8 Tips for Managing Finances in Difficult Times
By Phillip Mortimer and Casey Gabriel
It’s unfortunate, but inevitable, that everyone goes through difficult times at some stage in their business journey.
Sometimes this is due to things that could have been done better or differently. But other times it’s due to circumstances outside of your control.
However, when it does get difficult, it’s important that you have good people around you to help guide and support you through.
Below is our summary of proactive steps that we feel are important for you to work on, to ensure that you and your business remain viable.
Analyse your Current Situation
How is your business currently performing? What is going wrong and why? What are your main areas of concern? Is this specific to your business / location or is it a broader concern for your whole industry or wider economy? Research and understand what’s going on in your industry and the economy and also what else may be coming. Look at your trading history, as well as the year to date, and analyse trends and ratios. Graphs are a great way to visualise what’s been going on in your business.
Prepare Cash Flow Budgets
In difficult times, more than others, cash is king. Simply, you need to increase what’s coming in and reduce what’s going out.
To assist with this, you should prepare a detailed three-way forecast budget for the next 1-3 year period. This includes Profit & Loss, Balance Sheet and Cashflow Budgets. In doing this, consider all possible ways you can improve your income lines. Review every expense line to reduce as much “wastage” as possible.
Have a good, honest look at your personal spending to find areas of savings.
Review budgeted peak debt or negative cashflow months (eg BAS and tax payment periods to ensure that you have adequate working capital available in these tight cash flow months).
Make sure you use your budgets by reviewing actuals to budgets every month to stay on target and remain accountable.
Work on Improving Profitability
Review and understand the profit margin on each of your products and main customers.
Don’t chase just any sale, make sure it’s a profitable sale and focus on selling more higher margin products and services.
Don’t discount prices on lower margin products/services unless you can achieve the same or better gross profit margins.
Understand your fixed vs variable costs and see what costs you can control. From there prepare a breakeven analysis to show what you need to sell to cover these costs.
Identify the key drivers in your business and set goals for these drivers. Monitor and report on these regularly.
Review your current marketing plan as a successful marketing should lead to higher sales in excess of what you spend on marketing. Measure the success of each of your marketing activities.
Compare your business performance to industry benchmarks, where available, and identify areas for improvement.
Evaluate your Stock Control
Only carry the right amount of stock. Excess stock comes at a cost to your business in cash flow, insurance, storage and spoilage.
Don’t buy or produce more stock than you’re actually able to sell.
Negotiate deals with your suppliers but avoid volume-based buying discounts, as this can lead to excess stock purchases.
If you’re a manufacturing business, review your whole manufacturing process from end-to-end to ensure that you are operating with limited waste and maximum efficiency.
Assess your Debtors and Creditors
Make sure that your invoicing and debtors control systems are well documented and managed. Invoices need to be sent promptly to get the money into your account as soon as possible.
Review each of your outstanding debtors and chase up those that have gone beyond your trading terms. If your debtors aren’t paying you on time, then you’re effectively lending to them at no cost. Consider charging interest on late paid accounts with a high penalty interest rate. You’re not in the business of lending – they need to go to their own bank for that.
Review all of your current creditors and make full use of your trading terms with them, as this is effectively a short-term interest free loan. Be aware how your creditors are trading so you avoid supply issues if they have trading operating concerns.
Consider your Finance Options
Don’t hide your problems from your bank and approach your bank early.
Discuss any cashflow problems and have them onside for any assistance they can provide such as a temporary hold on your loan payments, line of credit, overdraft facility, debtor funding, chattel mortgage, etc.
Be prepared and have your three-way forecast budget ready as this will greatly assist with your financing options.
Conduct Regular and Ongoing Reviews
Aside from reviewing your actual to budget reports every month to see how you’re tracking, you should schedule regular “board of advice” meetings (monthly or quarterly) with all relevant parties (owners, key employees, your accountant, other advisors).
These meetings will assist keep everyone focused and accountable to enact change and ensure that you don’t just do what you have always done.
You should strive for continual improvement, by looking at what has happened, considering where you want to be and then working towards it.
Include your Team
Consider every person in your team, their role and productivity to ensure you are getting the best from them.
Make all employees champions for profit. Measure and reward the right behaviour in your team to encourage them to help your business survive and thrive.
If things are tight, your team might wonder about the safety of their job. It’s important in these times that you do not lose your key team members, as you need them to help you through.
Include key team members in your discussions as to how your business is going, so that they can support you.
We’re Here to Help
Every business carries risk to changing economic conditions, competition, moving market trends and government rules. The best way to position your business to meet these challenges is to be as best prepared as you can. Be realistic and honest in assessing your business performance and outlook and don’t be afraid to seek help.
Lincolns supports many clients with their personal and business journey, assisting them through the highs and lows. We’ve been through the same highs and lows in business ourselves. We have the knowledge, understanding, experience, wisdom, passion and compassion to assist you with everything required to help you survive and prosper, both now and long into the future.
2023 Rural Tour
It’s back and it’s a good one! We will be covering how to build wealth and ensure a smooth succession for future generations + Co-ops and being carbon ready.
Find out the full information and tickets here.
Wednesday 20 September 2023 • 10:00am – 2:00pm
Green Range Country Club
Thursday 21 September 2023 • 10:00am – 2:00pm
Gnowangerup Community Resource Centre
Wednesday 27 September 2023 • 10:00am – 2:00pm
Wickepin Community Centre
Thursday 28 September 2023 • 10:00am – 2:00pm
Newdegate Recreational Complex
It’s Tax Time!
Do it once and get it right with the help of the Lincolns team. We are your local experts in tax. Ensuring you can get the most out of your return. Appointments available now. Find out more.
TOP TIP: View our tax checklists. These checklists contain all the information we need from you to prepare your income tax return.
A Coffee With… Rogan Coffey
This month is not to be missed. Brooklyn Noble and Brendan Taylor caught up with Rogan Coffey. They said, “the moment we walked into Suggs, we could feel the energy. We were in awe of the beauty and craftsmanship of the wood projects on display. As we were guided by Rogan into the workshop, we then saw the hard work, care, and passion behind it all.”
But let's roll back a few years… Read more.