Page 28 - How To Avoid Going Bust In Business

At this time a white knight secured creditor can be a major ally.

I owed $160,000 to a family member. She had a first ranking debenture over all my
personal and business assets. She assured me that she would not slam dunk me
when things got tough.

When one or two creditors started to cut up rough I told them that if they put me
through she would get all the money and they would get nothing. As a result they
reluctantly and truculently accepted an arrangement to keep me rolling until I could
pay them. It took two years but they got paid and we still do business.

11: Formulate a recovery action plan

Your fundamental problems are either profitability or cash flow. A business can be
making profits according to the books, but if the money is not coming in you are at
risk. Similarly, you may be generating cash but losing money hand over fist.

There are only three things you can do to improve profitability:

1: Increase your sales turnover 2:

Increase the margin on your sales

3: Cut your costs.

Simple, really.

Sit down – with your team if you have one – and brainstorm on how you are going to
do each of those things. Talk to your accountant Try to find a mentor – more than
one possibly – who can coach you, especially in the aspects of the business where
you have skill shortages.

It’s not within the scope of this book to tell you how to do those things, other than to
say that they are your only way out of the woods.

12: Get the cash in

How’s your cash flow? Yes, I know I keep harping on about it. That’s because it is
critical. Cash is king.

One of the common reasons for business disaster is failing to manage cash flow.
Making sales is great. It’s exciting when you close the deals. Getting paid is the
boring bit that comes later.

If yours is a business that is capital intensive you can get into serious hot water by
growing too fast. The constant demand for more capital can cripple you. This,
however, is a very technical area and you need to take sound advice from
professionals. Your accountant. Even your bank manager.