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One simple strategy when customers won’t pay you

By on October 21, 2010 in Cashflow

Many business owners have experienced the disappointment of supplying products and services and then not being paid. Not only is it frustrating, but very painful financially.

So what’s one simple thing that you can do to alleviate this situation?

Do a deal with the customer to pay you small amounts on a regular basis.

This is what the tax department will do with you,
This is what a bank will do with you and
It is exactly the same strategy you can use with your customers who are finding it difficult to pay.

If they completely stone wall you by avoiding paying anything the outstanding account sits around ‘like a bad smell’.

If you can get a small amount being paid regularly it is amazing how over time the amount diminishes and you get your money back.

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How to avoid your business being shut down in a cash flow crisis

By on September 30, 2010 in Cashflow

Have you ever run out of money in your business and still had bills to pay?

This seems to be a very common problem for business owners when the timing of money coming in and money going out doesn’t seem to match.

When this happens most business owners do one of two things.

  1. Tip in money of their own to solve the situation
  2. Ring all their customers and ask for money

BUT there is actually a more important thing to do if you’re in a product style business.

Ring your suppliers!

Let them know that you have a cash flow issue. Don’t wait for them to ring you because by then you will have lost some goodwill with them.

Keeping your supply lines open is critical because without them you may as well shut the doors and give up.

If you’re to keep trading you must keep your trade accounts open because your business can produce the money to trade its way out.

That’s the least painful way out of a cash flow crisis!!

What’s your experience on this?

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3 easy steps to decrease debt in your business

By on September 16, 2010 in Cashflow

Many people get into debt in their business before they even open the doors and then it becomes a long hard struggle to recover and become successful.

My three easy steps will ensure that you start off correctly and then continue to accumulate strong cash flow and therefore decrease any debt you have in your business.

The three easy steps are:

  1. Make sure you have sufficient equity in your business before you start

    This means that you need to be putting in some CASH of your own and avoid starting your business with a loan from the bank as the only money to start with.

    It is much easier to continue working a job and save some equity so that you’re not overwhelmed from day one of your business by too much debt.

  2. Make sure you make profit AFTER tax

    If you are trying to avoid paying tax at the same time as growing your business you run the risk of making no profit and then the growth in your business must be funded by an increase in debt.

    Ensure you make good profit AFTER paying yourself a market wage AND paying the correct amount of tax

  3. Make sure you get paid by your customers

    Many small business owners make reasonable profit by selling to large businesses that have long payment terms.

    Others simply sell to small businesses that can’t pay because they’re not making profit.

    In both of these cases you will find that the accounts receivable can grow quite quickly and this again will need to be funded by more debt.

    Negotiating good terms and then getting your customers to stick to those terms is key to decreasing the debt in your business

What’s your story regarding debt in your business?

Have you been caught owing a lot of money and been stressed as a result?

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What the Economics Professor has been saying

By on November 5, 2008 in Management

Associate Professor Steven Keen has been writing for the Age over the last couple of months and giving quite some insight into how we got into this financial mess.

I particularly like the simple way he has explained it in one of his earlier articles, entitled Financial chickens are flocking home to roost (September 28th).

He writes:

“BUSINESS as usual” is over. What we have taken as normal times – the ups and downs of Western economies since the 1960s, and the “financial engineering” of the past two decades – have been underwritten by the greatest debt bubble in human history. The meltdown on global financial markets is merely a reflection of the fact that, one day, this bubble had to end.

….So much unnecessary debt was accumulated in pointless speculation that the only way to get rid of it is to write it off – to declare debt moratoriums.

Households may have been naive to take the debt on, but the financial sector was culpable in extending it. Ultimately, it must pay for this folly.

Many of you would have heard me talk about the difference between debt and equity and how the returns from each of them are different.

I believe that the type of return required by a lender determines how that lending will affect a business. When debt and equity get out of balance the way a business operates can be squeezed in a direction by its lenders.

Our definition of the types of return is:

  • Debt lenders look for a fixed, known and limited return. This is normally paid as interest on regular basis.
  • Equity lenders look for a flexible, unknown and unlimited return. This is normally paid as a dividend which can vary both in terms of timing and size of payment.

When too much debt gets into a business it loses it’s flexibility, along with it’s ability to be creative.

Think about this in light of Steven Keen’s comments above and reflect on how our economy is being affected by the debt bubble which he referred to. I’m interested in your thoughts.

Let’s all determine to get more equity into our businesses, squeeze out the debt and head into a position of creativity and flexibility.

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