Five key points to watch your cash and debt

By Gail Geronimos

We had a bad day last Thursday when the unemployment figures were released. The market is still very jittery, and there is absolutely no doubt that unemployment will rise over the next few months. This will cause more disruption in the markets.

As well, the boom in China is collapsing. A few months ago growth was predicted to fall to 8%, but now that has been blown out of the water.

People are losing jobs in the resources sector and retailers are struggling.

What does this all mean for small business?

In my view, if you are not watching your cash and debt very, very carefully you will find the year tougher than it needs to be.

So here are my tips to help you get through the year ahead:

1. Track your cashflow weekly

This is not just a matter of watching your bank balance. You need to make sure that you can pay the bills, the wages, and your loan/overdraft repayments.

Set up a system that goes forward about four weeks, and include everything that needs to be paid and all the income that you expect in that period. Obviously, the start point is your current bank balance. Use this system is a guide to alert you to any problems in the future. Don’t be too fussy about getting it correct to the last dollar. As well, take into account any exceptional expenses/income that might be outside the four week period.

2. Check your average debtor days

Check your “average debtor days” on a regular basis. This number represents the number of days (on average) before your debtors pay up. If that average starts to get longer then you’ll need to tighten your debtor control.

Most companies allow 30 days for payment. So if your average debtor days is 30, then you are doing well. If your average debtor days was 37 last year and it’s now 50, then you have problems. Your customers are taking longer to pay. You can’t afford to let this slip. Get on to it. You might talk to a debt collection company to get good procedures in place.

If you don’t know what your average debtor days is, then you’d better find out. Talk to your accountant immediately.

3. Carefully control the outflow of cash

Hold on to every dollar as long as you can.

Don’t pay your bills ahead of time, review your current suppliers on pricing, make a policy to reduce expenses across the board by X%, make sure you take advantage of early payment discounts, put some expenses on credit card to get an extended payment period, transfer credit card debt to the offers where you pay reduced interest for a few months, talk to your bank about reducing the interest on your credit card (it works, I’ve done just that!), keep an eye out for some of the great deals on offer for equipment, etc.

3. Reduce your credit card debt

Credit card debt is so easy to get into and it is very expensive debt. Talk to your bank and get a loan to reduce your credit card debt. The interest will be much less and there will be less of a drain on your cashflow. If that’s not possible, reduce the interest on your credit card. Banks are willing to negotiate these days.

4. Reduce general debt

Do whatever you can to reduce your debt levels. It’s easier said than done. But this crisis will get worse before it gets better. If you are heavily geared now you may be facing very tough times if you don’t take action.

Debt is going to cause a lot of businesses a lot of grief in the coming months. If you have not reviewed your debt levels in the last few months then sit down tonight and do just that. Don’t delay. And don’t put your head in the sand. These issues are not going away.

This is what you need to look at:

  • Who do you owe money to and how much?
  • What are the interest rates on each loan/overdraft?
  • What are the dollar amounts of interest?
  • What are you monthly commitments to repay these debts?

Make up a list. Put it down in writing. If that scares you and you feel that it is just too tight then start to look at how you can reduce your debt. Look at what assets you can sell. Don’t leave anything off the list.

5. Think laterally

Now is definitely the time to get creative. Look at what you’ve been doing in your business. Ask yourself…

  • Is there a better, simpler, faster way of getting this job done?
  • Can I join forces with others to reduce expenses and become more efficient?
  • Can I outsource anything to India or China? This is easier to do than most people think.
  • Are there more cost effective marketing solutions? Have you looked at internet marketing options?
  • What parts of the business are low profit or breakeven? Can I ditch these activities?

This list is not exhaustive but it will give you a good starting point to make sure that you have as much as possible in your bank balance.

Don’t leave yourself exposed any longer than you need to.

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