I know of a lot of business owners who have drawn down on their home equity to keep afloat. Big mistake; smaller businesses are going to have to fend for themselves, but here are six better tips to help your business through the coming bad times. PAUL WAL
By Paul Wallbank
My business had a near death experience in the 2001 IT downturn.
These are a few lessons I learnt from that, and the 1990s recession:
- Watch your cashflow. It’s become fashionable in recent years to say “I don’t need a business plan”. That’s sometimes true when times are good but never when times are bad. Watch that cashflow spreadsheet closely.
- Get your costs down. Eliminate anything unnecessary and look closely at how you can reduce your outgoings such as rent, vehicles, phones, computers, power and travel.
- Don’t tolerate bad debtors. Tighten your payment terms and stick to them.
- Eliminate the trouble areas. A small group of products, customers, suppliers and employees are responsible for 80% of your problems. Indentify them and get them out of your life.
- Reduce inventory and product lines. Get rid of it anything that isn’t performing. The fact Coles is experimenting with this at the moment shows how important this is.
- Reduce your debt. A lot of businesses have been kept afloat by debt and I know nearly a dozen smaller IT outfits that have relied on the proprietor drawing down on their home equity. Those businesses are about to go bust: Don’t be one of them.
It takes an economic crisis to get some really bad analogies going. A great example is Henry Paulson’s claim to Congress last July that he had a bazooka to use against the bad guys.
Now firing bazookas into storms is probably not a good idea. In fact, if the thing was actually loaded Hank might have bought down Ben Bernanke’s helicopter, which might not have been a bad thing for those worried about hyperinflation.
These silly and pointless parallels show how out of touch the US regulators and Government have been in the last few years – unfortunately last week’s stimulus package shows things are little different in Australia.
If Canberra’s aim is to maintain employment then the stimulus would have been far better used to encourage investment, for instance increased depreciation allowances on new capital works or a payroll tax holiday.
Even better would have been money, not studies, into training, research, education and infrastructure. All of these are real investments that generate employment and have all been neglected by both Liberal and Labor, state and federal governments, for at least the past 17 boom years.
Instead, it’s business as usual in Canberra with consumption and property speculation being favoured over real, long term investment. From the assistance given to the banks it’s also safe to say that the big end of town will be looked after as well.
The message from Canberra is clear: Small to medium business can go whistle. If anything, we’ll be expected to pay the taxes once the surplus has been squandered.
To pay those taxes, our businesses are going to have to survive the downturn. We need to act early, firmly and decisively to ensure this.
There’s hard work ahead for all us and last week has shown our governments are going to be, at best, useless. You need to act decisively to guarantee the future of your business.
So remember my six tips above. And it’s also a good idea to steer clear of ministers and Reserve Bank governors wielding bazookas.
Paul Wallbank is Australia’s most heard computer commentator with his regular computer advice spots on ABC Radio. He’s written five computer books and just finished the latest Australian adaptation of Internet for Dummies. Paul founded and built up a national IT support company, PC Rescue and has a free help website at IT Queries. Today he spends most of his time consulting and advising community and business groups on getting the most from their technology.
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Chocolatedownunder.com.au writes: We value the content of this article and ask the question: don’t tolerate bad debts is important, but what about bad payers who eventually pay you, but keep you waiting and waiting. Tightening up terms hasn’t helped so far but annoy the client. Not sure if this strategy works for small businesses. We wished it did, but the reality is patience is a virtue that sometimes and most times tests our patience.