Top Business Tips
THINK SMART
During these tough times businesses need to not only work harder but harder and smarter about the way they do business. Identify challenges and seize opportunities, focus your business plans and re-evaluate your business strategy.
Below you will find a wealth of advice and information to help steer your business through the current downturn.
FINANCE – MAKE IT WORK FOR YOU
Managing your cashflow
The reason why most businesses fail is that they run out of cash to pay their bills. They run out of cash because they have failed to keep on top of cashflow.
Remember being paid – and paid on time – is not a given. Here are some simple tips to help manage your cashflow:
- If you are worried about the customer paying on time – or at all – consider stage payments or even cash on delivery to reduce your risk of bad debts.
- Set your terms of business before doing business – and put them in writing. You will not be paid in 30 days unless your customers know that’s what you expect.
- Do credit checks before doing business – and monitor late payments. If companies are taking longer and longer to pay, find out if there is a problem. Do not wait until they leave you with a bad debt.
- Encourage prompt payment. Consider charging interest on late payments (your legal right on debts outstanding after 30 days) or – if your profit margins allow – offering a discount for prompt payment.
- Invoice promptly – and once again make payment terms clear.
- Check the customer is happy – there may often be a reason for late or non payment. Never give a customer a reason not to pay.
- Make it easy for them to pay by offering as many ways of getting paid as you can. BACS payments are fast and attract lower bank charges. Or a standing order can be used if they pay the same amount regularly. With cheques your late payers can always use the excuse “it’s in the post”.
- Contact customers to check they received the invoice and then find out when they are going to pay.
Prevention is best
1. Know your customer – a simple check with Companies House can confirm they are who they say they are and enable you to check their accounts.
2. Check they are a good risk – by checking with a credit reference agency, by asking for bank and trade references and by searching the Registry of County Court Judgments to reveal if those running the business are in financial difficulties.
3. Set clear credit limits for every customer – to limit potential losses.
4. Consider credit insurance – it will cover the debts owed to you.
Watch out for debtor warning signs
1. Mistakes on cheques – they forget to sign, words or figures differ, or cheques are wrongly dated - these may be genuine errors or may be a means of buying extra time.
2. Constant queries – about the product or service or about the invoice. Again these could be delay tactics.
3. Excuses – like the cheque is in the post.
4. Rumours – staff often pick up on these first.
5. Trading at their credit limit – if a customer is continually trading up to the limit or asking to exceed it, it should ring alarm bells. However, it may be that they are buying more from you and so need an increased limit.
Paying suppliers
When the economy takes a downturn suppliers may want to protect their financial position by:
- Reducing the amount of trade credit they will advance you
- Asking for payment more quickly
- Asking for stage payments or even cash on delivery
To ensure that you are not being squeezed on both sides you need to manage this side of the cashflow equation and remain a low risk for your suppliers:
1. Make sure you know when you are expected to pay – not all suppliers have clear terms and conditions.
2. Pay on time – and if you can’t do so, contact your suppliers to explain why.
3. Protect your credit rating – don’t wait until the start of court proceedings to pay. Once your credit rating is damaged, you may find it hard to get any credit at all.
4. Try to negotiate longer payment terms - if you are finding your customers are taking longer to pay you – if not, see if you can get a discount for prompt payment.
Maintain profit margins
The flip side of price is cost – you can maintain profit margins even if you are reducing prices,
provided you also reduce the cost of what you are making or providing. For example, don’t hang on to things you don’t need – it costs you to house, insure and maintain them. Consider selling surplus machinery or unsold stock, even if you don’t make a profit, to release some working capital.
It is vital to keep overheads down but avoid cutting:
- Stock levels to such a low point that you cannot fulfil new orders
- Staff you need to run your business
- Sales and marketing expenditure which you need to attract new business
- Investment in equipment or product development that enables you to remain competitive
- Insurance as you could leave your business inadequately covered
Cutting costs
Don’t get emotionally involved. Make hard-headed business decisions. You may want to keep
a particular office open because it was where you started or a certain product line because you created it. If it is losing you money, you have to lose it – or risk losing your business.
Make decisions based on the facts. A “gut feel” is not good enough. It is only when you see what is profitable and what is not that you can make a decision.
Start with non-essential expenditure – then tackle fixed costs such as utilities, stationery
and other outgoings.
Pass on price cuts. If you are under pressure to cut your prices ask your suppliers to do the same – if you can. If they won’t negotiate on price ask for longer payment periods or shop around.
*Key content contributor RBS – A Money Sense Guide.
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