We are a few weeks into the New Year and hopefully everyone has stuck with their New Year’s resolutions. Mine are the usual ones: eat less, drink less, exercise more; in other words, I aim to get fitter in 2019.
The New Year is a trigger for us to take stock of where we are. It’s also very important to take a “time out” to reflect on what is happening in our businesses, and determine what we need to change. Too often we get caught in the moment and do not set aside time for planning our future.
Anyone looking at the business news in the last few months has seen uncertainty grow. 2018 was the worst year for equity markets in a long time, interest rates are rising to combat inflation, and trade disputes are creating adverse financial impacts for companies caught in the middle. So, what to do about this less-than-rosy outlook? Simple – get fitter.
For my New Year’s resolution, I have a number of tried and tested plans. These include removing all snacks from the pantry to take away temptation, opening no new bottles of alcohol in January (just finishing the open ones!), and setting exercise goals (such as distance) on my treadmill.
From a business and finance perspective, what does ‘getting fitter’ within this highly uncertain environment mean? The counterbalance for business uncertainty is having cash available to cover for the unexpected issues.
Below are my top 5 ideas for getting your business fitter in 2019, which focus on cash:
1. Sell off obsolete inventory: many of us keep things we no longer need, just in case. This happens a lot in business. We hold on to obsolete inventory too long. If you find this is gathering dust in your warehouse, it is adding nothing to your business. In fact, it is taking up space for products that you can sell. Sell the unneeded and turn it into cash.
2. Collect overdue debt or sell overdue debt to a collection service: In good times, we are more flexible with our customers on receiving payment. In tougher times, businesses struggle and you may be paid late – or not at all. Review your overdue receivables, and get delinquent clients on payment plans. It is not personal, you’ve provided a product or service and there is an obligation for the customer to pay.
3. Work with your bank to set up P-cards. Just like we have with our personal credit cards, banks offer rebates on business credit cards. This can be a win – win for both you and your supplier. The supplier gets paid immediately and you get a rebate on the purchase.
4. Review your banking and any business loan arrangements. Interest rates are going up. Banks still have money they want to lend, but it is getting tougher. If you have bank loans coming to term in 2019 or early 2020, it may make sense to get new facilities in place early, before interest rates increase or cash gets shorter.
Also look at your operating accounts. With higher interest rates, banks should be paying you more for your cash. Set up a money market account alongside your operating account to hold your short-term cash. A good banking partner should be talking to you regularly about how to optimize your cash holding.
5. Review your cost base. It’s true: we often spend from habit, instead of by need. By taking a good look at your business cost base and analyzing how it relates to your revenue, you will shed light on where you should be spending money. You will likely uncover wasted resources – such as you may be paying for old software products no longer in use. Take the time to do this exercise and you may eliminate substantial expenses.
Just like my personal New Year’s resolutions, my business “get fit” program focuses on short-term practical advice. In business we need to take care of both the short and long term, not one at the expense of the other.
The business environment is still good, so we should continue to focus on investment and growth, not just my waistline.
Want to discuss either short- or long-term ideas (or both!) on how to grow and improve your business? Then feel free to reach out to me or the other ECS partners. We are here to help and, look forward to connecting with you.
Hilary Norris – ECS Partner – hnorris@thinkempirical.com – 610-310-6707 or on LinkedIn.
