice for over $100,000.00 of completed work, despite suffering a significant cash crisis. Don’t assume. Get a system in place to invoice accurately, often and stay on top of it.

No-one wants to be a one trick pony and although it is not easy to pivot quickly on something as significant as your product/service/customer portfolio, you will do well to be always looking at how you can sell different things to existing customers or the same things to more customers. Don’t assume you have already exhausted your potential market.

I appreciate that this may seem slightly hypocritical, but we’re talking about ensuring the future of your business and as they say – needs must. I’m suggesting you talk openly and honestly with your suppliers about extending trading terms for a finite period. The time to do this is not when you have already fallen into arrears. It is as soon as you see there is a cash crunch coming. You’re not panicking, you’re wisely husbanding resources and doing your supply partners the honour of inviting them to help, not making them by not paying.

At the risk of stating the obvious, tough times are in one sense a time to hunker down, but not in sales and marketing. No matter how tough times are, people still buy things and you massively increase your chances of them buying from you if you keep yourself front and centre in their minds. I’m not talking about spending moonbeams on advertising. I’m talking metaphorically about “wearing out shoe leather”. Get on the phone. Talk to people. Ask the question – “how can I help you?”

We all know that the prices you have on your products and services are calculated somehow. Do you remember what that formula is? In my experience, many businesses, even those who have used a strict formula for calculating price to market have not kept up. Often and over time, you’ve achieved efficiency in manufacture (or service delivery) but not maintained it and that can spell problems ahead.

If at any stage you would like to reach out and talk in more detail about any or all these issues, or even ones that aren’t mentioned, please call me on +64 275 665 682, email me at john.luxton@regenerationhq.co.nz or book a time to talk, either face to face or by Zoom. Any call will be free, confidential and with no obligation to do anything else.