A checklist for survival

Not infrequently, our expenditure goes out the door in cash but if our income only comes in the door by way of an accrued future income from debtors, then we are deducting cash from expectations and that can get us into trouble.

Positive cashflow is achieved by making sure that more cash by way of income is coming in the door than is going out by way of expenditure.

7/ Borrowing can be a great way to leverage growth.

The beauty about borrowing money if it is done for the right reason is that a business can acquire an income producing asset for the cost of the borrowed money.

Once the debt is paid back, the business still has the income producing asset at no cost. Many successful businesses have used borrowings for this purpose. Less successful businesses have borrowed money because their cash flow has been negative and they are in denial.

Borrowing money to cover a cashflow shortage can work if you are comfortable that going forward, you are covered for the increased debt. Many people don’t think like that when they have a cashflow problem.

They think “I need money” and so they go to the bank, or sometimes to more fringe sources of money. The situation worsens because they have not addressed the problem that is causing the negative cashflow and they increase the debt. As it is so often said, “when you are in a hole, stop digging”.

8/ When things are going along fine and sales are increasing and business is brisk, don’t immediately go out and buy a Mercedes Benz.

For a start, revisit points one, two and three and make sure you are in touch with what is going on so that you won’t get any rude shocks.

If everything is fine after you have gone through this process, keep a lid on your personal expenditure and build a solid cash position because, as we have discovered in recent times, and as we have known for centuries, there are times when business is good and times when things aren’t so good. It is great to have something in the tin on a rainy day.

9/ Finally, think about going on holidays, getting sick or retiring.

Who is there to look after the shop when you are gone? I often use the “run over by the bus” test. If you are unfortunate enough to be run over by a bus today, what is going to happen to your business?

Building a succession plan is critical to the longevity of a business and strangely enough, it is not all that difficult. You just have to go back to points one and four.