Dynamic Business

6.    Ensure correct paperwork

It’s too late to fix errors in your account documentation when a customer is refusing to pay or is placed in liquidation. To ensure you are able to pursue a debtor for recover of money, regularly update customer documentation to ensure:

• addresses are current;
• customer details are correct;
• credit applications are signed by current directors;
• personal guarantees are executed; and
• there is a valid retention of title clause.

7.    Operate within agreed trading terms

Customers who habitually pay at 45 or 60 days when account terms are 30 days, place a strain on your cashflow. Customers who operate outside trading terms should be placed on stop credit or COD immediately. This will ensure that you limit your exposure in the event of a customer’s failure and will hopefully improve that customer’s poor payment attitude. Setting and enforcing account limits is also a good way to ensure you limit your exposure to a particular customer. They may not like it initially but once a pattern is established most good customers will comply with your request.

8.    Maintain machinery

With tightening cashflow, critical vehicle and machinery maintenance is often put on hold. This may save you spending cash initially, however the wear and tear on the vehicle or machine will increase and so will the cost. Having them break down and be unavailable for a week can be very costly to your business, particularly if regular maintenance can avoid the breakdown especially for machines and vehicles you rely on for business.

Replacing machines before the end of their useful life is also crucial. Maintenance costs increase with age and the Government is currently offering tax incentives to businesses that invest in new plants and machinery.

9.    Communicate with stakeholders

Keeping in regular contact with key stakeholders like your bank, the ATO, suppliers, employees and customers, will help to improve your relationship with them. Therefore, when times are tough, they understand your business and are more likely to be willing to help. Many businesses that are unable to pay their tax debts on time, simply avoid the issue by not lodging their BAS returns. This approach will often backfire as late lodgement penalties and general interest charges can be applied.

Seeking assistance early when there are more options available can be the difference between business survival and failure. If a supplier is also a customer, you each have a vested interest in the success of your businesses and are more likely to help each other.

10.    Develop business and succession plans

Documenting and working out your target customer demographic, desired sales revenue, and store growth through the preparation of a business plan is a useful business tool. Knowing what your targets are makes your daily business decisions more focused and often easier. Business plans will also assist in helping you plan for best, worst and ideal case scenarios and will give you a feel for what you need to do if your sales crash or, hopefully, take off.

Succession planning for businesses is often forgotten. If the key directors and personnel suddenly die or leave, you need a plan in place to minimise the disruption to the business.

Summary

These are just some of the strategies that small businesses can employ to help minimise the risks and enhance their bottom line. Seeking professional advice early on is often the most appropriate strategy for your business to help ensure it continues to prosper in good times and in bad.

–Andrew Fielding is a Partner of BDO Kendalls (www.bdo.com.au), which offers a wide range of business and corporate advisory services to individuals and clients ranging from large corporates to growth-focused SMEs.

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