Expert advice for weathering a tough economy
The recent economic uncertainties – evident in oil prices, the housing market, and international exchange rates – present entrepreneurs with a confluence of challenges, but also with opportunities.
In this perfect storm of macro-economic tides, those businesses that turn their attention to collecting receivables, cutting unnecessary costs, and building revenue diversification will be poised for continued success.
Improve collections and cash flow
Faster is always better when it comes to converting invoiced dollars to cash, but it never seems to happen quickly enough. Start by getting maximum value out of your money. Collect payments as early as possible and hold on to your own money as long as possible. Keep detailed records of the money that you are due and consider using charge cards or credit cards to pay bills – allowing yourself an extra period for repayment for short-term needs.
When an account becomes severely past due, ask yourself if the customer is worth it. Are they a source of referrals? Can you afford to lose their business? You may find that you would be better off without a customer that is causing you to carry a very substantial unpaid balance.
Finally, regularly evaluate ways to reduce or eliminate outstanding receivables, not just from delinquent accounts, but across the board. Simple strategies that can make a big difference in cash flow include: checking a client’s credit up front; offering (or requiring) faster payment terms; accepting credit cards; and, as a last resort, using collections agencies.
Boost the bottom line by cutting costs
Big fixed expenses like payroll and rent are an obvious place to start. Look carefully before eliminating valuable staff, key marketing efforts or vital customer-facing services. Instead, look to renegotiate big contracts for real estate leases and loan repayment schedules. In turbulent times, landlords and other vendors are more interested in weathering the storm than squeezing every last cent out of their customers.
When cost-cutting, look to your internal or external resources such as your bookkeeper, accountant or finance department for innovative advice. Make use of credit card discount programs and cash-back or rewards programs to reduce the cash used. Take advantage of invoice terms to either slow down payments or realize discounts for faster payments.
No matter how sleepless your nights, keep one thing in mind: Aclean credit record is priceless. Do whatever it takes to pay bills on time, stick to the terms and covenants of financial agreements, and keep your credit score as high as possible. If you become really strapped for cash in a given month, paying off even a portion to vendors is better than paying nothing at all. It shows that you are acting in good faith, just as you would want your customers to act with you.
Find new growth opportunities
When the economy is down, it is an excellent time to look for customers in new markets – both domestic and global. Marketing your business online can open new markets you never expected to reach – and, even more importantly, help you do so with great cost-efficiency. Though it requires an upfront investment, building a new web site or selling your products or service online allows you to reach more people, for less cash, in the long run.
Also, while you’re looking for cost-cutting measures and new sources of growth, remember so are your vendors, competitors and customers. The time could be ripe to forge new partnerships or offer your customers bundled packages that you and related businesses can provide jointly. It could just be a win-win all around.
Keep an eye on the big picture
Remember that no business is perfect – economic cycles take their toll on all entrepreneurs in one way or another. But with a clear strategy and careful execution, any business can get through the tough times and emerge better prepared to take advantage of the expanding markets that are sure to follow.
From OPEN Book: A Practical Guide to Financial Planning Download the full PDF.