Are you tracking your cashflow, checking average debtor days? These are disciplines you will need to re-master.
While the world waited for the decision on the bailout to be made in the US last week, one commentator said it would “prevent the crisis becoming a catastrophe”.
Even with the bailout we’re still in lots of trouble – it’s still a tidal wave but it’s not yet a tsunami.
What does it all mean for us?
First, money will be very tight so make sure you have access to enough cash to see you through in the next 12 months. Have a few options up your sleeve just in case your banker gets a little nervous and decides to no longer provide you with the funding you need. Talk to other banks and have a store of ready cash handy.
My last two blogs were about this, but I restate it because lack of cash will cause many businesses to fail in the coming months.
And on that…
If you are not tracking your cashflow every week then you may find that you can’t pay the wages. It’s not just a matter of checking your bank balance. You’ll need to see what bills need to be paid in the next four weeks and making sure that your debtors pay their invoices on time. Project your cashflow into the next few months. That way, you can plan for any shortfalls.
As well, check your “average debtor days”. 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 that 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.
On the big picture…
The world economy will get worse before it gets better.
I agree with many commentators who suggest that the system in Australia is better regulated but it will not save us from the economic fallout. It will probably be less than what the Americans experience but it will be felt.
China is still predicting about 8% growth and that will certainly help our economy through the resources boom. But I wonder about the state of their banking system. It is relatively new and was established in good times.
Do they have the rigorous regulation in place to ensure the soundness of their banking system? I’ve not read much about that and there is a little warning bell in the back of my mind. Then again, perhaps I’m too cynical.
As well, the Chinese have invested heavily in the US.
Bankers estimate that $1 trillion of China’s total foreign exchange reserves of $1.8 trillion are in American securities. By buying United States bonds, the Chinese Government has been investing a large chunk of the country’s savings in assets earning just 3% annually in dollars. And those low returns turn into real declines of about 10% a year after factoring in inflation and the yuan’s appreciation against the dollar.
China will be hurting from the disasters in the US economy. And their sharemarket has taken a beating. Watch the news for the impact this will have in Australia as the waves ripple through the various economies and banking systems.
For now, batten down the hatches, don’t be too adventurous and do your cashflow projections today.
Till next week…
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 blogs, click here.
Daniel writes: I think with all the turmoil going on it is a good time for business to go forward to basics. I say forward to basics, not back to basics, because you will find that the things you are talking about above are basic things that small businesses need to get right in order to survive. Your good advice above should be done in both good times and bad.
Smart Company is a sister publication to The Mandarin, catering to Australia’s entrepreneurs, small and medium business owners and business managers.
