Are you worried about recession-proofing your business? That’s what we’re talking about today, on The Money Factor. Hi, I’m Ian Varley, welcome to The Money Factor. A lot of people are worried about recession-proofing their business. We’ve been getting a lot of questions online. Let’s take the first one.
#TheMoneyFactor Episode: 010 – How do you recession-proof your business?
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I have financial partners in place, but I’m concerned about a recession. What should I do to prepare?
That’s a great question. You have to have a financial partner for your business that is not just a fair-weather friend. They’re going to have to be there through thick and thin. And when recession comes and bites, are they gonna stick with you, or are they going to be very easy to call in a default if you get behind or have a bump in the road. That’s one thing to start looking at, and start talking to your Relationship Manager if you have one. A lot of people have gone the online lending route. They don’t even have a relationship with them. They’ve applied online, got approved very quickly, everything’s great. But think about, okay, if things turn down a bit and you get behind on a payment, who you gonna speak to and say, “well, actually I have all this sorted, “can you, you know bear with me a bit.” They won’t be there. In actual fact, a lot of people are concerned that some of these online lenders, being that they approve using algorithms and other sophisticated things, are really not prepared for a recession. I was reading something about some of these people, where they’re already adjusting their processes and their approval methods in preparation for that. So we may see during the latter part of this year, that the amount of new online loans goes down. So, my point is, is your financial partner really there for you in a recession? Look at, if you have a loan or a line of credit with the bank, look at the covenants that you’ve signed up for. Are there financial covenants that could be something you trip accidentally or just because your business isn’t performing so well during a recession, that could really put you behind. Have a look at that now. Now is the time to prepare, because you have to be sure that that financial partner will stand through difficult times with you. Think about factoring. We will look at your receivables. We know that things can get behind. We live in the real world. We’re less focused on your financials or your credit score, things like that. We really are somebody that sticks with businesses as they resolve problems and turn things around. We’re not scared by it, and that’s a question you should ask yourself. Is your lender going to be scared by issues that you might have during the recession. If you think the answer is yes, start looking for an alternative now. That’s my best advice.
If we experience a recession, what are the steps I should take to get my finances in order?
You know that really is a great question. Now is the time to look at things like, how quickly are your customers paying you? Do you give them 30 days to pay, but they take 60? Why is that? Did you ask them for payment on time? A lot of people are afraid to actually go to their customer even when they’re taking new orders from them, to say, “would you mind paying that debt that’s a little bit overdue right now?” You should do it. It’s prudent management of your receivables. If you don’t want to, look at factoring. We’ll manage your receivables for you and provide you a funding facility against it, leaving you to be the good cop, taking the new orders, and we can be the ones that follow up to make sure people pay on time. But if you don’t, that’s okay. You should still manage your receivables in a prudent manner. You’ve given them credit, don’t let them abuse it. Otherwise you’re funding their business, because of the time that you’re allowing them to pay you. And it’s tying up your cash flow, and possibly damaging that. Now, as you go into recessionary time, the longer people take to pay, it’s a indicator of how credit-worthy they are. You know, how much cash do they have on-hand. Definitely focus in on receivables management now. Get yourself somebody that will make those calls, send letters if you need to. But again, don’t be afraid to ask for your customers to pay you on-time. It will improve your cash flow and get you ready for the times when payments get tough. Look at, if you have new customers coming in as well, look at their credit. If you’re not sure what to do, give us a call. We can give you some indicators, whether it’s trade references, looking at a D&B report. Getting information on the average time that a business takes to pay is vital, when you consider giving them credit. Don’t just give them credit because you have to, because you’re in a competitive situation, look at how well they can pay you. If you don’t, you could end up with some bad debt on your book that’ll hurt your business. Anything you can do to manage your receivables better now, will only help you as things get tough.
What specific areas should I focus on to get into the best financial shape possible?
Yes, look at unnecessary expenses. So, take a look at your payables. Are there monthly subscriptions that you’re paying for that you really don’t need? It might be 20 dollars here, 50 dollars there, but it adds up, and those are the types of things that I would trim now. Take a good hard look at it. It’ll save you money now, and probably put you in the mind-frame to not have unnecessary expenses as we go into difficult times. You’ll be very mindful at that point not to take on the extra cost, but if it’s already been coming out of your account each month, it’s something you could have saved before now. So that’s definitely an area that I would consider. Along with just general expense management. You know, it’s really important to keep your P and L looking as good as possible as we go into the difficult times, because, again, if you’re looking at different financing sources, you wanna make as much money as possible. One thing not to trim, your marketing budget. You’ve gotta keep growing. And so you may be spending money on that now, is it enough? I would say, beef that up, spend more money on your marketing side because you want to grow your business. And again, more customers you can find now, the more volume you can get. As you go into recession, you definitely want a large customer base. If your business is reliant on one or two big customers, if they get into difficult times, your business will suffer too. So invest in that now, and keep investing in it. Even in recession, people should keep spending money on marketing. I’m a real big fan of that because you have to grow your business. Anyways, that’s all we have time for today, so great questions coming in. Thank you so much. Find us online at hashtag The Money Factor (#TheMoneyFactor).