Most businesses operate with very little money in the bank. Some just operate perpetually on an overdraft, or with just enough to keep the bank manager happy.
To some, this is “situation normal”, and many organisations exist in this financially precarious state for months and even years. Having very little money is not a crime, nor is it always a sign of instability. Money in the bank is only working for the bank, think about what you could be doing with your cash to further your own business goals.
But when it happens to you for the first time, or if you walk into a role, or organisation, in a position of responsibility for the first time it can seem a frightening situation. Questions like “Will we be able to pay our staff”, “How can I please the screaming creditors”, or “The bank manager might pull the plug”, can keep even the strongest of us awake at night.
The first thing to do is not panic. Knee jerk reactions might further de-stabilise the organisation and, at worst, tip you over the edge.
Work out who owes you money. Chase it, hard.
Work out who you owe money to. I suggest you are open and honest with them. I would rather be thought of as a “slow payer”, than a “no payer”.
Take control – write down your realistic financial goals. Then write down what you need to do to achieve them. Then start doing those things.
Perhaps the best advice is to talk with someone who has been in that situation themselves (and survived!). It might not immediately solve your problem, but you might gain some strength, insight, and develop some tactics to help you pull through.
Businesses need banks, and banks need businesses. But as a business owner, how do you decide which bank to trust your money with?
I have helped a number of organisations choose a bank – some for the first time, some because they wanted a change, and some because they needed to change!
There are many considerations to weigh up, including: cost, secondary services, knowledge of your business sector, location of branches, access to help. To me, the most important factor when deciding who to bank with is the Relationship Manager.
It is perhaps a little unfair to say that all banks are alike, however, there is generally very little between them in cost, in location, and in the general service they offer. To my mind therefore, the biggest difference between banks is in their staff.
When I needed to set up a bank account for my business, I walked down the high street in my home town, and walked into every bank. I asked the same question in each branch, “Please can I talk to someone about setting up a business bank account”. Within 30 seconds of walking in, I felt I knew how much the person I was talking to cared about me and my business.
I would not want anyone to think that choosing a bank is a decision to take lightly – particularly in today’s economic climate. Never forget who is the customer. As ever, more than numbers and statistics, it’s the people we do business with that matter, and I suggest that this includes your bank’s Relationship Manager.
I found myself despairing today, about the lack of interest in the Balance Sheet by some businesses. I believe it is the single most important piece of information every business needs. Why?
Look at it this way, as an individual, we tend to know how much we owe other people, how much we own, even how much we are owed. It’s nice to have sense of how much we are earning, but the bit that gives us the warm fuzzy feeling of stability – or the cold shivers of concern – is the detail of where we are financially right now.
That’s what the Balance Sheet is. It’s a snapshot of who owes you, who you owe, and what you own.
As a barometer of your organisation’s health, check out the Balance Sheet. And if you want an idea of what shape you are going to be in, then ask to see the Balance Sheet’s forecast position. It’s not rocket science, and could save you from some very unpleasant surprises.
Financial Business Support Many years ago I interviewed a bunch of characters for the post of Nightclub Manager. Failing to make a decision, the panel asked itself the following question, “If the interviewee was a nightclub, would I go to it?”. Suddenly the choice became easy.
It is very easy to forget the impact that the person has on the identity of the business. Every employee, from security on the front desk to the chair of the board, adds a key ingredient to your brand. In times of apparent doom and gloom, what kind of impression do you give the outside world?
A visitor to your business, whether by phone or in person, may well learn more about your company from the first point of contact in the first few minutes than in the whole of the meeting you have carefully planned.
The root of the problem is that most small businesses are selling to companies larger than themselves, who have the advantage of a full-time finance director. These seasoned professionals know how to manage cash-flow, and therefore how to improve their companies’ bottom line instantly by quietly moving payments from thirty to ninety days.
You would do well to support your sales operation with a finance specialist. If you do not have a full-time finance person, then pay a little extra and get someone appropriate to help supervise the sales process.
They will put in some sensible precautions, such as credit controls on small and medium-sized businesses who might want to place orders. In my experience, it is rare for a company to turn down business from someone purely on the basis of a poor credit rating, but it does improve the negotiating power of the salesperson to ask for a substantial up-front deposit.
If the potential order is with a large organisation who have an excellent credit rating and who represents a substantial share of your revenue, there is still the problem of their moving the goal-posts on payment terms. The solution is to have an open channel of communication between your finance specialist and their finance director.
The reality is that few large organisations want to be seen to be bankrupting small companies by applying unreasonable payment terms. Problems usually arise because the salesperson does not have the knowledge and patience, or even vocabulary to discuss these issues with finance people at an early stage in the process.
Left to their own devices, finance professionals will usually come to a sensible conclusion which represents a win for both sides. The supplier might be happy with longer payment terms in exchange for a larger order, or you might offer a price discount in exchange for an up-front payment.
Late payment is a natural consequence of difficult economic conditions and has no easy solution other than to employ the services of a professional. This could be either a finance expert or a company who knows how the system works. It may be expensive in the short term, but represents an excellent return on investment over time, the same argument you should use to promote your own products and services.
If you want to talk this through in more detail, call me on 07913 895798.
I think it was Scott Peck who started a book with the great line “Life is difficult”. Talking to someone today, it was clear that they faced a really tough choice. They have steadily grown their business and have reached a size where they now need some proper financial expertise, but feel too small to justify the additional cost. If their plans take longer to come to fruition than planned they will be out of pocket, if they take someone on board they will be out of pocket until they realise their earning potential; either way they are currently peddling like mad to keep on top of the paperwork.
This kind of decision is very common, and it’s no consolation for me to suggest that there is no right answer. Growing a business does not follow a straight line, it’s like climbing stairs; you either take the step up, or stay where you are. And when you are carrying a heavy load, the effort to step up feels huge, with no guarantee it will be worthwhile.
Life is difficult, but if you are contemplating such a step, there is only one way to find out if it’s right for you…
I’m sure this is a theme I will keep returning to, but I seem to be spending more and more time talking about people rather than money. Financial conversations about issues like governance, strategy, investment, and outcomes all come back to the people in charge, and how they are directing their own, and their colleagues, in the furtherance of the businesses primary objectives.
And yet it’s so easy to lose sight of what your business is trying to do. Having an objective point of view is easy when (like me) you are “on the outside looking in”. But it’s a point of view all businesses need to have.
At an event I attended last night, I was struck by the view that everyone I spoke to had about the current banking crisis – it’ll be ok…
Nobody was sure why it would be ok; but somehow, by keeping their heads down and working hard, the problems reported in the press and media would pass and the world would carry on as before.
Now this may be true, but it worried me that none were saying that they were using the time to review their finances. When it looks like rain, am I the only one to check that I haven’t lost my umbrella?