Is this the time to spend or save?

I’m not going to rabbit on about the GFC – the Global Financial Crisis. We all know it’s here and that it has a major impact when it now has an acronym!

So we’ll take all that as a given.

I hear so many entrepreneurs talking about cash flow and how to manage cash these days. On top of that there are some opportunities to be had.

It is difficult to decide whether to save any profits (build your reserves) or to take advantage of the bargains to be had right now.

First, let’s look at what’s happening in the economy…

The Federal Budget is a BIG SPEND budget and, no doubt, you’re following the commentary on that one. There are many who believe this will not solve our problems.

Have a read of this article. Right now we are borrowing $500 million per week from China.

The average savings/person in China is 22% of their wages. Can you imagine how much money that is?

To get down to basics – we Australians, with our much higher standard of living, are now borrowing from Chinese workers to sustain our ‘luxury’ lifestyle.

And we are not alone – the US has borrowed $1.7 trillion from China.

You’ve gotta wonder where this is leaving China and what it means for us in the long term.

Now, to get back to the question of saving or spending.

I go for the ‘build your reserves’ option. In other words, save as much cash as you can. We are not out of the woods yet and there is no way I’d be spending my precious cash without a damn good reason.

I know that business life is never as simplistic as that and there are many angles to consider when making decisions. However, building your reserves should be one of your top priorities right now.

Have a serious look at your monthly P&L statements. What can you do to reduce your expenses. And be tough on yourself. Don’t pussyfoot around. And do it 3 times so that you really cut out all the fat.

I’ve seen entrepreneurs who run out of investor funds suddenly to find themselves with a fraction of the cash they were used to.

So they need more investment capital. We’d sit around the table to redo the financials and they’d assured me that everything was cut to the bone. And then, when they couldn’t raise any more money, suddenly they literally found $ thousands each month that could be saved.

I’m constantly reminded about the wisdom of ‘living lean’ when I pass the Milton headquarters of Wotif.com, not far from where I live.

Their office is in this crappy besser block building that backs onto a railway line. There’s a car repair yard nearby and some old buildings that really need to be pulled down. And they’ve been there forever.

So, live lean, don’t waste your money on ‘window dressing’ and build your reserves.

And do this even when you don’t need to. You’ll get the long term benefit.

Remember those Chinese workers – putting away 22% of their wages. They certainly don’t have the 4WDs in their garages or the plasmas on their living room walls. I doubt they even have a living room wall.

But they are now lending Australians money. There’s something wrong with this picture.

Till next time.

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Gail Geronimos, is the founder of Achaeus, which helps entrepreneurs develop their businesses and she has just started a new site www.pitchingtoinvestors.com with tools and tips about how to develop killer presentations to raise capital.

To read more Gail Geronimos expert advice, click here.