Reopening your business. Show me the money, is it good money or bad money?
Many businesses are preparing to reopen soon, depending on the various government regulations. The adequacy of money available to the business to reopen, continue trading, fulfil pent-up demand, and grow is certainly a challenge.
A well-thought-of reopening strategy and financial modelling for profitability and sustainability: Show me the money, including the cash requirement and cash flow projection by taking into account any available government financial assistance and other possible sources of finance would be critical for the feasibility of businesses to reopen, sustain, and grow.
We need a clear business and financial road map and make sure not to throw good money (either from your own, from borrowing, or other financial sources) into a bad situation. Otherwise, it will only create a further financial burden to the business and yourself—bad money.
For reopening, among others, cash would be required to get the business ready and to pay for goods, cleaning, repairs, maintenance, and wages. Then there are the ongoing supply and operating costs. Very often, you would have a cash flow gap from the time you need to fund some of your expenses, including supply and wages before you receive sufficient money into your bank to cover them. When you reopen, it might take some time to gain back your previous revenue. To fulfil pent-up demand, you might have to purchase more supplies and hire more people—all costs money.
Once you are clear that the money you have, or will have, will be able to sustain your business profitably and sustainably—good money—it would be wise to start looking for appropriate additional funding if required, to be able to reopen and continue your business successfully.
I would like to share some of the thoughts of our experienced colleagues below. If you are interested in attending our upcoming webinar about this topic please email us at: erict@bges.co and we will send you an invitation accordingly.
One of my sayings in business and life –
“Too many people think of starting a marathon without giving enough thought to the last 100 metres.”
So, what does this mean and what does it have to do with business and personal finance?
Just like in a marathon race, the beginning, and the end play of your business or personal life are the two most critical stages.
Get the start wrong and you play catch up all the way – don’t think about what or who you will face in the last 100mtrs, and you may have the wrong mid-race strategy and just waste a whole lot of effort and miss out on the preferred result.
If you have the end play of your business and life goals as part of your start-up strategy, including expansion and development requirements in both your personal and business needs, then you are far more likely to have a holistic finance strategy tailored for you.
Focussing on just your business or personal needs, you may set up a loan that later comes back to haunt you when you need additional support.
Possessing a holistic view of your finances and prioritising requirements and objectives is a crucial first step in being able to achieve your financial goals. Without the right outlets, the market can feel rather overwhelming.
A reputable finance expert that specialises in all finances (home loans, asset finance, personal loans, commercial lending) can help you understand the effect and repercussions each finance may have on the next, rather than having to go to multiple brokers/lenders that won’t look at the bigger picture in achieving your finance needs.
Often, people make impulsive financial decisions without assessing the potential ramifications of not having the right loan to cater to them. By going to a finance broker that provides a one-stop shop solution, your loan is catered to you to help you understand what you should be prioritizing based on your needs and what effects it will have on your borrowing capacity when it comes to applying for your essential finance requirements such as your home loan.
Times have never been tougher for many business owners. While some have been fortunate to operate and thrive in essential industries, the real success stories are those that have employed strong, swift, and agile management, systems, and financial control, to adapt to the fast-changing economic environment.
Going forward these businesses are the ones more likely to survive long term and retain the value for the business owners, by better navigating the ups and downs of external challenges.
The cornerstones for building business strength are to be holistic and have strong financial control, including cash flow projection and management.
Besides effectively helping with their legal requirements, our clients quite often would have incidental needs, such as business advice, business finance, and home loans.
Our business clients sometimes need to obtain funding to buy a new business, grow them, and buy new plants and equipment. During the COVID-19 pandemic, a lot of them were also financially impacted and required some advice on how to reopen, sustain, and grow their businesses, including how adequate their cash was and how to obtain additional funding when required. In these situations, we often introduce a few business advisors, bankers, and financial brokers to discuss and explore their requirements. Our clients do appreciate this value-add through our great network.
Similarly in the situation of our clients who are in the process of buying a property, they also would appreciate some of our contacts who they can talk to and discuss their financial requirements.
In reverse, we also assist our network with their contacts for legal services, as they are confident, we will look after them with our capabilities and experience as an award-winning law firm.
Cash flow is the lifeblood of business. And cash doesn’t just mean your bank account; it also means how quickly and effectively you can get paid for your product or services. A common mistake among small businesses is that they focus too much on their output and not enough on their cash intake.
Without cash, your business fails. Do you know how much cash you require? How many deals do you need to close per month to cover your expenses?
CRM (customer relationship management) system can help you to increase your cash flow by improving your processes and reducing time spent on repetitive tasks.
A CRM will also allow you to create advanced reports to keep your clients updated on numbers like monthly sales and client retention percentages. CRM systems will handle much of this work for you. When you have a system to manage your cashflows, you can set up recurring payments, automatically renew contracts, send emails when payments are on the way, and automate any part of the process that may be tedious. The system will also help you keep accurate profit and loss stats, so you can determine whether your sales and business are doing well.
In addition to automating small transactions, a CRM can be used to manage much larger transactions, such as contracts with multiple vendors or leasing agreements, all through the system.
You can’t build a business without capital, but you also can’t build a business by focusing on capital. A business needs to be built on a foundation of healthy cash flow. Cashflow is the lifeblood of your business. Use a CRM system as a lead indicator to run your business.
Many businesses fail to get the basics right to allow good cash flow. It is only when cash flow dries problems arise in securing payment.
Here are four simple tips to assist you in maintaining cash flow:
Make sure credit applications identify the correct legal entity liable to pay for the service or product. A simple ABN search online is a simple way to quickly confirm the identity or raise some issues.
A credit check is a quick way to determine whether this is a quality client. On your credit application insist on referees being provided.
Make sure your Terms of Trade reflect strict payment terms. Insist on a directors guarantee and where appropriate retention of title clause to ensure that unpaid goods remain your property.
Once you have set the terms make sure you stick by them with follow-ups on defaulting customers and notices to personal guarantors.
Quality customers will respect your terms with prompt payment. Providing quality customer service will support your cash flow. However, every business suffers difficulties at times. Good terms of trade well administered give you the flexibility to give good customers some leeway but identify the bad apples before too much damage is done.
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