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Disclaimer

This is not advice. Items herein are general comments only and do not constitute or convey advice per se. The information contained in these articles is for guidance only and should not be relied upon without obtaining professional advice having regard to your direct circumstances.

 

Sticking to the fundamentals

Small businesses should brace themselves for an economic slowdown in the wake of turmoil in international finance markets and a decrease in the value of the Australian dollar. They should be keeping a close watch on cash flow, considering the most appropriate finance options and improving administration processes.

In the rush to grow, it is often the fundamental business practices -  such as getting sound credit control procedures in place – that are left at the bottom of the ‘to do’ list, yet growing companies are the most hungry for cash flow funding.

Tight credit conditions and the slowing economy are forcing businesses to stretch payment terms well beyond limit, placing a major strain on businesses already feeling the pinch from high fuel costs and higher costs of finance.

So in this environment, businesses should go through a 10 point checklist designed to help small businesses get their houses in order.

Get back to basics

Bookkeeping does not make your paperwork more complicated - it makes it easier. If your office is full of heaps of paper and collapsing shelves, and computer files are disorganised, then sort out your systems. You need a system to store your purchase and sales invoices, a petty cash system and a cashbook to summarise all the information. Importantly, keep your bank statements safe as they are a record of your payments and receipts.

Invoice on time

It makes sense if you do not invoice on time, your customers will not pay you on time. Keep a record of all ongoing projects so that it will be easy to raise an accurate invoice. Always ask your customer for a purchase order number and quote that on your invoice. Finally, raise the invoice immediately after the job is finished and be very clear about your payment terms.

Take control of your credit control

Very few people enjoy getting tough on credit control but it is vital to the success of your business. Perform credit checks on new customers and set sensible credit limits. If your customers start delaying payment, call them just before payment is due. If they make a part payment, acknowledge receipt of this but ask for the balance. If your customer queries one item on an invoice, insist on full payment of the rest of the order. Finally, if in doubt, stop all credit until payment is received. Obviously, key relationships will need to be maintained and the approach will vary from client to client.

Always check the credit status of a new customer

Risks must not be underestimated in the enthusiasm of taking on a new business. Credit checks can be done quickly and are relatively inexpensive. It is important to establish the correct business title, together with it’s legal status (Ie. limited company, sole trader etc.) before seeking reports from agencies or trade references.

Chase overdue accounts regularly and take prompt action

Follow up overdue accounts by telephone. Check customers have received invoices and that there are no queries. Deal with the same person each time you contact the company and make the largest outstanding debts your priority. Send out statements monthly. Do not wait until the end of the month before invoicing if you can, send out invoices at the same time you send out goods or deliver a service.

Look at more flexible funding options such as Debtor Finance

Is your business funded in a way that will carry you through temporary difficulties whilst simultaneously allowing you to take advantage of growth opportunities? If you are stuck with a bank overdraft that is repayable on demand, look at more flexible methods of funding.

The debtor finance, or factoring, frees up your cash by giving you access to up to 80 per cent of the value of an invoice as soon as you raise it, with the balance, less a small fee, returned to you when the customer pays the invoice, giving you better control over cash whilst allowing you to keep customer payment terms the same. In addition, asset finance packages can allow you to pay for essential equipment over time, so that your cash is kept liquid.

Review your suppliers

The next step in your annual overhaul should be to review the prices all your suppliers are charging you. Think what affect a five or 10 per cent reduction in costs could have on your profits. Many companies get familiar with suppliers and forget to push them for bulk, early settlement or loyalty discounts. Take a look at what new suppliers would charge you – you will soon know if you are paying a fair price.

Dust off your business plan

When you launched your company, chances are that you worked hard to produce a winning business plan. Have you ever looked at it since? Review it now! If things have changed since you made your plan, ask yourself why. What have you learnt? Crucially, were your financial forecasts accurate and are you still budgeting effectively?

Sort out your tax return – before the deadline

With an accountant on board and a well-organised office, completing your tax return should look a lot less daunting. Rather than waiting until the deadline looms, resolve to complete your return, your accountant will need full records of your financial transactions for the year that just ended.

Greg Charlwood
My Business, March 2009

 


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