The global financial crisis (GFC) is increasing pressure on small business owners, reducing profitability and making it more difficult for many to keep their heads above water. Closures worldwide are trending upwards, and the effects of the current economic meltdown will be felt far and wide for years to come.
It may sound like an obvious question, but if you are a small business owner, how do you know that your business may be under threat? Areas such as reduced sales are easy to recognize, but are there other indicators that may not be as obvious? Here are three warning signs, which if quickly identified and acted upon, may help you reduce the impact of the GFC on your small business.
An increase in your outstanding debtors
Rather than paying by cash, some of your customers may have monthly accounts with you. If a large percentage of your customers pay on account, rather than by cash, then your business may be at increased risk.
Let's say that you normally give your customers 30 days to pay their accounts. In good times, most people will pay within the 30 days, but of course there will always be those who take a little longer.
However, when times are hard, many of your valued customers will also be facing increased financial pressure, and in some cases this will lead to them taking longer to pay their bills (you). Now if it is only a couple of customers, that might not be a problem. However, if you notice that the percentage of clients requiring more than 30 days to pay you is increasing, then you must act now. Remember, cash flow is vital to your business. Keep a close watch on your debtor payments. Be relentless in collection of money from your debtors, and if you notice a problem, consider insisting on cash for those customers that are taking longer to pay. For those that prove difficult, make the decision early to take legal action or to write the debt off.
Whatever action you choose, act early.
Delays in receiving goods, stock or raw materials from your suppliers
If your suppliers are beginning to slip behind with your orders, or are constantly placing items on back order, this could be a warning sign that their business may be in trouble. Perhaps their bank has refused or reduced the availability of finance to them, or perhaps their suppliers have placed restrictions on them. Whatever the reason, if you are starting to notice regular delays, act now. If your supplier is unable to guarantee timely supply, then don't delay. Look at alternatives. It would be a disaster to one day find that your supplier has gone out of business, leaving you with no immediate alternative.
Increased competition
Just because a market may be shrinking, it doesn't necessarily follow that your competition will reduce. Of course there will be business closures in a recession, but there will also be others to fill the void. As salaried workers are retrenched, many will look for opportunities in small business. For your business, this could mean trouble. Remember, the more times the pie is sliced, the smaller the return for everyone.
Be on the lookout for new competitors. What products or services are they offering, and what effect will that have on your business. Talk to your suppliers and learn as much as you can about the new guy setting up down the road. Then develop a plan to counter the opposition. It may be worthwhile to have a talk to your accountant, as he/she may have some worthwhile suggestions.
Summary
In our current economic climate, small business owners need to be more vigilant than ever. Be aware of the warning signs. Regularly review the health of your business, and involve your accountant if necessary.
Dave Curran has 30 years experience in management and finance. Dave has worked extensively in the public and private sectors, and has worked at senior management level in the banking industry. He has provided finance to thousands of clients over the years and has an in depth understanding of the requirements of lenders.
Further helpful information can be found at Dave's website:
http://www.accountingtipsforbusiness.com/
Article Source: http://EzineArticles.com/?expert=Dave_Curran
It may sound like an obvious question, but if you are a small business owner, how do you know that your business may be under threat? Areas such as reduced sales are easy to recognize, but are there other indicators that may not be as obvious? Here are three warning signs, which if quickly identified and acted upon, may help you reduce the impact of the GFC on your small business.
An increase in your outstanding debtors
Rather than paying by cash, some of your customers may have monthly accounts with you. If a large percentage of your customers pay on account, rather than by cash, then your business may be at increased risk.
Let's say that you normally give your customers 30 days to pay their accounts. In good times, most people will pay within the 30 days, but of course there will always be those who take a little longer.
However, when times are hard, many of your valued customers will also be facing increased financial pressure, and in some cases this will lead to them taking longer to pay their bills (you). Now if it is only a couple of customers, that might not be a problem. However, if you notice that the percentage of clients requiring more than 30 days to pay you is increasing, then you must act now. Remember, cash flow is vital to your business. Keep a close watch on your debtor payments. Be relentless in collection of money from your debtors, and if you notice a problem, consider insisting on cash for those customers that are taking longer to pay. For those that prove difficult, make the decision early to take legal action or to write the debt off.
Whatever action you choose, act early.
Delays in receiving goods, stock or raw materials from your suppliers
If your suppliers are beginning to slip behind with your orders, or are constantly placing items on back order, this could be a warning sign that their business may be in trouble. Perhaps their bank has refused or reduced the availability of finance to them, or perhaps their suppliers have placed restrictions on them. Whatever the reason, if you are starting to notice regular delays, act now. If your supplier is unable to guarantee timely supply, then don't delay. Look at alternatives. It would be a disaster to one day find that your supplier has gone out of business, leaving you with no immediate alternative.
Increased competition
Just because a market may be shrinking, it doesn't necessarily follow that your competition will reduce. Of course there will be business closures in a recession, but there will also be others to fill the void. As salaried workers are retrenched, many will look for opportunities in small business. For your business, this could mean trouble. Remember, the more times the pie is sliced, the smaller the return for everyone.
Be on the lookout for new competitors. What products or services are they offering, and what effect will that have on your business. Talk to your suppliers and learn as much as you can about the new guy setting up down the road. Then develop a plan to counter the opposition. It may be worthwhile to have a talk to your accountant, as he/she may have some worthwhile suggestions.
Summary
In our current economic climate, small business owners need to be more vigilant than ever. Be aware of the warning signs. Regularly review the health of your business, and involve your accountant if necessary.
Dave Curran has 30 years experience in management and finance. Dave has worked extensively in the public and private sectors, and has worked at senior management level in the banking industry. He has provided finance to thousands of clients over the years and has an in depth understanding of the requirements of lenders.
Further helpful information can be found at Dave's website:
http://www.accountingtipsforbusiness.com/
Article Source: http://EzineArticles.com/?expert=Dave_Curran
