We’ve seen robust growth and a few rounds of upward pressure on interest rates. And now, interest rates seem to be dropping. Is the US economy headed for another recession? Some business observers seem to think that’s possible, but this is an election year. We’re not economists but we’ve been around long enough to know that things go in cycles and there are warning signs that make it a good idea to be prepared – just in case.
If Cash Flow is Tight
Liquidity, having cash in the bank, is important. If your company doesn’t have as much cash as you’d like there are a couple of things you can do.
If you’ve accumulated some short-term debt (does your bank loan come due this year or does it have a balloon feature?), consider restructuring it by obtaining a 10-year Small Business Administration-backed loan. That will decrease your monthly payments and increase available cash. If you have business real estate financed, your loan can be extended to a 25-year term. Many bank loan officers aren’t familiar with the nuances of this much-underused resource; that’s where the assistance of a lender service provider can help both you and the bank.
In addition, now is the time to secure a line of credit. You may not need it now, but you only are paying interest on it when you tap it. Knowing you have available cash if something unexpected occurs gives you peace of mind and a safety net.
If Cash Flow is Good
Even if all seems well, it’s good to have a line of credit arrangements in place. Your request will be much better received when there is time to plan and evaluate the credit rather than when you may be in crisis mode.
Tighten your inventory procedures. Analyze to see where savings can be made in terms of purchasing, turnover and tracking of the items.
Diversification may also be a consideration. If you rely on a handful of major clients, a recession’s impact might be brutal if they run into problems of their own and scale back or stop their orders. Consider focusing on different industries or promote other uses for the products.
Good times are when you should focus on establishing solid collection policies by carefully managing invoices and payments. Make sure your office staff responsible for billing watches for changing payment habits, even the difference is only a few days. They should know how to diplomatically work with your customers to assure you’re still getting paid.
Watch expenses. If you need to incur the expense for purchase to make your business run more efficiently, by all means, buy it. But if the purchase can wait, cautiously consider whether it meets your objectives and fits in your budget.
Plan and Forecast
If you haven’t formalized a long-term business plan, now is a good time to think about asking for help to turn your goals and objectives into an action plan everyone in the organization understands. Planning and budgeting are functions most small business owners don’t fully understand themselves.
They may believe planning is important, but everyday business demands and taking care of customers take precedence over these functions, and they simply don’t know how or where to start. A strategic advisor can help you build a dashboard and learn the key metrics to monitor to be well-prepared for the times ahead — good or bad.